Mountains of difficulties

The fourth COVID-19 pandemic outbreak, which started in July 2021, has quickly stained the business picture. Hard-hit companies have struggled with more difficulties than ever. Reserve resources are running out while the market is recovering very slowly. This pandemic has infiltrated and negatively affected industrial zones and export processing zones that accommodate a large number of workers, especially in southern provinces and cities, resulting in risks of supply chain disruption, labor chain and large-scale production that have taken a toll on the local and national economy.

Freight transportation is difficult as a result of inconsistent local regulations on social distancing measures and mobility restrictions, causing localized disruption and stagnation of supply, production, consumption and export. Rising input costs and transportation costs are leading to input shortages and production costs.

Worse, cash flow shortages faced by enterprises resulted in difficulty to cover expenses for continued production and business activities, difficult work and entry for experts, and difficult access to government support policies. This makes it impossible for businesses to immediately revive their production capacity in the wake of social distancing because of worker shortages, especially skilled personnel. Facing these difficulties, according to the Asian Development Bank (ADB)’s Asian Development Outlook (ADO) 2021, Vietnam's GDP was expected to grow 6.5% in 2022.

Mr. Jacques Morisset, World Bank's chief economist in Vietnam, said, Vietnam's economy will rebound to 6-6.5% in 2022 if the country can control the pandemic well and improve supply and demand balance.

Efforts to brighten the picture

Despite numerous difficulties, the Vietnamese business community actively strived to deal with obstacles to brighten the economic picture.

According to statistics, in 2021, the country had 116,800 new enterprises and witnessed more than 40,500 enterprises resume operations. According to the General Statistics Office (GSO), this result shows business recovery after more than a month of carrying out Resolution 128/NQ-CP of the Government.

The business sector actively searched for product consumption markets. In 2021, the industrial production index was estimated to rebound 4.48% year on year with strong growth in key industries and key industrial products.

Particularly, foreign investment in Vietnam was a prominent highlight of the economy. Although the economy "wobbled" in the third quarter of 2021 because of the pandemic, foreign direct investment (FDI) still reached US$31.15 billion in 2021. Foreign investors had 1,738 new projects licensed, with total registered capital of over US$15.2 billion, down 31.1% in number of projects but up 4.1% in level of capital. The firms also added more than US$9 billion of capital to 985 operating projects, up 40.5% in value and down 13.6% in volume.
A remainder of nearly US$6.9 billion was used by foreign businesses for capital contribution and share purchases in a total of 3,797 transactions, marking yearly decreases of 7.7% in value and 38.2% in volume.
Meanwhile, disbursement of foreign direct investment (FDI) also saw a slight decline of 1.2%, to an estimated US$19.74 billion.

Given supply chain disruptions caused by the pandemic, many exporters found it difficult to seek input sources and consumption markets due to high transportation and logistics charges, but in 2021, Vietnam’s total import-export value reached a record high of US$668.5 billion, surging 22.6% year-on-year. Of the sum, the country earned about US$336 billion from exports, up 22.6% year-on-year while its imports hit over US$332 billion, a yearly hike of 26.5%.

Recovery opportunities

According to the five-year socio-economic development plan 2021-2025, Vietnam will strive for higher economic growth than in 2016-2020, become a modern industrialized developed country by 2025 and surpass the low-middle income level. Specifically, the average GDP growth is expected at 6.5-7% annually in five years. The share of the processing and manufacturing sector to GDP will be over 25% and the digital economy will make up for 20% of GDP. The total factor productivity (TFP) to growth is about 45%.

National Assembly Chairman Vuong Dinh Hue said, in the past two years, to respond to the pandemic to support the economy and society, Vietnam has adopted consistent fiscal, monetary and macro policies. Vietnam's monetary and fiscal support packages, according to experts' calculations, were estimated at 4% of GDP in 2020 and 2021, with the fiscal package accounting for 2.9% and the monetary package, 1.1%.

The National Assembly issued a resolution on the policy framework and plans for socio-economic development, finance, budget, public borrowing and debt repayment, public investment and economic restructuring in 2021-2025. This is also the term in which all decision frameworks for the 5-year socio-economic development, even with a longer-term vision, were advocated by the Party Central Committee, and the National Assembly issued all resolutions on this framework.

However, according to experts, the economic recovery in 2022 will be challenging due to a lot of bottlenecks to be resolved. Vietnam will continue to face increasing inflationary pressure, public debt ceiling and banks’ bad debts, shortages of health personnel, equipment and infrastructure at grassroots facilities.  Production and business recovery may be hindered by financial problems and the consumption market. The ratio of credit to GDP is still high, while medium and long-term capital in the economy still mainly relies on the banking system.

According to many experts, to achieve the planned socioeconomic development, completing vaccinations by the end of 2021 or at the latest by early 2022 is one of the prerequisites to restore economic recovery and development.

At the same time, it is necessary to harmoniously combine fiscal and monetary policies, with focus given to fiscal policies to support enterprises and individual business households to overcome difficulties, enhance disbursement capacity and efficient use of investment capital: Strongly investing in key industries and fields, driving regions, growth engines, large and important national projects, inter-regional connectivity projects.

Specifically, it is necessary to quickly and effectively restructure the economy; reshuffle industries to boost comparative advantages and join global value chains; concentrate internal resources to make products with comparative and competitive advantages and high added value; and actively prepare conditions to expand production and business, ensure commodity supply and distribution and reduce inflationary pressures.

Furthermore, it is important to accelerate digital transformation in institutional reform and administrative procedures; and make consistent policies to connect supply chains of goods and services, supported by local governments to deal with localized disparities that hinder development.