Urgent actions needed to address investment barriers

Tue, 25 Jul 2023 22:33:00  |  Print  |  Email   Share:

Vietnam’s GDP growth accelerated in Q2 of 2023 compared with Q1, but the annual growth rate of under 4 per cent during the first half of 2023 was well below the official 6.5 per cent target. While disappointing, any growth in the current difficult environment could be viewed as a positive. Importantly, the macroeconomic foundations remain mostly stable with relatively low inflation.


Urgent actions needed to address investment barriers
Raymond Mallon - Senior economist

Much of the recent reductions in GDP growth is due to weak growth in real estate, construction and manufacturing. Real estate is on the wrong side of a boom and bust cycle, typical in market economies. And the bust has been compounded by increased interest rates and corporate governance weaknesses. On the other hand, progress in increasing public investment disbursements is helping to stimulate construction activity.

Growth in manufacturing has been impacted by slowing growth in international markets. The global slowdown and protectionism contributed to an 11.4 per cent decline in goods exports during H1. Exports to the US fell by more than 20 per cent, with more modest declines in exports to South Korea, the EU, and China. Exports of services increased with the relaxation of pandemic-related restrictions.

Manufacturing was also adversely impacted by power shortages towards the end of Q2 (partly due to the impacts of hot weather, but also due to delays in agreeing on power development strategies and policies). Output of some labour-intensive manufactured goods such as apparel, footwear, and furniture declined, as did output of construction materials like cement and steel.

Overall service sector growth remained largely unchanged, with strong growth in accommodation and food services (up 15.1 per cent). Domestic trade grew by 8.5 per cent and logistics by 7.2 per cent. International tourist arrivals also jumped.

Total investment in H1 of 2023 was up 4.7 per cent, despite sluggish private investment. Foreign direct investment (FDI) disbursements grew by only 0.5 per cent in the period, while public investment was up over 20 per cent. Total state investments (including state-owned enterprises) increased by 12.6 per cent.

Achieving 2023 growth targets would require a sharp turnaround in growth in manufacturing and construction, plus further improvements in service sector growth, and sustained agriculture growth. This is possible but will be difficult to achieve.

The recent slowdown is partly attributable to the impact of the international economic slowdown on Vietnamese exports, FDI inflows, and capital availability. The World Bank’s June 2023 outlook projects that global growth will slow to 2.1 per cent in 2023 from 3.1 per cent in 2022, with high inflation, tight monetary policy, and more restrictive credit conditions.

Vietnam is particularly susceptible to changes in global economic downturns because of its high trade and FDI to GDP ratios.

Continuing domestic institutional and policy constraints unnecessarily constrain business investment. Skills development, development of modern economic institutions, better infrastructure, improved environmental management and reducing corruption, remain medium-term priorities.

There is a need for greater urgency in identifying and addressing barriers to investment. Delays in resolving bottlenecks can have large economic and social costs, as demonstrated by the recent power disruptions. While consultative processes are important and time-consuming, civil servants need to be accountable for unnecessary delays.

The focus should be on attracting quality investments, rather than on achieving short-term growth targets. Further structural changes into higher value-added production would be a good result, even if the immediate economic growth target is not fully achieved.

Sustaining macroeconomic stability remains a most important priority, both to reduce potential negative impacts on disadvantaged groups, and to provide the stability needed to attract future business investments. Corporate governance and oversight of financial and capital markets are also in urgent need of strengthening.

Increased public investments in infrastructure, education, and health will be critical to attracting high quality business investments. There is also a need for a greater focus on the environmental and equity impacts of public investments and institutional development.

While high levels of trade and FDI in recent decades have underpinned strong growth, greater efforts to build the domestic private sector and boosting domestic consumption could help Vietnam to become more resilient to external economic shocks.

By: Raymond Mallon/ Vietnam Investment Review

Source: https://vir.com.vn/urgent-actions-needed-to-address-investment-barriers-103789.html


Back     Up to top   

Same category News :

Copyright © 2016 by the Chamber of Commerce and Industry of Vietnam - VCCI
Write "Chamber of Commerce and Industry of Vietnam"
or www.vcci.org.vn; www.vcci.com.vn; www.vcci.net.vn the release of information from this Website.
Designed and developed by Vietkent