“Despite some slowdown, Vietnam is still one of the fastest growing economies in Asia, though its GDP growth rate slowed down to 5.9 percent in 2011,” said Abhay Thakur, Consul General of India in his opening remark at the conference.
“In the last 25-year period since 1986, Vietnam has grown faster than any economies in Asia, except China, and faster than India,” he said at the event co-held by Indian Business Chamber in Vietnam (Incham) and the Vietnam Chamber of Commerce and Industry (VCCI) in Ho Chi Minh City.
However, “it would be a challenge to achieve the 6-7 percent growth rates in the future if productivity and the skills set in Vietnam were not improved,” he added.
Therefore, Vietnam would need to move beyond low-wage labor to new areas of comparative advantage by investing more in training, education, and infrastructure development, he said.
Vietnam should also provide a friendlier environment than hitherto for foreign investors, rather than waiting for them to come to Vietnam. In addition, it also needs to usher in more economic reforms, reducing bureaucracy and bringing in greater transparency, he said.
Existing challenges
The fact that more and more local firms are undergoing bankruptcy has sounded the alarm for the coming time, said Nguyen Trong Hanh, deputy head of HCMC Tax Bureau, citing data on financial and audit statements reports submitted to the agency.
The 2010-2011 period saw profits slumping in many sectors, and the rate even dropped further in Q1/2012 compared to Q4/2011 and the same period last year.
The number of firms declaring losses has surged 30 percent year on year, he said.
“We have found that prolonged macroeconomic instability and credit constraint have knocked out many firms, especially those operating the real estate and construction businesses and related segments like steel and cement.”
“With the consumption slump and surging unsold inventories, local firms are scaling down their business en masse, which leads to sharp decrease in tax revenues.”
“The cause of the situation, in our opinion, besides the global economic turmoil, is the overextension in credit and investment in real estate, and the boom of the Vietnamese commercial banks.”
“Most of such commercial banks were upgraded from small banks operating in specific sectors or those owned by individuals who made their money by investing in realty sectors in the past.”
“As a result, when the real estate sector got frozen due to monetary tightening policies, it dragged the whole system down, leading those lenders to increase the depositing rate to secure their liquidity capacity and leave no room for the businesses to borrow.”
“We can observe that most of the money mobilized from the people is now being channeled back and forth within the interbank market to help them save the day, and so, it is nearly impossible for businesses to access bank loans.”
“Not to mention the fact that many unknown groups are trying to take over banks in good health. These mostly are people owning unhealthy banks who want to merge their banks with the better so that they can borrow more from depositors and lend more to businesses.”
“All of this bars local firms from getting any cash to revive their business.”
The current bullish trend of the stock market in the face of macroeconomic turbulence has also signaled the possibility, as investors want to buy more stocks of listed firms or financial institutions by soaring the stock price to prepare for future takeover.
Forex rate to be stabilized
Interest may go down by the end of H1/2012 as year-on-year inflation is likely to return to single digits by late Q2/2012, preparing for the rate-cutting cycle, said Amit Arora, country head of Consumer Banking of Standard Chartered bank Vietnam.
“Vietnam inflation peaked at 23 percent last August, and has slowed for 5 consecutive months, so we expected the rate to drop under 10 percent by June 2012.”
With this, there will be more support for the dong, at least in the short term, he said.
“But further possible increase in power prices may pose upside risk to inflation.”
“As trade deficit has been under control, at $106 million in January-February compared to $2.8 billion a year ago, pressure on foreign currency liquidity has been relieved.”
“But there might be mild depreciation to VND21,700 against the greenback by the year-end.”
“If Vietnam can keep up the good work, we expect the GDP growth this year would be 5.8 percent compared to 5.9 percent last year.”