FDI major driver for growth

Victoria Kwakwa (C) and Sandeep Mahajan (R) of World Bank Vietnam are seen at a function held in Hanoi on December 3 to announce the report - PHOTO: TU HOANG

According to the report, the FDI sector helps promote economic growth momentum while domestic enterprises are still mired in difficulties.

This positive outlook is mainly underpinned by ongoing macroeconomic stability and continued strong performance of the foreign-invested manufacturing export sector.

Positive macroeconomic developments contributed to the country’s improved sovereign risk ratings, helping the Government successfully issue bonds in international capital markets and raise US$1 billion on favorable terms.

Sandeep Mahajan, lead economist at the WB in Vietnam, said there are improvements in the foreign-invested sector and confidence of foreign investors has been improved in the past four to five months

According to Mahajan, leaders of foreign-invested manufacturing firms appeared to be optimistic about the future when interviewed and they mentioned their expansion plans. The findings before September of last year did not indicate such optimistic signs.

Eurocham also had similar findings.

However, Mahajan gave a warning about the operation efficiency of domestic, private enterprises. The number of business closures, bankruptcies and suspensions is high while the number of new business start-ups is in decline, he added.

According to the global lender, there were up to 60,300 enterprises dissolved in the January-November period while the respective figures of 2013 and 2012 were 60,700 and 54,300.

Mahajan said it would be better if Vietnam was able to improve the efficiency of the domestic sector, and added domestic investments are low, retail sales grow slightly and consumer spending is weak.

Vietnam’s growth potential is projected at 6-6.5% but the country has not made full use of its potential as GDP growth has reached only 5.6%, according to Mahajan.

Vietnam’s potential for more growth can only be realized if substantial progress is made in addressing distortions such as in the state enterprise and banking sectors, says Victoria Kwakwa, WB Country Director for Vietnam.

“Stepping up this reform agenda and strengthening the business environment are critical for moving forward,” she continued.

The WB report also points out the remaining dichotomy in performances of domestic and foreign-invested firms. The foreign-invested sector continues to be a significant source of growth while domestic enterprises continue struggling with a rising number of closing or suspending enterprises.

The medium-term outlook of Vietnam’s economy is quite positive with continued modest GDP growth and a further consolidation of macroeconomic stability.