Top priority should be put on the pillars of the economy

July 15, 2021 | 16:54
Vietnam is facing a problem of stimulating new growth drivers for the country to emerge from the pandemic and promote higher level of development. However, it does not mean resources can be divided equally for all. Associate Prof Dr. Tran Dinh Thien, director of the Institute of Economics, shared his insight into the road ahead.
Top priority should be put on the pillars of the economy
Associate Prof Dr. Tran Dinh Thien, director of the Institute of Economics

Vietnam’s GDP growth in the first six months of 2021 is deemed as an achievement as the coronavirus is still causing major problems in Vietnam and across the world. The unpredictable and complicated progress of the pandemic makes it hard for the government to regulate the country. It has taken steps to consolidate its leadership with new personnel who are in a transition phase.

The international situation is getting better but there are still potential challenges. Rising material prices along with speculation pose a threat to the material supply chain globally. In this context, it is the macro stability that the government led by former Prime Minister Nguyen Xuan Phuc has maintained over the years that has improved confidence and sentiment among both businesses and people in the face of complicated situations.

Thanks to this, the government led by Prime Minister Pham Minh Chinh will have room to act flexibly and decisively. Despite the achievements, there are still some issues that need to be carefully considered.

First, what is the essence of the growth when Vietnamese businesses in several fields of tourism, aviation, transport, and logistics are struggling with the pandemic? Indeed, the growth driver has been long based on foreign direct investment as well as export and import-oriented industries.

Second, agriculture is honoured as a platform for growth but the sector contributes about 14 per cent to GDP in general and only 8.14 per cent in the first six months of this year. It is clear that agriculture cannot compensate for the decline in services and industrial sectors.

Third, growth centres are in a precarious state including Bac Giang, Bac Ninh, Hanoi, Ho Chi Minh City, and neighbouring provinces. It will become more challenging if the country fails to protect growth centres and spotlight localities like Quang Ninh and Haiphong.

Fourth, debt rescheduling and freezing for businesses in the past year reveal hidden instability in both the operation of enterprises and the structure of the banking system.

In particular, the consumer price index rose 1.47 per cent on-year in the first half of 2021, the lowest since 2016, which indicates a sharp drop in purchasing power. In the current domestic and international context, the impact of every percentage point of inflation on the economic actors cannot be the same as before the pandemic. Thus, what is the right choice between keeping inflation low or proactively stimulating inflation to create motivation for new growth?

Sharing resources equally

In April, tourism businesses were busy preparing for peak summer tourist season after a few months of hibernation. However, the latest wave of coronavirus is another hit for many businesses, especially those in tourism. The question now is how businesses can recover from the outbreak.

Recently, I met a number of private companies that have made large donations to the national COVID-19 vaccine fund. I asked them why they gave such a large donation because every penny is valuable when businesses face difficulties. They said that the sum is much less than the expenses of testing and zoning would be if the pandemic is not contained. Vaccination is the only hope to cope with the pandemic. However, they know that they are losing much of their strength in light of the latest outbreak.

Even more worrying when it comes to this issue is that many people ask how much money is needed and where the money is. Such questioning will close the doors on new ideas, thinking, and policies. We need to look at how to avoid this.

First, we cannot save all businesses and divide resources equally to everyone. Businesses have to accept stopping operations if they are weak, not competitive enough, or unable to keep up with the development trend.

Second, among the remaining enterprises, priority will be given to those with production chains as well as leading enterprises that can provide support to their subsidiaries.

Further, we need to set aside resources to future-proof businesses which can keep up with the rapid pace of innovation in the new world.

Of course, there will be relief policies for all, such as extension, postponement, and reduction of taxes and fees. These policies need to be implemented in a timely manner without delay like last year. However, with limited resources, it is necessary to choose the right place to distribute resources so the value chains and the growth pillars of the economy must be prioritised.

With the above business support principles, the role of business associations and economic groups with production chains need to be optimised. The main reason is that they can understand the operation of the production chains to create synergy and revive the whole system. For example, we can choose to support aviation businesses so that they can fly as soon as the world reopens, thereby increasing the competitiveness of Vietnam's aviation industry. With regards to car manufacturers, we can talk with Truong Hai Auto Corporation and VinFast to find the most effective way to support them.

Similarly, it is the job of the government to promote public investment. However, solutions to remove obstacles need the participation of businesses, contractors, and investors alike. More importantly, the approach of solutions must be for the economy because the Vietnamese business force is in need of support to rise up, not an individual business.

A return to dynamism

"It is not the right time to talk only about promoting GDP growth, the principles and methods need to be clarified to support businesses, protect the pillars of the economy, and make realistic and timely decisions."

Vietnamese people and businesses alike are very sensitive. Thus, when the country reopens its doors, the excitement and dynamism will come back quickly. You can see the excitement on the streets of Hanoi and the atmosphere in the eateries when social distancing measures were partially lifted at the end of June.

To be frank, we are in the early stages of a full recovery and it will take some time. The speed of the vaccine strategy will determine the recovery of the economy as well as the speed of connecting Vietnam to the world and bringing the rest of the world here.

The newly consolidated government has adapted quickly, moving from defence to attack with a vaccine strategy. The most obvious is the focus on expanding the vaccine supply, promoting domestic vaccine production, along with policies to support businesses in research, production, and access to vaccines.

The policy message is very clear. It is choosing a priority policy to focus resources as well as require individual responsibility with work performance, instead of relying on collective responsibility.

In his first government meeting as PM in April, Pham Minh Chinh emphasised upholding the spirit of responsibility and creativity, as well as daring to think and take responsibility in a decisive and effective manner. This outlook needs to be spread more widely in the economy. Thus, we can protect and encourage unusual thinking and policies to solve problems in unusual contexts. We also encourage ideas, innovation, and creativity to stimulate new engines of the economy. The ultimate goal for the economy is not only to rebound but also to become more dynamic and youthful.

Looking at the world, the economies with the best growth rates in the first half of 2021 are the ones that suffered the heavy consequences of the pandemic last year – in China, Europe, and the US. The countries have taken mass vaccination efforts and their economies are at the forefront of digital transformation. It can be seen very clearly in the destruction of the traditional and physical economy in 2020. There has been a strong rise in the world's technology billionaires. These are the reasons why analysts believe last year may be the turning point for the world towards a digital economy and a new global state.

The problem with Vietnam’s GDP growth at this time is not just how to achieve the goal – the country needs to identify this new situation and clarify how much these new engines account for growth as well as the opportunities to rise in a new normal. These factors will help the country recover quickly instead of the engines that have traditionally driven the economy's growth over the past three decades.

It is not the right time to talk only about promoting GDP growth, the principles and methods need to be clarified to support businesses, protect the pillars of the economy, and make realistic and timely decisions.

We expect in the coming time more businesses will be supported to join production chains. Existing production chains are supported to maintain and promote connection with the world. Meanwhile, innovative and tech firms are supported to find opportunities and develop solutions in accordance with the development trend of the digital economy. Only when these things happen, can the Vietnamese economy really stand up with the world.

By Associate Prof Dr. Tran Dinh Thien, director of the Institute of Economics

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