Executive Chairman of Grant Thornton Vietnam, Mr Kenneth Atkinson, and Managing Partner, Mr Nguyen Chi Trung, review Vietnam's economy over the first half the year with VET's Hai Bang.
What are your thoughts on Vietnam’s economic performance in the first six months of the year? What are the prospects for the second half?
The economic situation is more positive compared to last year. The economy is now entering its third year of macro-economic stability, with lower inflation, strong external trade and capital flows, and a firmer exchange rate.
According to figures released at the recent Vietnam Business Forum Mid-term 2014, the economy in the first five months has been increasingly stable and sound. Inflation has been brought under control, at around 5 per cent, and GDP is expected to rise to between 5.8 and 6 per cent for the year as a whole. In the first five months export turnover rose 16 per cent and is expected to grow 15 - 16 per cent for the year. The balance of payments surplus is forecast to reach $8 billion. Remittances from overseas remain strong and may reach as much as $10 billion and funds from multi-lateral and bilateral agencies continue at around $4 billion, ensuring a strong capital account surplus. This has helped Vietnam accumulate a record level of foreign exchange reserves, which have now reached $35 billion, or three month’s worth of imports.
Positive progress and outcomes have also been recorded in economic restructuring, with a focus on investment, banking and financial institutions, and State-owned enterprises (SOEs), contributing to overall economic growth and gradual improvements in economic competitiveness.
We believe the economy in the second half of this year looks optimistic, since the government is continuing its efforts at maintaining macro-economic stability and making gradual progress on structural reforms in the financial sector and SOEs.
With the Trans-Pacific Partnership (TPP) and the free trade agreement (FTA) with the EU expected to be signed this year, what are the opportunities and challenges facing Vietnam?
Vietnam will benefit the most from the TPP, which has 12 member states with a total population of 800 million people and makes up 40 per cent of global GDP. When the agreement is signed local businesses will have the opportunity to import a diversified range of materials at lower prices as well as high quality machinery and equipment. In joining the TPP Vietnamese businesses will also enjoy substantial tariff reductions, from 92 to 95 per cent. Joining the TPP and signing free trade agreements with the EU and the Customs Union of Belarus, Kazakhstan, and Russia is a way for Vietnam to balance export markets and minimise risks during periods of crisis. The TPP will also bring about opportunities for Vietnamese enterprises to join regional and international production chains, facilitating the country’s economic restructuring and mechanism reform process.
However, Vietnamese enterprises will face strong competition in terms of capital, technological know-how, and management capacity and experience in production and business operations. As the TPP is still under negotiation, businesses should study the rule of origin and tariff rate issues in the context of market development trends in the world.
What is your evaluation of the preparations made by Vietnamese enterprises ahead of the signing of these important trade agreements?
We think that local enterprises have gained experience from Vietnam signing bilateral trade agreement with the US and joining the WTO but their preparations for integration remain weak. For the TPP, enterprises need to prepare in many areas, such as their knowledge of policies, laws and commitments, so they can cope with any potential disputes. The TPP includes not only international issues but also internal reforms and policy improvements of the government. Therefore, enterprises must be knowledgeable about commitments and any policy adjustments by the government.
There is a view that Vietnam’s economy represents a land of opportunity for foreign investors and that those deterred by the recent complications in the East Sea may regret it in the long run. What are your thoughts?
The short to medium-term impact of the situation on foreign direct investment (FDI) in Vietnam will not be significant. Though registered FDI from China to Vietnam has risen in recent years, the total remains relatively small. Therefore, we believe that the economic relationship between China and Vietnam is primarily a supply chain rather than investment linked. The government moved swiftly to allay the concerns of foreign investors in Vietnam and the Prime Minister personally attended several meetings with investors and business associations, which was well received by the foreign business community.
In the short-term, the tourism sector bore the brunt of the situation, with a significant decline in visitors from China and smaller declines from Taiwan, Australia, Singapore and Malaysia. The central region, which had the highest growth rate in arrivals, with those from China up more than 40 per cent in the first four months of the year, has been hardest hit, with one property alone quoting lost room nights of over 4,000 from May to July.
As a foreign company doing business in the country for quite a long time, what is your message to foreign investors preparing to come to Vietnam?
Our message to foreign investors preparing to enter Vietnam is that they should thoroughly study the need and market of their targeted investment field. They should seek professional business, tax and legal advice before venturing into setting up a business in the country. Another crucial factor is that they should invest time and effort into familiarising themselves with Vietnamese culture and the psychology of Vietnamese workers. Last but not least, they should seek advice from legal, business, audit and tax consultants about their investment plans in Vietnam. We believe that Vietnam continues to be a safe business environment.
What would you like to recommend to local authorities to improve the investment environment?
Vietnam needs to further improve its investment environment to heighten its competitiveness in the region. Investors want stability and transparency and ease of doing business, so Vietnam needs to reduce its administrative bureaucracy and improve its transparency and governance. In addition, it is imperative to speed up structural reform, primarily of SOEs, and the financial sector. Importantly, it should show investors around the globe that its government is making every effort to improve the businesses environment.
Grant Thornton Vietnam is an independent member firm of Grant Thornton International and was established in 1993. Initially it was a joint venture with Concetti.