omassmann vietnam economy
TRANSCRIPT
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VIETNAM ECONOMY: IMPACT FROM GLOBAL CRISIS TO DOMESTIC PROBLEM
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AGENDA
• Overview on Vietnam economy From a new emerging Asian country to a meltdown
economy
• Impact of global financial crisis to Vietnam • Domestic impact to Vietnam economy • Impact of international trade integrated
commitment to Vietnam economy • Recommendations for Vietnam
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Overview on Vietnam economy
• From a new emerging Asian country
On January 11th , 2007, become its 150th WTO member
Average gross domestic product (GDP) growth: 7.2 percent
In 2008: No. 1 attractive emerging market destination for retail investment
Sharp increase in foreign direct investment (FDI): US$12 billion in 2006 to almost US$72 billion in 2008.
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Overview on Vietnam economy
• To a meltdown economy In 2012: only 5.03% GDP 100,000 enterprises into bankruptcy or ceased to operation Public debt: 56.7% of GDP Bad debt: 8.8% (SBV) Out of top 30 most attractive emerging markets for retail
investment. IMF lowered Vietnam’ GDP from 5.8% to 5.2% this year.
And from 5.8% to 5.2% in 2014
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Overview on Vietnam economy
• Why Vietnam? From global investment darling to poster child for
mismanagement.
Vietnam economic crisis = EU debt crisis + US financial recession + Domestic critical problems
A toxic mixture
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Impact of global financial crisis to Vietnam
• EU sovereign debt crisis • US financial recession • Direct impact: NO Not deeply involved in global trade Limited exposure to international financial markets
• Indirect impact: YES Indirectly affected through trade, FDI and financial
capital movement
• In reality: Vietnam crisis from its own real structure 6
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Domestic impact to Vietnam economy
• Low efficiency of public investments • State owned enterprise’s based growth • Tremendous expansion of banking system • Non performing loan
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Low efficiency of public investments • Overspending + inefficient investment => public debts
dramatically. • Vietnam’s investment : Around 40-42% of GDP, of which
public investment makes up 45%. • Inefficient public investments + Increase of State
intervention => current economic woes • By the end of 2011 , public debts : 56.7% of Vietnam’s GDP • High Incremental Capital Output Ratio (ICOR) : From 1996
to 2000, ICOR was 5.0 but rose to 6.2 from 2006 to 2010
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State owned enterprise’s based growth • A huge tranche of cheap credit available to SOEs in the
period of 2008-2009
• 60 per cent of bank credit allocated to SOEs while SOEs accounted for only approximately 27 per cent of GDP.
• SOEs invested to none-core business and little expertise
• Example of PetroVietnam: hotels, securities, real estate, insurance and even taxis
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Tremendous expansion of banking system
• Domestic credit: 35 per cent of GDP in 2001 surged to 120 per cent by 2010
• In 1990: Five state owned banks in Vietnam • In 2012: About 40 private banks and 50 branches of foreign
banks • Problem : Vietnam banking system to serve SOE’s financial
needs but money has not been well spent • Example of Vinashin:
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Non Performing Loan • Highest in South-East Asia: 8.8% (SBV) – 15-20% ( Standard
Chartered) • About 40% held by state owned commercial banks • SOEs bad debts: Estimated at VND200,000 billion (70% of
total bad debts), • Around VND153,000 billion (53 %) accounted for giant State
groups and corporation. • Large proportion of bad debts collateralized by land and
property investment.
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Impact of international trade integrated commitment to Vietnam economy
• Comments on notable signed commitments Bilateral Trade Agreement with US Commitments on WTO assessment
• Overview on Vietnam ongoing negotiation Free Trade Agreement (FTA) with EU Trans-Pacific Partnership (TPP) with US
• Impact of FTA and TPP to Vietnam Economy
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Bilateral Trade Agreement with US
• Important to Vietnam: BTA opened the US market for Vietnamese exports; BTA was a step towards the WTO accession; BTA created more business opportunities; BTA signified that Vietnam’s commitment to international rules.
• Tremendous growth in bilateral trade relationship
Grown from about $1 billion in 2001 to $26 billion in 2012
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Commitments on WTO assessment • Vietnam paid a relatively high entrance fee in terms of WTO
since joined as a developing country with no market economy
• How Vietnam implements its’ commitments: Chanced the terms of accession through sluggish implementation Forced to make law changes prior to its WTO accession -> “hard
done by” Evade the obligations and enforcement Not meet expectations, since they tried to evade the implementation
of the otherwise very promising WTO commitments Example of Distribution sector: Economic Needs Test
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Commitments on WTO assessment • Vietnam’s evasion of WTO commitments: Negative impact
to investment environment
• Foreign investors expected Vietnam to implement such commitments and thus liberalize its market
• Almost killed the goose that lays golden eggs called FDI
• Foreign investors are reluctant to funnel money into the Vietnamese economy
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Overview on Vietnam ongoing negotiation
• FTA negotiation with EU: Launched negotiation in June 2012 Fourth round of FTA negotiations is scheduled for July
2013 in Brussels
• TPP negotiation with US: Expected to conclude the trade agreement in the coming
months
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Why Vietnam needs to sign FTA and TPP
• EU important role in Vietnam economy Vietnam is the EU's fifth largest trading partner within
ASEAN (and 35th out of the EU's total trade)
EU is the second big trade partner and the biggest export market of Vietnam
In 2012: total bilateral trade turnover : USD 29.1 billion
EU is one of the largest foreign investors: By the end of January 2013 , 1810 FDI projects in Vietnam with total registered capital of USD 34.28 billion
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Why Vietnam needs to sign FTA and TPP
• US important role in Vietnam economy In 2012, US exported $1.7 billion’s worth of agricultural
products to Vietnam, making Vietnam US’ 16th largest agricultural export market
By 2015, the bilateral trade exchange could reach more than $ 33 billion
In 2020, Vietnam-U.S. trade may reach about US$ 44 billion a year, Vietnam’s exports to the U.S. about US$ 34 billion, and U.S. exports to Vietnam about US$ 10 billion
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Why Vietnam needs to sign FTA and TPP
• Middle income trap: Vietnam’s advantage in international trade is cheap labor: Competition with neighboring countries “Everything but arms” status (EBA) granted to leased-
developed countries (LDCs) by the EU FTA and TPP would level the playing field with LDCs
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Why Vietnam needs to sign FTA and TPP
• Generalized system of preference (GSP) Maximum average annual income per capita fixed at
USD 4000 per year to obtain GSP Example of Thailand: Permanently excluded from the
GSP => the chance for Vietnam Vietnam needs two “jokers” called FTA and TPP Protection of Vietnam’s market access on a permanent
contractual basis
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Recommendations for Vietnam • Needs to sign the FTA and TPP to compete with other
countries • FTA and TPP are a big chance to attract more FDI and to
engage trade • Vietnam made mistakes in the aftermath of its WTO
accession not implementing all its WTO commitments. • Vietnam has to draw its lessons from the former trade
negotiations (BTA and WTO accession) • Vietnam needs to have a sound strategy when starting to
enter into FTA and TPP negotiation
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Recommendations for Vietnam
• The sound strategy for Vietnam’s diplomats: Not miss the chance to gain FDI again; Use the publicity and attention to attract investors; Preserve the present market and secure the access to this sector (e.g.
textile); Adapt to new challenges - the textile market is not granted for ever; Do not solely rely on the advantage of cheap labor; Try to give the EU and US what they ask for to access their market; Sign the GPA as soon as possible; Stick to your promises - implement what you have signed; and finally Do not kill the egg laying goose called FDI by using protectionist
measures as you did in the aftermath of your WTO accession! 22
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