Economy soars on back of surging FDI
Economy soars on back of surging FDI
Despite external headwinds, a surge in foreign direct investment wooed by trade pacts has been one of the key enablers for Vietnam to record positive economic performance in the first half of 2019, with fresh, optimistic international forecasts for the entire year.
Last week in Tokyo, Pham Van Thanh, chairman of Vietnam’s state-owned Vietnam National Petroleum Group (Petrolimex) inked a memorandum of understanding (MoU) with CEO and chairman of Japan’s JXTG Nippon Oil and Energy Corporation, Tsutomu Sugimori, on jointly studying the liquefied natural gas (LNG) and gas industry in Vietnam.
The deal was signed within the hallmark Vietnam-Japan investment promotion conference attended by representatives of 1,000 Japanese firms and 200 Vietnamese ones, and organised by the Vietnamese Ministry of Planning and Investment (MPI), and the Japan External Trade Organisation in Tokyo during Prime Minister Nguyen Xuan Phuc’s official visit to Japan on July 1.
Currently JXTG is the strategic partner of Petrolimex, holding 8 per cent stake. The MoU will see the two sides compile a detailed report on LNG and gas in Vietnam, which will be used by Petrolimex to implement its future LNG projects in the country. In the coming time, Petrolimex will focus on constructing an LNG import port in the central province of Khanh Hoa.
According to the Vietnamese Government Office, the MoU is among 32 co-operation deals and MoUs worth more than $8 billion inked at the conference. This sum is expected to help further Vietnam’s foreign direct investment (FDI) prospects.
The MPI reported that FDI has been one of the key drivers of economic growth. From January to June 20, 2019, Vietnam attracted the highest-ever six-month number of 1,723 newly-registered foreign-invested projects, with the total capital of $7.41 billion, which is also the highest six-month figure over the past many years. Besides, 628 operational projects increased capital by nearly $3 billion, pushing the total newly-registered and newly-added capital in the first half of this year to $10.35 billion.
FDI disbursement is estimated to have hit $9.1 billion, up 8.1 per cent on-year. In addition, in the first half of 2019, foreign investors used $8.12 billion to purchase stakes from domestic firms, up 98.1 per cent on-year.
As of June 20, 2019, Vietnam had 30,355 foreign-invested projects registered at nearly $358 billion.
The MPI said FDI is an important resource for socio-economic development in Vietnam. It not only promotes economic restructuring but also creates a solid foundation for long-term growth and economic modernisation.
Buoyant performance
Upon hearing the big FDI results of Vietnam, and its macro achievements in the first six months, Asian Development Bank (ADB) president Takehiko Nakao told Vietnamese Prime Minister Nguyen Xuan Phuc at a meeting in Tokyo that he was impressed by Vietnam’s solid growth rate of 6.76 per cent in the first half of 2019 and 7.1 per cent in 2018 – the fastest growth rate in more than a decade.
“Vietnam continues to demonstrate strong potential for sustained high economic growth, given its prudent fiscal management, stable inflation, healthy current account balance, and strong FDI. Vietnam is also positioning itself effectively in the changing landscape of regional and global value chains,” said Nakao.
The ADB forecasts that the economy’s growth will remain strong at 6.8 per cent in 2019 and 6.7 per cent in 2020. It is expected that this year, Vietnam’s growth will be the highest in the region, ahead of China (6.3 per cent in 2019 and 6.1 per cent in 2020), Indonesia (5.2 per cent in 2019 and 5.3 per cent in 2020), and the Philippines (6.4 per cent both in 2019 and 2020).
The World Bank last week stated that in the context of external headwinds, Vietnam’s growth momentum has moderated since the beginning of the year, but that “the outlook remains positive” following the economy’s positive growth in the first half of the year.
In view of the moderation in economic activity in the first quarter of 2019 in Vietnam, subdued global growth and an escalation of trade tensions, the World Bank’s baseline forecast projects real GDP growth in Vietnam at 6.6 per cent in 2019 and 6.5 per cent in both 2020 and 2021.
That forecast is based on the first three months of 2019. If data from the whole first half is used for calculation, the growth rate of Vietnam may be around 6.8 per cent.
According to the General Statistics Office (GSO), Vietnam’s GDP climbed 6.76 per cent on-year, lower than the 7.05 per cent rise in the same period last year, but far higher than the average growth rate of 5.53 per cent in the 2011-2017 period (see box).
“The recent slower growth reflected the repercussions of unfavourable external factors in key economic sectors,” said Sebastian Eckardt, lead economist of the World Bank in Vietnam. “The outbreak of African swine fever and a decline in international prices dampened agricultural outputs, while weaker external demand moderated growth of the export-oriented manufacturing sector. But overall, the outlook for Vietnam this year is quite positive.”
Last week, Fitch Solutions, Inc. under Fitch Ratings, one of the biggest rating firms in the world, released a forecast that Vietnam’s economy will “slow to 6.5 per cent in 2019, from 7.1 per cent in 2018” as it “expects slowing global growth to weigh on demand for Vietnam’s manufacturing exports going forward.” However, Fitch Solutions stressed that with its strong FDI and exports, at 6.5 per cent, “Vietnam will remain an outperformer in Asia and we expect construction and services to continue propping up the growth print.”
According to experts, Vietnam’s free trade agreements (FTAs) are strengthening confidence of investors and signalling a soar in exports and FDI. Total six-month export turnover hit $122.72 billion, also the highest six-month level historically, and up 7.3 per cent on-year, according to the GSO.
Steps forward
The government has set an economic growth target of 6.6-6.8 per cent this year. However, according to the World Bank, Vietnam’s higher growth will be undermined by a series of internal and external factors.
“Against the backdrop of strong cyclical recovery over the last few years, Vietnam started to tighten credit and fiscal policies to rebuild policy buffers,” stated a World Bank update on Vietnam’s economy released last week. “While growth has so far remained robust, a further deterioration in economic activity may call for an adjustment in the macroeconomic policy stance towards more accommodative monetary policy possibly supported by some fiscal stimulus.”
Meanwhile, according to the ADB, for Vietnam to attract more FDI as well as woo more of the $8 billion deals that enterprises inked at the Japanese-Vietnamese investment conference last week, much remains to be done. “The government should take action to ensure growth quality and sustainability in the medium and long term. It would also need to continue boosting important reforms such as the equitisation of state-owned enterprises (SOEs), and financial and banking reform,” Nguyen Minh Cuong, principal country economist from the ADB, told VIR.
He said that despite slow progress, SOE reform has gathered momentum and will be continued under the strong political commitment of the government. “The SOEs reform should bring more opportunities for private enterprises to access important factor inputs so that the most able private enterprises could transform into large and competitive private corporations.”
