Looking forward to the future

To ensure sustainable growth, Vietnam needs to promote green growth and sustainable exploitation of natural resources. (HSBC first grants green credit to Vietnamese enterprises. Photo: Huyen Tram)

The year 2020 will cast a long shadow over us all for a long time to come. Covid-19 pandemic has changed entirely the way we work, the way we live, the way we interact. We have had to content with a global health crisis, that has led to economic, financial and social challenges.

Basis for recovery in 2021

The way Vietnam has handled the crisis also means that many economic forecasts suggest that as the world pulls out of the crisis, Vietnam will be an economic benefactor the way they managed the crisis. This is reflected in positive economic forecasts for 2021.

Entering 2021, Vietnam will continue its recovery momentum by benefiting domestic consumption, stable trade growth and FDI inflows. Meanwhile, in the context of consumption being negatively affected by the pandemic, inflation will continue to be controlled below the average level of 4% set by the National Assembly.

The trade agreements, with which negotiation concluded, or signed or in effect such as UKVFTA, EVFTA or RCEP will continue to be a solid premise to boost growth in the export sector, pushing trade surpluses. Meanwhile, with its solid macroeconomic background and the ability to handle and repel the pandemic, it is not difficult to see that Vietnam will continue to be a bright investment destination in the region, especially in the electronic component manufacturing industry.

We have basis to expect the exchange rates in 2021 to continue to be managed flexibly. Notably, with the foreign exchange reserves surging to record high, the SBV has enough tools and resources to stabilize the exchange rates to meet market supply and demand. However, there are still challenges that need to be observed and monitored such as the vaccination roadmap for Covid-19, the recovery of the global supply chain, not to mention 2021 being a transition year for the US presidency.

Against the context of unpredictable fluctuations of exchange rates, businesses, especially in export-import area and businesses with foreign loans in foreign currencies need to actively use hedging tools, especially through derivatives such as term contracts, interest rate swap contracts, etc. to ensure their proactiveness in cash flow planning and profit balancing.

Joining free trade agreements means increasing competition, but it’s great to compete with the very best. It forces companies to be nimble, it forces them to adjust and it forces them to innovate. The Vietnamese are hugely resilient people and if I base it on my team at HSBC, they are also very hard working and incredibly innovative. If companies embrace these traits and have the confidence to compete and learn along the way, I do not see any reasons why Vietnamese corporates cannot be successful.

Taking actions and seizing opportunities  

The COVID-19 crisis continues to have a negative impact on the global economy even though these days we have heard good news about various vaccines. Indeed, the impact of the ongoing pandemic is still hard to predict globally, but we can imagine pressure on state budget will increase as the result of lower revenue, while higher spending due to the Government’s increasing stimulus package could mitigate the negative effect of pandemic on households and businesses.

Even though Vietnam remains a bright star for growth, I personally see some challenges if we do not take timely actions and seize opportunities.

Firstly, and this is an issue which has been raised in recent years, even though remarkable progress have been made, the Government should continue to push the equitization of state-owned enterprises (SOEs). I do not need to reiterate the risk of slow equitization progress being a hindering factor that could reduce Vietnam's future growth potential.

SOEs still dominate one-third of the entire economy today. The equitization of SOEs will help reallocate investment capital, liberating labour productivity, and supporting economic growth.

Secondly, according to the World Bank, Vietnam's infrastructure investment as a percentage of GDP is among the lowest in the ASEAN region. This creates challenges for the continued growth of modern infrastructure services that are required for the next phase of growth (Vietnam is ranked 89^th out of 137 countries for quality of its infrastructure).

My third point relates to FDI which is also one driving force for Vietnam's development. As mentioned above, FDI’s sustainable growth is one of the points to be proud of, but it would be even better if we improve customs and administrative procedures, which are factors hindering the development of this industry.

According to World Bank, Vietnamese businesses have to complete six tax payments a year, spending 384 hours on filling forms, preparing and paying taxes, and total payable taxes account for 37.6% of their profits.

The last thing, I want to mention is regarding sustainable growth. What has happened to Vietnam is similar to what other developing countries have experienced elsewhere in the world. Vietnam’s rapid growth and industrialization have had detrimental impacts on the environment and natural resources. With demand for production and domestic use, total electricity consumption has grown faster than electricity output. Given the increase reliance on fossil fuels, the energy sector accounts for nearly two-thirds of the country's total greenhouse gas emissions.

Over the past two decades, Vietnam has emerged as the fastest growing greenhouse gas emitter in the world with an increase of around 5% annually. Besides that, Vietnam is one of the most vulnerable countries in terms of climate change.

There is an urgent need to accelerate the clean energy transition. The positive thing is that the Government has recognized the important of the problem and is working to mitigate impact on the environment and effectively adapt to reduce the effects of climate change. Strategies and plans to promote green growth and the sustainable exploitation of natural resources have been adopted.

It is very encouraging to see the openness of many Vietnamese businesses that when it comes to sustainable development. In 2020, HSBC rolled out the first green financing for a Vietnamese company, Duy Tan Plastics Corporation, to set up a plastic recycling factory. Also in November 2020, we has arranged the first green finance in renewable energy for a rooftop solar energy project of REE Corporation's two wholly-owned subsidiaries.