Indo-Pacific Dialogue – White Paper – 2018 – Contributing Notes
The first Indo-Pacific Dialogue – Conference took place on Friday, December 07th, 2018 in Ho Chi Minh City, Vietnam.
Opportunities and Challenges for Vietnam
The trade tensions between China and the US are facilitating additional investments in Vietnam, as many companies are moving towards Vietnam. Currently most global companies do not have access to enough information to make investment decisions, such as relocating a factory, but the larger question is whether Vietnam has the infrastructure or the capacity to receive these large-scale relocation investments? This is indeed a challenging issue for Vietnam, as the investment to GDP has been quite high and the abilitiy to mobilizing a huge amount of capital is limited. As estimated, the capital demand is far from the available resources. Therefore, Vietnam needs proactive and creative approaches to solve this problem to utilize opportunities.
Another challenge for Vietnam is debt. Even though Vietnam has the rapid economic growth, the fiscal deficit is funded by the government. Even though, the pressure to reach the 65% debt threshold has been lessened in recent years, borrowing more will cause potential risk of default. It only signals the ability to manage the credit borrowing of the country which thereafter potentially affects the credit rating. It is therefore necessary for Vietnam to focus on economic development without increasing the debt burden.
In recent years, Vietnam has strengthened institutions, but the assessment of transparency and accountability is still weak. Vietnam is still dependent on foreign enterprises through FDI. This makes it easier to control business risks, for example, if big companies like Sam Sung regresses, it will have a great impact; or if the government decides to create a favorable environment to attract a few larger players in FDI, this will lead to a large concentration of resources, which is absolutely not good. Vietnam needs sound business environment to nurture all types and sizes of companies for building a good ecosystem for doing business.
Vietnam is growing in terms of technology, especially the telecommunications networks, which has led to a change in business-practices and ways of operating businesses. In Vietnam, the percentage of internet users and smart phones is very high, combined with the application of fast and open technology to new things, making the trend of digital business very important.
The development of infrastructure in Vietnam is important, ensures the development of the nation in the future. In this area, the private sector often outperforms the government, so it should facilitate these beneficiaries to also co-invest in the development infrastructure of Vietnam.
In terms of energy, in general, some provinces of Vietnam such as Bac Ninh or Bac Lieu have gradually shifted to a more sustainable development and renewable energy. Vietnam supports the model of public-private cooperation in energy development. However, the commitment to purchasing power agreements is also important and should be addressed as it affects the commercial feasibility of such power project. This is indeed challenging for Vietnam in creating a competitive markets and to attract more companies with incentives from the government.
Among the risk factors for Vietnam, the immediate concern is the problem associated with corruption and cash flow control. In addition, risk allocation and dispute resolution with arbitration mechanisms are essential. In order to build trust, the allocation of risks among participants, bidding mechanisms, and auctions also need attention.
Currently, in terms of capital for implementation, Vietnam cannot receive more aid, other developed countries such as Japan cannot lend more to Vietnam, it’s time to have a new model. From now until 2030, Vietnam needs a huge amount of capital for infrastructure development. This is therefore an opportunity for the private sector to participate as well as when Vietnam changes from a poor country to a middle-income country with the appearance of many young entrepreneurs.
In the recent years, the number of startups in Vietnam has increased markedly, however, they are facing challenges in approaching the capital market. Success in the domestic market is the first important point before businesses reach the world market, they need support from the government to develop. In addition, the business itself wants a level playing field in the 4.0 industrial revolution to access and join the global economy and they also want to cooperate with companies globally that benefit their business and the Vietnamese economy.
Contributing Notes Author: Dr. Huynh The Du, Faculty Member, Fulbright School of Public Policy and Management
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