Photo courstery by Dr Hoe Ee KhorSingapore (VNA) – In arecent interview granted to Vietnam News Agency correspondent in Singapore, Dr.Hoe Ee Khor, Chief Economist at the ASEAN+3 Macroeconomic Research Office(AMRO), expressed his impressions on Vietnam’s economic achievements andcontributions to the Association of Southeast Asian Nations (ASEAN) since thecountry joined the bloc 25 years ago. Following is the interview:
Question: Vietnam has been an ASEANmember for 25 years (1995-2020). Could you tell us about the outstandingeconomic achievements of Vietnam in the 25 years of integration into ASEAN?
Answer: Since joining the ASEAN,Vietnam has embarked on a number of economic reforms and deepened economic tieswith the rest of the world.
One of the key events was Vietnam’saccession to the WTO in 2007, which has resulted in a wave of foreign directinvestment, which grew from about 3 billion USD in 1995 to 20 billion USD in2019. Vietnam has successfully leveraged this influx of investment into exportengines, particularly the electronics industry, which helped the countryachieve one of the highest rates of economic growth in the region, averagingaround 6.3 percent over the past 10 years. As a result, Vietnam’s per capitaincome has risen almost ten folds from around 277 USD in 1995 to 2,715 USD in2019, and the economy is now one of ASEAN’s largest.
The country’s impressive economicachievements have benefited from the authorities’ efforts on deregulation andthe lowering of the cost of doing business over the past few decades. At thesame time, divestment of state-owned enterprises has led to greater efficiencyand strengthened the domestic private sector’s participation in the economy,epitomised by large Vietnamese corporations such as Vingroup and Vietjet Air.
In addition to the economicdevelopment, the country has strengthened the social safety net throughimprovements in the pension and healthcare systems. A recent OECD pensionsurvey of 47 countries shows that while Vietnam’s pension system coverageremains limited, the pension benefit is relatively high, at 75 percent oflifetime average. Between 2002 and 2018, more than 45 million people werelifted out of poverty, with the poverty rate declining from over 70 percent tobelow 6 percent amid the rapid rise of the middle class.
Question: What are Vietnam’contributions to the overall economic development of the region over the past25 years?
Answer: Over the past 25 years, thecountry has increasingly integrated itself into the global and regionaleconomy. Vietnam’s manufacturing sector has become a crucial part of theregional value chain (RVC), in particular the electronics sector. Vietnam’sparticipation in the RVC increased from 26.4 percent in 2005 to 33.9 percent in2015.
Moreover, for firms from otherregional economies, Vietnam’s burgeoning middle class and rising income levelhave made the country a significant destination of final demand for goods andservices.
Finally, Vietnam’s membership in theASEAN Economic Community (AEC) and the proposed Regional Comprehensive EconomicPartnership (RCEP) highlights Vietnam’s role in the regional community insupporting shared prosperity through the flow of goods and services. Vietnam’seconomy complements the other economies. It was able to attract the labourintensive industries from China, Japan, and the Republic of Korea and ASEAN5(Malaysia, Indonesia, the Philippines, Singapore, and Thailand) and leverage onthat to plug into the regional production network. Since then, it has beenmoving up the value chain and grown into an industrial power with exportsequivalent to around 100 percent of GDP. It has also been very successfulin developing the agriculture sector and tourism.
Question: Vietnam has been an ASEANmember for 25 years (1995-2020). Could you tell us about the outstandingeconomic achievements of Vietnam in the 25 years of integration into ASEAN?
Answer: Since joining the ASEAN,Vietnam has embarked on a number of economic reforms and deepened economic tieswith the rest of the world.
One of the key events was Vietnam’saccession to the WTO in 2007, which has resulted in a wave of foreign directinvestment, which grew from about 3 billion USD in 1995 to 20 billion USD in2019. Vietnam has successfully leveraged this influx of investment into exportengines, particularly the electronics industry, which helped the countryachieve one of the highest rates of economic growth in the region, averagingaround 6.3 percent over the past 10 years. As a result, Vietnam’s per capitaincome has risen almost ten folds from around 277 USD in 1995 to 2,715 USD in2019, and the economy is now one of ASEAN’s largest.
The country’s impressive economicachievements have benefited from the authorities’ efforts on deregulation andthe lowering of the cost of doing business over the past few decades. At thesame time, divestment of state-owned enterprises has led to greater efficiencyand strengthened the domestic private sector’s participation in the economy,epitomised by large Vietnamese corporations such as Vingroup and Vietjet Air.
In addition to the economicdevelopment, the country has strengthened the social safety net throughimprovements in the pension and healthcare systems. A recent OECD pensionsurvey of 47 countries shows that while Vietnam’s pension system coverageremains limited, the pension benefit is relatively high, at 75 percent oflifetime average. Between 2002 and 2018, more than 45 million people werelifted out of poverty, with the poverty rate declining from over 70 percent tobelow 6 percent amid the rapid rise of the middle class.
Question: What are Vietnam’contributions to the overall economic development of the region over the past25 years?
Answer: Over the past 25 years, thecountry has increasingly integrated itself into the global and regionaleconomy. Vietnam’s manufacturing sector has become a crucial part of theregional value chain (RVC), in particular the electronics sector. Vietnam’sparticipation in the RVC increased from 26.4 percent in 2005 to 33.9 percent in2015.
Moreover, for firms from otherregional economies, Vietnam’s burgeoning middle class and rising income levelhave made the country a significant destination of final demand for goods andservices.
Finally, Vietnam’s membership in theASEAN Economic Community (AEC) and the proposed Regional Comprehensive EconomicPartnership (RCEP) highlights Vietnam’s role in the regional community insupporting shared prosperity through the flow of goods and services. Vietnam’seconomy complements the other economies. It was able to attract the labourintensive industries from China, Japan, and the Republic of Korea and ASEAN5(Malaysia, Indonesia, the Philippines, Singapore, and Thailand) and leverage onthat to plug into the regional production network. Since then, it has beenmoving up the value chain and grown into an industrial power with exportsequivalent to around 100 percent of GDP. It has also been very successfulin developing the agriculture sector and tourism.
<div class="flourish-embed flourish-bar-chart-race" data-src="visualisation/3262004" data-url="https://flo.uri.sh/visualisation/3262004/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div>
Question: In the first half of 2020,Southeast Asia in particular and the world in general experienced greatturbulence as a result of COVID-19. What are the opportunities and challengesfor the Vietnamese economy in the near future?
Answer: As far as near-termchallenges are concerned, one of them is the extent to which the COVID-19affects external demand. While domestic demand may soon pick up with Vietnamgradually easing movement restrictions, the recovery remains susceptible to therisk of a second wave of infections, to which the service sector isparticularly vulnerable. However, external demand, especially fornon-electrical and electronic sectors, will likely take longer to revive, aprospect that weighs heavily on the export sector.
In addition, supply chain disruptionspose an obstacle to a supply side recovery. Meanwhile, uncertainty in the phasein the global technology cycle constitutes another risk factor.
That said, Vietnam’s expanding numberof free trade agreements, including the recently signed EU-Vietnam FTA, shouldhelp sustain exports as the economy’s main growth engine.
Other important risks to monitorinclude uncertainty in global financial markets, which could lead to increasedvolatility in capital flows, although Vietnam may be less vulnerable than otherregional economies due to its limited exposure to non-residents’ portfolioinvestment compared to foreign direct investment.
Lastly, one of the mainvulnerabilities for the financial sector is the impact of the pandemic onbanks’ asset quality. Despite the banks’ efforts on loan restructuring andreduction in interest and fees, it remains likely that the banking system’sasset quality will deteriorate and erode its relatively low capital buffers.
Vietnam’s economy faces a number ofopportunities to enhance its growth prospect. Vietnam’s competitive labour,easy access to key regional and global markets through FTAs, and thegovernment’s favourable treatment of foreign companies on various aspectsranging from tax incentives to land-use rights make it highly attractive forinvestment. Amid supply-chain repercussions from global trade tensions and thepandemic, multinational corporations are relocating and co-locating theirproduction facilities to Vietnam.
Furthermore, the country’s growingnumber of FTAs, most recently the EU-Vietnam FTA, can help Vietnam diversifyits exposure to fluctuations in external demand.
Lastly, Vietnam’s relativelysuccessful management of the COVID-19 pandemic can provide a backdrop againstwhich to increase spending on infrastructure and attract foreign investment toobtain a head start in recovery as the global economy emerges into thepost-pandemic environment./.
Question: In the first half of 2020,Southeast Asia in particular and the world in general experienced greatturbulence as a result of COVID-19. What are the opportunities and challengesfor the Vietnamese economy in the near future?
Answer: As far as near-termchallenges are concerned, one of them is the extent to which the COVID-19affects external demand. While domestic demand may soon pick up with Vietnamgradually easing movement restrictions, the recovery remains susceptible to therisk of a second wave of infections, to which the service sector isparticularly vulnerable. However, external demand, especially fornon-electrical and electronic sectors, will likely take longer to revive, aprospect that weighs heavily on the export sector.
In addition, supply chain disruptionspose an obstacle to a supply side recovery. Meanwhile, uncertainty in the phasein the global technology cycle constitutes another risk factor.
That said, Vietnam’s expanding numberof free trade agreements, including the recently signed EU-Vietnam FTA, shouldhelp sustain exports as the economy’s main growth engine.
Other important risks to monitorinclude uncertainty in global financial markets, which could lead to increasedvolatility in capital flows, although Vietnam may be less vulnerable than otherregional economies due to its limited exposure to non-residents’ portfolioinvestment compared to foreign direct investment.
Lastly, one of the mainvulnerabilities for the financial sector is the impact of the pandemic onbanks’ asset quality. Despite the banks’ efforts on loan restructuring andreduction in interest and fees, it remains likely that the banking system’sasset quality will deteriorate and erode its relatively low capital buffers.
Vietnam’s economy faces a number ofopportunities to enhance its growth prospect. Vietnam’s competitive labour,easy access to key regional and global markets through FTAs, and thegovernment’s favourable treatment of foreign companies on various aspectsranging from tax incentives to land-use rights make it highly attractive forinvestment. Amid supply-chain repercussions from global trade tensions and thepandemic, multinational corporations are relocating and co-locating theirproduction facilities to Vietnam.
Furthermore, the country’s growingnumber of FTAs, most recently the EU-Vietnam FTA, can help Vietnam diversifyits exposure to fluctuations in external demand.
Lastly, Vietnam’s relativelysuccessful management of the COVID-19 pandemic can provide a backdrop againstwhich to increase spending on infrastructure and attract foreign investment toobtain a head start in recovery as the global economy emerges into thepost-pandemic environment./.
VNA
