Five bright spots for Vietnam 2023 economy

Five bright spots

The first bright spot for the Vietnamese economy this year is the persistent acceleration of public investment. The National Assembly has approved the public investment plan for 2023 with total capital of over VND700 trillion ($29.83 billion), up 25% compared to the 2022 plan.

The second is political stability. This can be considered an advantage that not all countries have.

Thirdly, Vietnam is becoming a strategic partner of all global growth poles. That affirms our country's position in the international arena.

The fourth bright spot is the reopening of China, whose per capita income reaches more than $10,000, three times higher than Vietnam’s. This is a great opportunity for Vietnam in terms of investment, trade and tourism.

The fifth may be the fixing of the corporate bond market so as to soon make it a true capital-raising channel for the economy.

Solutions

Speeding up public investment

Currently, businesses claim that high raw material prices have caused them to make no profit or even suffer loss, so they do not want to do anything. It should be recognized that this is the typical thinking of Vietnamese enterprises. In fact, the current Vietnamese corporate governance "shirt" no longer fits businesses.

Enterprises should not depend too much on bank loans. Instead, they need to apply innovative thinking: joining hands to have an amount equivalent to 60-70% of total investment capital before joining a bid. Just doing so, they can win.

When a business has 60-70% of total investment, it can buy almost all materials at the time of bidding and hence control input prices, thus not depending too much on market fluctuations. And it will surely win bidding for engineering, procurement and construction (EPC).

As for the current approach, businesses almost always borrow money from banks to carry out projects. They do not have capital to buy materials in advance, while bank interest rates fluctuate and the prices of materials hover around global figures. Therefore, they must accept risks and cannot blame their losses on mechanisms.

In fact, FDI enterprises, despite having enough financial potential to set input material prices, still set up consortiums with companies from different countries to implement projects together. For example, Hanoi’s Nhon-Hanoi Station metro project is being implemented by three major contractors from three countries.

According to the Bidding Law and Investment Law, when participating in bidding, contractors must have at least 30% of the corresponding capital while joint ventures are allowed to be set up for bidding.

For example, three businesses can form a joint venture, with each contributing 20% of total investment capital. With 60% of the total investment, they can buy all kinds of input materials. By doing so, enterprises can control the prices of input materials and are not affected too much by market fluctuations and interest rates.

There is huge potential for public investment in 2023. If businesses pursue a modern governance method and promote mutually beneficial cooperation, they will win in any case. Public investment capital is always available and what enterprises need to do is to find a way to use that money.

A strategic partner of all global growth poles

Vietnam is one of the four countries with the largest trade surplus to the U.S. Recently, the U.S. Treasury Department removed Vietnam from the currency manipulation monitoring list. Vietnam has signed 15 new-generation free trade agreements, featuring all the largest and most developed economies in the world. That is the position of Vietnam and the macro stability of its political system.

The country's GDP growth is forecast to decrease to about 5-6% in the first and second quarters of this year. The rate in the last two quarters will depend a lot on the country’s strength as well as the global situation.

The reopening of China, whose per capita income reaches more than $10,000, three times higher than Vietnam's, is also a great opportunity for Vietnam to promote investment, trade and tourism.

Basically, the Vietnamese government has prepared conditions to support businesses to participate in the market. However, turning opportunities into reality requires the proactiveness and efforts of enterprises.

Regaining confidence in bond market

It is necessary to see how regulators will deal with the corporate bond market and weak banks. It depends on the state’s intervention following the rules of the market economy. Businesses will be forced to find ways to pay off bonds maturing in 2022-2023. This will contribute to regaining the confidence of investors in the market.

The state plays the role of arbitrator in the borrowing-repayment relationship between enterprises and investors when issuing bonds. Although it is a civil relationship, issuers must clearly state the purpose of issuing bonds and develop a mechanism for bond holders to monitor the purpose of capital use.

According to law firms, bond contracts should stipulate that businesses must report their capital use once every three months, if not, they must redeem bonds with the lowest interest rate equal to that of deposit plus the fine.

If an enterprise cannot bear responsibility for the issued bonds, it is forced to go bankrupt. In the market economy, bankruptcy is the regeneration of life. The company is still there, the workforce is unchanged, it's just changing a weak management board with a new, strong one. That is the market rule.

However, individual investors in Vietnam often invest following herding behavior. Therefore, developing the bond market methodically and sustainably is a must.