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Throughout this process of integration, Vietnam has signed numerous free trade agreements (FTAs) with countries and groups of countries. Vietnam's earliest FTA was the agreement signed with the Association of Southeast Asian Nations (ASEAN) in 1996, just one year after Vietnam joined ASEAN. Then, in 2007, Vietnam officially became a member of the World Trade Organization (WTO).

After that, Vietnam signed many more FTAs, especially the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) at the end of 2018 and most recently the EU-Vietnam Free Trade Agreement (EVFTA) in June 2019. So far, Vietnam has signed 13 trade agreements, of which 12 have entered into force. Vietnam is also negotiating three other agreements. Economic powers such as the US, China, Japan and South Korea have inked trade agreements with Vietnam.

These agreements have created favorable opportunities for Vietnam's economy to grow rapidly over the years. The reduction of tariff barriers for Vietnam’s export products has greatly contributed to raising Vietnam's export turnover, helping to attract foreign direct investment (FDI) into the country.

According to the Vietnamese Ministry of Planning and Investment’s statistics, by July 2017, the total value of registered FDI in Vietnam reached US$307.86 billion, with 23,737 projects, and 59% of these projects are in processing and manufacturing industries.

FDI initially created many jobs for Vietnamese people and created an impetus for promoting the economy in the direction of industrialization and modernization, in accordance with world standards. But this integration process has also created numerous challenges, revealing inherent weaknesses of the economy.

The size of Vietnam's economy is low and Vietnam is still a poor country compared to the countries with which Vietnam has signed trade agreements. Vietnam’s production scale is still small and the quality of Vietnamese goods is not high, so it is difficult for Vietnamese products to compete with goods of other countries. Vietnam’s key exports are oil and gas, seafood, agricultural products, textiles, and woodworks. The proportion of industrial products in export is not small, but most of it is from the FDI sector.

Vietnam’s economy is still weak in terms of internal strength when it integrates into the global playing field. If this challenge is not addressed, in the next 3 to 7 years, when the CPTTP and EVFTA are in full force, the entire economy will be under great pressure from imported goods.

As such, Vietnam has only 3 to 7 years to prepare itself. Among the current business sectors, Vietnam can rely on certain strong ones to be able to compete fairly with foreign businesses. Let's look at the following situation.

Firstly, the group of DI enterprises accounts for a large proportion in the economy. This sector currently holds over 72% of the country's total export turnover, over 50% of industrial production value, and over 17% of total state budget revenue.

FDI has contributed nearly 20% of GDP. However, it is a fact that 59% of total foreign investment capital is concentrated in the field of processing and manufacturing, which means that foreign investors come to Vietnam to take advantage of a stable environment, cheap labor and the State’s incentives to assemble finished products for export to other countries.

Vietnam's added value in these products is low when Vietnam’s supporting industries account for a small percentage.

Thus, products are made in Vietnam, but they are actually foreign products. The main benefit for Vietnam is to create jobs for its people. These FDI enterprises take advantage of opportunities brought by trade agreements to make a profit for a time, and then they can withdraw from the country when the project life cycle has expired or when there are bad changes.

Finally, if counting FDI enterprises, Vietnam's economy would still be zero. Thus, FDI enterprises will be the beneficiaries of the effectiveness of the trade agreements that Vietnam has signed, not Vietnamese businesses only.

Second, Vietnam is a country with a large number of state-owned enterprises (SOEs). There are around 600 SOEs, including 9 groups and 65 corporations, mainly operating in key sectors of the economy. A number of SOEs are very huge, and make decisive contributions to the national budget such as the Vietnam Oil and Gas Group (PetroVietnam), Electricity of Vietnam (EVN) and Viettel Group.

However, it is a fact that SOEs are underperforming. According to statistics, SOEs must spend nearly VND10 of investment capital to gain only VND1 of growth compared to over VND5 of the FDI sector and over VND6 of the private sector.

This inefficiency is due to lack of capital, weak management, and lack of long-term business strategies which is caused by term-based economic thinking, and the weakness of leaders who are appointed by the State. As they work in line with a fixed term, these leaders cannot devote all of their mind and capacity to their job.

The General Secretary of the Vietnam Communist Party and Vietnam’s President Nguyen Phu Trong said: “In general, the business efficiency and contributions of most SOEs are low, not commensurate with the State’s investment. Many SOEs do business at a loss, worsening bad debts of banks and national public debts, causing concerns among the people."

Due to this weakness, the number of SOEs has reduced sharply, from over 12,000 enterprises with 100% of state capital to 5,655 enterprises by 2001 and only around 600 at present. It is expected that by 2020, the number will be cut to only 100 which will operate in important fields. Obviously, this sector cannot be considered a key force of the national economy to compete with foreign enterprises in the integration process.

Third, it is obvious that the Vietnamese economy cannot rely on manufacturing forces other than private enterprises, especially the large private groups that are changing the country’s face such as Vingroup, Massan, Sungroup, Hoa Phat, Vietjet ... These groups are ranked in the list of the world's leading corporations.

The share of GDP of the private sector, including the individual economy, remains stable at around 39-40%. Mid-sized companies have also played a decisive role in the country’s export of textiles, aquatic and agricultural products, timber ... Clearly, this is Vietnam’s goods manufacturing force. They are the warriors that compete with foreign partners and the main forces that help implement trade agreements between Vietnam and other countries.

In fact, there are private businesses that are true heroes in today's economy. Despite many difficulties, no one else but the private sector has captured the market, mobilized capital fast, bravely invested, and effectively managed to make profits. Only the private sector will accept initial losses to invest in advanced technology to produce goods and build national brands that can compete in the world market. What will appear next after Vingroup’s Vinfast automobile brand?

At the Party Central Committee meeting in May, General Secretary Nguyen Phu Trong affirmed: "The private economy is developing very well. Don't discriminate against the private sector. It must be fair. Private firms that perform well must be commended and rewarded, and even conferred with the title of hero."

Prime Minister Nguyen Xuan Phuc emphasized: "We deeply understand that building strong brands is strongly promoting patriotism, self-reliance and national self-respect, and building a culture of consumption of Vietnamese people. I hope that Vietnamese businesses and entrepreneurs will follow VinFast to express the strong spirit and burning Vietnamese intellect to dominate the domestic market and reach out to the world."

Thus, private corporations are the locomotive of the economy. The development of private enterprises means reducing public debt for the State. If the private sector is considered to be an army that helps Vietnam get rich and prosperous, then the state should give private enterprises the opportunity to do business, and the policies for this sector must be equal to that of foreign-invested enterprises.

According to private enterprises, the Vietnamese state still favors FDI enterprises over domestic ones. For example, while Vietnamese private enterprises face many difficulties in setting up a chain of supermarkets to sell Vietnamese goods, foreign enterprises have favorably acquired some supermarkets of Vietnamese enterprises, even companies that are doing business with profits like Alibaba and Saigon Beverage. They enjoy many preferential policies on land, taxes ... Their goods are sold in supermarkets while Vietnamese goods are gradually being pushed out of these supermarkets.

Private enterprises are making important contributions to the economy. In the future, if the state pays proper attention to this workforce, Vietnam will succeed on the path of economic construction and development and international integration.

Nguyen Van Huong

Vietnam’s FDI inflow up in 10 months

Vietnam’s FDI inflow up in 10 months

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Vietnam worried as high-quality FDI declines

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