VietNamNet Bridge – The foreign direct investment (FDI) sector is now the key driver in the local economy while other pillars, notably the local private sector, the State-owned sector and agriculture are all crumpling, said a Fulbright economist.

Nguyen Xuan Thanh, head of Public Policy at the Fulbright Economics Teaching Program in Vietnam, told a seminar in HCMC on Tuesday that only the FDI sector has come out of economic woes almost unscathed while other sectors have failed.

Three growth engines of the local economy, namely State-owned enterprises, the local private sector, and agriculture no longer work efficiently now, he told the seminar on “Vietnam’s Macro Economy and Challenges for Enterprises” held by the Institute of Business Administration and FPT University.

“The local private sector and agriculture performed well only between 2001 and 2006, while for the State sector, the low efficiency emerged during that very period, though not as gruesome as it is now,” Thanh noted.

While all the three aforesaid sectors are not functioning properly, the FDI sector is faring well, he stressed at the seminar.

“The FDI sector relies on the institutional mechanisms outside to do business in Vietnam,” Thanh said, explaining that such enterprises resort to international laws to carry out contracts, while their corporate governance also meets international norms.

Even credits are largely supplied to them from outside the country by international financial institutions, or branches of such institutions in Vietnam. These are advantages that help them maintain stable business, said the economist.

The export revenue of the FDI sector in the January-August period posted 26% growth, exclusive of crude oil, compared to a mere 3.1% growth recorded by local enterprises. The total commodity and service retail revenue of the sector in the period grew 37.5% year on year, while State-owned enterprises saw a contraction of 6.7% and local enterprises a growth rate of 14.2% only.

While the FDI sector is enjoying many advantages, the local sector is seeing the playing field shrinking due to local policies.

Thanh predicted that Vietnam’s economic growth in 2014-2015 will be low like now, as the macro-economic policy will remain tight to control inflation and ensure stability. Therefore, challenges for local enterprises will be huge, he said.

Thanh therefore advised local enterprises to ensure liquidity, better control the cash flow, and cut costs to survive the tough times if they are to return to the growth track in the future.

Source: SGT