Wednesday, 17 Jan 2018
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ECONOMY

Challenges and prospects of Vietnam's economy in 2018

Updated at Thursday, 04 Jan 2018, 12:12
The Hanoitimes - ​As the Vietnam’s economy has witnessed a strong growth at the last few months of 2017, however, with many challenges still remains, it is vital for the country to build on this momentum and maintain the growth rate in 2018.
In 2017, Vietnam had to face challenges from natural disasters, for which climate change has been taking its toll on an economy heavily depended on agricultural production. The growth rate of Vietnam’s economy is still based on cheap labor force, while the FDI sector has been the main driving force for growth. At present, productivity of Vietnam is still lagging behind neighboring countries in South East Asia in terms of labor productivity, as well as potential risks from high public debts and non performing loans.
 
In 2018, Vietnam is expected to maintain its status as an attractive destination for foreign investment.
In 2018, Vietnam is expected to maintain its status as an attractive destination for foreign investment.
On the other hand, the global economy was complicated with unexpected occurrences, with the growing trend of protectionism that would reduce trade and cross-border investment flow into Vietnam. In particularly, under the effects of many trade agreements, import tariffs will be reduced to 0% since 2018, thus putting pressure on local enterprises to step up their preparations to maintain their market shares. The booming of the industrial revolution 4.0 has brought fierce competition in technologies, for which many domestic enterprises have not paid sufficient attention. 

However, despite challenges and difficulties, Vietnam’s economy in 2018 still has large potential for development, which comes from stable monetary and fiscal policies, young population, the rapid growth rate of urbanization and fast development of the domestic consumption market. In 2018, Vietnam is expected to continue attracting foreign investment after reaching a record high of 36 billion USD in FDI in 2017. 

The country is technically still classified as a frontier market by MSCI, but has been working on improving accessibility to foreign investors as it tries to get an upgrade to emerging market status. Besides encouraging local companies to publish updates in English, the government has also moved to privatize state-owned firms. A majority stake in Sabeco, Vietnam's largest brewer, auctioned off earlier this month was won by a unit of Thai Beverage.

"The sale of some state-owned enterprises should help lower Vietnam's rising national debt and also attract significant foreign direct investment," Chetan Sehgal, director of global emerging markets and small cap strategies at Templeton Emerging Markets Group said. "At this stage, Vietnam serves as the beacon for all the frontier markets. However, with the passage of time, there is every prospect that in the long term, Vietnam could qualify for emerging market status," he added. Previously, mall operator Vincom Retail JSC has surged 26 percent since its exchange debut on November after strong demand for its share sale resulted in the offer pricing at the top of the range. The market then got another boost when Hong Kong conglomerate Jardine Matheson Holdings Ltd. last week increased its stake in Vietnam Dairy Products JSC, the country’s biggest company that’s known as Vinamilk, to 10 percent and said it was keen to buy more. 

​As the GDP’s growth rate in 2017 reaching the highest number in the past 7 years, this will be both motivation and challenge for Vietnam’s economy in 2018 to continue its growth path. 
Ngoc Thuy
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