Vietnam presses ahead with ambitious growth target

• Drought and salinity rock Vietnam's economy in first half of 2016
• Saltwater threatens to drown nearly half of Vietnam's paddy fields
• Vietnam strategizes to be a start-up nation
• Vietnam targets GDP growth of 7 percent over next 5 years

The Southeast Asian country could miss its economic growth of 6.7 percent this year after a historic drought badly hurt what has been one of the country’s main engines – the agricultural sector, Vietnam News Agency cited Minister of Planning and Investment Nguyen Chi Dung as saying at a workshop Saturday.

Vietnam’s gross domestic product growth dropped to an estimated 5.52 percent in the first half of this year while the growth rate for the same period last year was recorded at 6.32 percent, according to the Ministry of Planning and Investment.

The Vietnamese government is determined to reach economic growth of 6.7 percent in 2016.

Drought and mass fish deaths

The agricultural sector took the hardest hit from the worst drought and salinity in nearly a century, according to the agriculture ministry, which said the sector experienced negative growth of 0.18 percent from January to June.

The tourism industry could have driven the economy if it hadn’t suffered a hit from the mass fish deaths, said a senior ministry official.

“Drought and serious salinity in the Central Highlands and the Mekong Delta, as well as mass fish deaths in the central coastal region, have had a huge impact on production and life,” said the General Statistics Office in a report.

The environmental disaster along 200 kilometers of the country’s central coast in the provinces of Ha Tinh, Quang Binh, Quang Tri and Thua Thien-Hue has devastated local fisheries and taken a heavy toll on tourism services in the area.

In addition, world commodity prices remain low, hitting Vietnam’s revenue from crude oil, said Minister Nguyen Chi Dung.

SMEs could reverse economic decline 

In order to reach this year’s economic growth target, Vietnam will continue to push economic reforms by improving the efficiency of public investment, facilitating banking restructure through mergers and acquisitions at weak banks, quickening state firm privatization and supporting small and medium-sized companies.

Hanoi will double the number of private companies in the next four years to 400,000, said Nguyen Van Tu from the city’s Planning and Investment Department.

Ho Chi Minh City shares the same sentiment. The city currently has 250,000 household businesses and aims to double its private firms to 500,000 by 2020 by turning family businesses into small and medium-sized enterprises, said Dinh La Thang, the chief of the Ho Chi Minh City’s Communist Party Committee.

Small and medium-sized companies, or SMEs, account for 97 percent of the country’s businesses, and have recently become a talking point for policymakers.

Women work at a yarn weaving plant of the Nam Dinh textile and garment corporation in Nam Dinh city, south of Hanoi July 14, 2016. Photo by Reuters/Kham

Vietnamese policymakers are embracing a plan to turn the country into a start-up nation in the next four years. Under the plan, the government will provide legal and financial support for start-up companies nationwide.

For instance, Ho Chi Minh City in May set up a VND30 billion ($1.3 million) start-up investment fund which is expected to provide local entrepreneurs the funds they need to develop their products, services and technologies.

Aware of the fact that Vietnam is not the easiest place on earth to do business as the country ranked 93rd on the World Bank's Doing Business Report 2016, policymakers have tried to cut through red tape to unleash a rekindled business spirit. For instance, Hanoi has promised to put business licensing procedures online.

“The business sector's recovery will be an important driving force to spur economic growth in the final months of this year,” said Minister Dung.

Higher foreign investment

Vietnam’s economy was one of the fastest growing in the world in 2015, and its 6.7 percent target is the third highest in Asia behind only India and China.

With such an ambitious target, Vietnam needs to attract more foreign-direct investment (FDI).

“We have to raise more FDI but we need to be careful," said Deputy Prime Minister Vuong Dinh Hue. "We will choose projects that fit our economic restructuring plan and those with high technologies and good management.” 

He also emphasized the importance of keeping the macro-economy stable by controlling inflation and controlling interest and foreign exchange rates.

The government will focus on reviving the agricultural sector and shaking up the manufacturing sector.

And the government will also accelerate capital disbursement in the last six months of the year to boost gross domestic product through higher public investment, he said.