What Vietnam can do to escape the pandemic morass

Phung Duc Tung

Some colleagues and I have been invited by the prime minister’s advisory group to provide inputs into how Vietnam can mitigate Covid-19 impacts on the national economy.

The new coronavirus has messed up all of our plans, and the big question facing the government now is this: With very limited resources, what are the solutions that can create the most immediate and positive impacts on Vietnam's economic growth from now to the end of the year and next year? We can call this the post-present Covid-19 crisis period.

Following is a brief outline of the views I have shared with some experts and managers.

To ensure economic growth in the short and medium term, the priorities that deserve urgent attention are: supporting and promoting new economic growth drivers; making exports more competitive; and boosting domestic demand.

First, we need to promote strong development of the non-contact industries. This can be done after successfully completing our telecommunications infrastructure to support the digital economy.

So far, just more than half of Vietnam’s 95-million population use the internet and most of them live in urban areas, getting connected via their smartphones. The nation’s internet quality, meanwhile, is going down.

For developing the digital economy, we need to focus resources on improving the telecommunications infrastructure so that Vietnam can extend the reach of 4G service to all rural and mountainous areas, and do the same with 5G for urban areas. Investments should be made for the country to equip itself with better broadband Internet connections and have more submarine cables to ensure their smooth connection.

Vietnam currently has six submarine cable systems and a 120 gigabit channel that runs overland through China.

Connected in November 2009, the $560-million Asia America Gateway (AAG) handles more than 60 percent of the country’s international Internet traffic. The cable runs more than 20,000 kilometers (12,420 miles), connecting Southeast Asia with the U.S., passing through Brunei, Hong Kong, Malaysia, the Philippines, Singapore, Thailand and Vietnam. But it has experienced frequent ruptures and repairs, repeatedly affecting services in Vietnam.

If the government offers subsidies to allow free internet services in rural and mountainous areas, it would create an important breakthrough, boosting the number of people having access to the digital economy. Internet is not yet popular in several areas and offering it free will be a very good policy that not just favors the people but also boosts socio-economic development without costing the government much money. Having as many people get access to the internet as possible would create a foundation for Vietnam to achieve contactless public services, including the completion of administrative procedures, online studies and healthcare delivery.

The second task would be to boost infrastructure development for the logistics sector so that Vietnam can reduce costs for businesses. Vietnam is among the nations with the most open economy in the world. The total amount of good it exports and imports each year is estimated at more than $500 billion, double its gross domestic product (GDP). The nation’s logistics costs, meanwhile, amount to 21 percent of its GDP, among the highest in the world. It is only when Vietnam can lower its costs that it can make its products more competitive and boost exports.

What I want to emphasize here is the need to remove obstacles at major entry points, allowing exporters and importers to complete customs clearance processes more quickly, reduce costs, and contribute to improving the competitiveness of Vietnamese goods.

The question now is how to improve infrastructure at points where 90 percent of the goods go out or come in, like the Noi Bai and Tan Son Nhat international airports in Hanoi and HCMC, the port systems in HCMC and its neighboring province of Ba Ria-Vung Tau, the northern Hai Phong City and Quang Ninh Province as well as in central Da Nang City, the border gates in provinces that share borders with China, Laos and Cambodia, like Lang Son, Quang Ninh, Lao Cai, Quang Tri and Tay Ninh.

For example, the Noi Bai International Airport, which currently accounts for 75 percent of the value of goods shipped out by air, is in urgent need of an additional runway beside the two existing ones, an upgrade to the cargo terminal and extra transit warehouses. Tech giants like Samsung and Apple will not want to expand their operations in Vietnam if they see runways at major airports get jammed frequently.

Our border gates need extra manpower and further streamlining of administrative procedures towards allowing faster customs clearance of goods.

Road freight now accounts for 75 percent of Vietnam’s total good transportation. The cost of gasoline and tolls make up a significant part of the production cost of transport companies. If the government boldly removes all taxes and fees related to petroleum, which currently account for 64 percent of the current gasoline prices, it will create a breakthrough.

Containers of Dinh Vu Port in Hai Phong, northern Vietnam, are seen from above. Photo by Reuters/Kham.

Next, it would be much better if the government provides transportation companies with subsidies to cover road fees, especially the toll for build-operate-transfer (BOT) projects, which has been causing public frustration.

Tax breaks and fee reductions have always had an immediate impact on businesses. Before Covid-19, businesses may not have needed them, but now, such interventions will help reduce logistics costs immediately and help them recover.

Renewable energy is a global trend, and Vietnam has a great potential to produce solar and wind power. However, private firms struggle when they have produced solar power but cannot connect it to the national grid. Besides, the policy on electricity prices has always been unstable and changed frequently and related state documents are often slow in coming, giving no time for businesses to prepare themselves. These factors have hindered the development of the renewable energy sector in Vietnam.

If the infrastructure in areas that have been planned for renewable energy development is upgraded and if Vietnam has a stable and long-term electricity price policy that is only changed every five years, we can promote private investment in the sector, and thus reduce environmental pollution that is getting worse at thermal power plants.

And last but not the least, the government must focus on maintaining the resilience of the two important economic hubs in the country, Ho Chi Minh City and Hanoi, to avoid a complete collapse.

Of course, these are not easy steps and the proposed changes will lead to a sharp decrease in budget revenues and a huge increase in overspending. But in times of grave crises, sacrifices have to be made to extricate the nation out and take it forward.

I hope such reforms receive the consent and support of the National Assembly.