HSBC’s CEO said Vietnam need to reiterate the risk of slow equitization progress being a hindering factor that could reduceVietnam's future growth potential. SOEs still dominate one-third of the entire economy today.

Vietnam’s Economy Faces Many Challenges Ahead Despite Successes with Covid-19 Pandemic Control
Fews days ago, HSBC Vietnam released a report reviewing Vietnam’s economy, monetary and fiscal policies in 2020 and gives out some predictions for 2021. HSBC’s CEO predicted that Vietnam still face many headwinds ahead.
The COVID-19 crisis continues to have a negative impact on the global economy even though these days we have heard good news about various vaccines. Indeed the impact of the ongoing pandemic is still hard to predict globally, but we can imagine pressure on state budget will increase as the result of lower revenue, while higherspending due to the Government’s increasing stimulus package couldmitigate the negative effect of pandemic on households and businesses.
Even thoughVietnam remainsa bright star for growth, Tim Evans personally see some challenges if Vietnam does not take timely actions and seize opportunities.
Firstly, and this is an issue which has been raised in recent years, even though remarkable progress have been made, the Government should continue to push the equitization of state-owned enterprises (SOEs). HSBC’s CEO said Vietnam need to reiterate the risk of slow equitization progress being a hindering factor that could reduceVietnam's future growth potential. SOEs still dominate one-third of the entire economy today. The equitization of SOEs will help reallocate investment capital, liberatinglabour productivity, and supporting economic growth.
Secondly, according to the World Bank, Vietnam's infrastructure investment as a percentage of GDP is among the lowest in the ASEAN region. This creates challenges for the continued growthof modern infrastructure services that are required for the next phaseof growth (Vietnam is ranked 89thout of 137 countries for quality of its infrastructure).
Mythird pointrelates to FDI which is also one driving force forVietnam's development. As mentioned above, FDI’s sustainable growth is one of the points to be proud of, but it would be even better if we improve customs and administrative procedures, which are factors hindering the development of this industry.. According to World Bank, Vietnamese businesses have to complete sixtax payments ayear, spending 384 hours on fillingforms, preparing and paying taxes, and total payable taxes account for 37.6% of their profits.
The last thing Tim Evans want to mention is regarding sustainable growth. What has happened to Vietnam is similar to what other developing countries have experienced elsewhere in the world. Vietnam’s rapid growth and industrialization have had detrimental impacts on the environment and natural resources. With demand for production and domestic use, total electricity consumption has grownfaster than electricity output. Given the increase reliance on fossil fuels, the energy sector accounts for nearly two-thirds of the country's total greenhouse gas emissions. Over the past two decades, Vietnam has emerged as the fastest growing greenhouse gas emitter in the world with an increase of around 5% annually. Besides that, Vietnam is one of the most vulnerable countries in terms ofclimate change.
There is an urgent need to accelerate the clean energytransition. The positive thing is that the Government has recognized the important of the problem and is working to mitigateimpact on the environment and effectively adapt to reduce the effects of climate change. Strategies and plans to promotegreen growth and the sustainable exploitationof natural resources have been adopted. It is very encouraging to see the openness of many Vietnamese businesses that when it comes to sustainable development. In 2020, HSBC rolled out the first green financing for a Vietnamese company, Duy Tan Plastics Corporation, to set upa plastic recycling factory. Also in November 2020, HSBC has arranged the first green finance in renewable energy for a rooftop solar energy project of REE Corporation's two wholly-owned subsidiaries. Tim Evans is extremely happy that HSBC Vietnam is making a positive contributionto the HSBC Group’s commitment to tackling climate change here in the Vietnamese market.
As previously mentioned, Vietnam is expected to end 2020 with positive growth. Entering 2021, Vietnam will continue its recovery momentum by benefiting from domestic consumption, stable trade growth and FDI inflows. Meanwhile, in the context of consumption being negatively affected by the pandemic, inflation will continue to be controlled below the average level of 4% set by the National Assembly.
The trade agreements, with which negotiation concluded, or signed or in effect such as UKVFTA, EVFTA or RCEP will continue to be a solid premise to boost growth in the export sector, pushing trade surpluses. Meanwhile, with its solidmacroeconomic background and the ability to handle and repelthe pandemic, it is not difficult to see that Vietnam will continue to be a bright investment destination in the region, especially in the electronic component manufacturing industry.
We have basis to expect the exchange rates in 2021 to continue to be managed flexibly. Notably, with the foreign exchange reserves surging to record high, the SBV has enough tools and resources to stabilize the exchange rates to meet market supply and demand. However, there are still challenges that need to be observed and monitored such as the vaccination roadmap for Covid-19, the recovery of the global supply chain, not to mention 2021 being a transition year for the US presidency.
Against the context of unpredictable fluctuations of exchange rates, businesses, especially in export-import area and businesses with foreign loans in foreign currencies need to actively use hedging tools, especially through derivatives such as term contracts, interest rate swap contracts, etc. to ensure their proactiveness in cash flow planning and profit balancing.
Joining free trade agreements means increasing competition, but it’s great to compete with the very best. It forces companies to be nimble, it forces them to adjust and it forces them to innovate. The Vietnamese are hugely resilient people and if I base it on my team at HSBC, they are also very hard working and incredibly innovative. If companies embrace these traits and have the confidence to compete and learn along the way, I do not see any reasons why Vietnamese corporates cannot be successful.