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No. 1 (31) February 1996
Dao Le Minh (Ph.D.) Institute of World Economy
1995 sees a continuation of the renovative trend in Vietnam's market-oriented
economy, a steady pace of growth of the past 5 years, a fast growth rate
of the economy, and a new phase of national socioeconomic development -
the phase of industrialization and modernization. The successes recorded
in 1995 have created favorable conditions for the execution of the 1996-2000
five-year plan. GDP growth rate is 9.5% for 1995 (8.8% for 1994 or an average
annual growth rate of 8.2% for the whole 5-year period of 1991-1995).
The pace of development is sustained, and better results obtained against 1994. The principal targets are as follows:
* Including imports by enterprises with foreign capital investment amounting to about 2.5 billion USD, 1.05 billion USD for 1995 alone.
Agricultural production continues to develop in tandem with a production restructuring oriented towards promoting commodity agricultural economy. The outcome is that in 1995, food output attained 27.4 million tons (24.8 million of paddy, and 2.6 million of other crops in paddy equivalent), an increase of over 1 million tons against 1994. Thus, for 5 consecutive years (1991-1995), food output has steadily increased, to the tune of over 1 million tons per year, averaging 369 kg per person, basically resolving the problem of food supply to the entire society and enabling an annual export of 1.5-2 million tons of rice.
A considerable increase of the output of long-growth industrial crops against 1994 was seen: 135,000 tons of dry latex, an increase of 15,000 tons; 175,000 tons of coffee nuts, an increase of 5,000 tons; 41,000 tons of dried tea, an increase of 3,000 tons...
Products of livestock breeding have increased: 1,360 thousand tons of assorted raw meat, an increase of 100,000 tons against 1994. The value of livestock-breeding products has made up over 25% of agricultural production value. Output of aquatic products in 1995 attained 1.26 million tons, an increase of 4%.
INDUSTRIAL PRODUCTION has maintained a steady high growth rate of 14%, mainly due to technological renovation, intensive investment, and business improvement. Industrial commodity items are more numerous and diverse, of which some have gained a better competitive edge in the domestic market and in export.
Following are some important products which see a remarkable growth:
Electric output in 1995 attained 14.5 billion kwh, overfulfilling the planned annual target by 2.1% or an increase of 18.5% as against 1994.
Coal output attained 6.5 million tons, an increase of 9%.
Crude oil attained 7.63 million tons, that is lower than the planned target (7.7 million tons), mainly due to an initial miscalculation at the Dai Hung mine (oil extraction at Dai Hung was 1.13 million tons, that is 70,000 tons lower than planned).
Cement output in the year was 5.8 million tons, an increase of 11.5%.
Consumer industrial products, in general, attained a high growth rate: 24.7% for soap, 31.8% for paper, 12.5% for cigarettes.
Taken as a whole for the 5-year period, all the key industries have recorded a fairly high growth rate: the output value of the fuel industry (oil and gas included) in 1995 was 3.2 times as high as in 1990 and represented a ratio of 18.8% in the entire industrial sector; the electric industry was 1.6 times and 6.3% respectively; the food processing industry was 1.9 times and 31%, the construction materials industry was 2.7 times and 10.2% respectively.
DEVELOPMENT INVESTMENT
Despite the limited investment from the state budget and the modest credit investment, the capital investment for development in the entire society continued to increase, in general, compared with 1994, and was estimated to be 62,230 billion VND for the whole 1995, i.e.,an increase of 10% over the estimation early in the year and of 19% against 1994, thus making up approximately 27% of GDP of which investment by the enterprises themselves amounted to 5,000 billion VND; by the population and private persons to 16,000 billion VND; by FDI 1.8 billion USD or 20,000 billion VND, an increase of 20% over the estimation early in the year; from the state budget 12,780 billion VND; and credit investment (including medium-term loans from the commercial bank) 7,600 billion VND.
The amount of credit capital investment increased much more than the expected figure of 4,000 billion VND, due to the application of several incentive measures, particularly the raising of interest rate from an annual 8.4% to 13.2%.
As to domestic accumulation, it was 10.1% for 1991, 16.6% for 1994, and 18.8% of GDP for 1995. The ratio for 1995 was a little higher, but if basic depreciation was taken into account, the ratio of net accumulation for 1994 and 1995 couldn't be higher than 7-8% per year. This indicator reflected a low general efficiency of the economy, affecting the promotion of investment for industrialization. Thus, for the whole 5-year period 1991-1995, development investment in the whole society was over 18 billion USD (1995 constant price) of which the ratio of the state was 43%, FDI about 27%, and the population about 30%.
The market of commodities and services in the country continued to develop, meeting the ever bigger demand of the society in quantity, quality, and variety. A number of commodity items can compete with foreign imported goods.
In 1995, some essential commodities for domestic consumption registered a considerable increase against 1994: 4.8 million tons of petrol, an increase of 6.6%; 1 million tons of steel, an increase of 25%; 7.1-7.2 million tons of cement, an increase of 18%; 1.4 million tons of nitrogen fertilizer, an increase of 7%; an increase of 4% of food supply in the market; an increase of 10% of foodstuffs.
During 1991-1995, a strong development was seen in trade and services, giving shape to a unified commodity market in the entire country with various forms of ownership in business undertaking. The total volume of commodities in the retail trade recorded an annual average increase of 25%, of which home-made commodities in the market made up 65%.
In 1995, employment was generated for 1.3 million working people, of whom the national employment fund provided jobs to 300,000, gave job training to 60,000, and offered employment advice to 140,600; the 327 and 773 programs found jobs for 100,000; the rural credit program for 350,000; the 'hunger eradication and poverty alleviation' program for 200,000; and the employment program of mass associatioris for 100,000 people.
Nevertheless, as the labor force grew faster than job generation, unemployment was still on the rise. The social workforce in 1995 numbered 41.3 million people, an increase of 1.5 million against 1994. Therefore, unemployment rose from 5.9 million people in 1994 to 6.1 million in 1995, and the unemployment ratio, 14.8% of the workforce, remained unchanged.
A renovative trend continued to be seen in the financial, monetary domains. In 1995, some improvement was made in the national finance.
Total budget revenue increased by 29.8% against 1994, overall liquidity increased by nearly 25%, savings deposit by 41%, and credit balance by 25% (of which short-term loan balance, 25%). Management over foreign exchange changed for the better, eliminating the practice of direct foreign exchange transaction among enterprises and expanding the network of foreign currency conversion. Foreign exchange rates were flexibly controlled.
The commercial bank system was reorganized after the Canadian model. At present, there are 4 state banks, 46 stock banks, 19 foreign banks, 42 joint-venture banks, and 72 foreign representative offices.
STATE BUDGET
State budget operation is subject to the National Assembly's decision:
to execute the task of revenue collection, to practise thrift in spending,
to combat waste, and to deploy expenditures in a priority order.
Thanks to it, although total revenue fall behind the expected level, no
great turmoil was seen in connection with the state budget, expenditures
were basically covered as planned, and inflation controlled, thus contributing
to socioeconomic stability and development.
Budget revenue in 1995 attained 53,350 billion VND, that is 96.4% of planned target, but still represented an increase of 28.7% against 1994 (11,911 billion), of which 9% was attributable to economic growth, 10% to price indexing, and 8.7% to better control against evasion... Of total budget revenue, taxes and fees amounted to 50,400 billion VND, that is 22.4% of GDP and 94.5% of budget revenue; receipts from giving land-use right to 1,500 billion; sales of houses to 250 billion; and nonrefundable aid to 1,200 billion VND.
Total budget spending in 1995 was about 61,960 billion VND, that is 98.2% of planned target, of which spending on development investment amounted to 13,780 billion, i.e. 98.4% of planned target; spending on debt clearance and aids to 10,380 billion; and current expenditures 37,800 billion VND.
Budget deficit in 1995 was 8,610 billion VND, an increase of 11.4% over planned target, making up 3.8% of GDP (in 1994, 7,730 billion, 3.4% of GDP). Sources for offsetting budget deficit included 4,400 billion VND of domestic loans, 3,120 billion VND of foreign loans (of which cash loans amounted to 1,782 billion VND, equivalent to 162 million USD; borrowing from capital construction investment projects 1,428 billion VND, equivalent to 129.8 million USD); receipts from social insurance 1,000 billion VND.
State budget in 1995 basically reflected the socioeconomic situation in the stage of stabilization and development. Budget revenue grew faster than economic growth rate. Revenue from within the national economy not only ensured current expenditures and debt clearance, but also made it possible to reserve an ever bigger allocation for development
MONEY AND PRICES
Despite its reform, the monetary system has failed to catch up with the development of the national economy. Like 1994, 1995 saw too fast a rise of the overall liquidity (25%) compared with the economic growth rate (9.5%) thus becoming one of causes which pushed up the price index. Inflation in 1993 was 5.2%, soaring to 14.5% in 1994, and expected to be approximately 13% in 1995. In the first 11 months of 1995, the price index of commodities and services rose by 12.3%, of which 12.8% for commodities and 9% for services. Prices of food and foodstuffs alone rose by 19.4% (18% for food and 20.3% for foodstuffs). The price index of gold decreased by -2.1% and US dollar by 0.4%.
Though inflation did not entail big repercussions, it has started to exert a negative impact on socioeconomic life. Mention can be made of 3 groups of causes leading to inflation: first, budget deficit entailing debts which are not cleared yet; second, monetary problems such as the provision of credits to overcome national calamities, accumulated spending on reformed wages in the late 1995, purchases of foreign currencies by money issuance, and supplements to the state credit investment fund; third, shortcomings of the government in market management, particularly during the first 6 months of the years, leading to an abrupt rise in the prices of rice and cement.
In 1995, foreign economic relations continued to develop. Export turnover rose by 30.5% against 1994, attaining 4.7 billion USD, covering several new commodity items and new markets. Foreign direct investment grew fast, increasing by over 30% against 1994 and focusing more on industrial development and intensive investment.
EXPORT-IMPORT Total export turnover attained 4.7 billion USD, increasing by 30.5% against 1994, and overfulfilling planned target by 200 million USD, mainly due to an increase in quantity and quality of agro-forest-aquatic commodity items, and also to the world price rise in such products as rice, coffee, rubber, aquatic products...
All principal export items fulfilled planned targets, such as 2 million tons of rice, 165,000 tons of coffee, 110,000 tons of rubber, 600 million USD worth of aquatic products, 7.6 million tons of crude oil, 650 million USD worth of garments, 2.2 million tons of coal...
The export markets has been consolidated and expanded. Vietnam has so far entertained trade relations with more than 100 countries and territories in the world; total export turnover in 5 years (1991-1995) attained 16 billion USD, that is an average annual increase of over 20%, ensuring the import of principal technological materials and equipment for the national economy and contributing to gradually improving the balance of trade.
Total import turnover in the whole year attained 6.5 billion USD, of which materials and equipment of the enterprises having foreign capital investment amounted to about 1.05 billion USD, or 17% of total turnover; equipment in various projects 850 million USD, an increase of 15.6% against 1994; spare parts and accessories 1.1 billion USD, an increase of 20.6%; and materials and fuels 3.65 billion USD, an increase of 33.7%.
Following were some principal import items: 4.8 million tons of petrol and lubricants (not including a temporary import for re-export of 400,000 tons), an increase of 6.7% against 1994; 1.3 million tons of nitrogen fertilizer; 550,000 tons of steel, that is the same quantity as in 1994; and 1.2 million tons of cement.
Thus, total import turnover in 5 years (1991-1995) attained about 20 billion USD.
TOURISM
1995 saw 1.3 million foreign visitors, overfulling planned target by 8.3%; and 4.5 million local tourists, surpassing planned target by 28.5%. Total revenue was estimated to be 5,500 billion VND, overfulfilling planned target by 14.5%.
FOREIGN DIRECT INVESTMENT (FDI)
From December 1987, date of the promulgation of the law on foreign investment in Vietnam, to the end of November 1995, the Vietnamese state issued licenses to 1,495 projects, totaling over 19.2 billion USD of registered capital. Except for 234 projects which have expired, the remaining 1,261 projects are still underway with a total investment capital of nearly 17.9 billion USD.
Taiwan remained the leading investor in Vietnam with 207 projects totaling over 3.2 billion USD of investment capital. Hong Kong held second place with 169 projects totaling over 1.74 billion USD. Japan climbed fast to third place with 167 projects totaling nearly 1.74 billion USD, followed by Singapore with 113 projects with over 1.69 billion USD. South Korea was the fifth with 126 projects totaling 1.44 billion USD.
Investment capital for the industrial sector was more than 6.99 billion USD, a ratio of 39%; for the sector of touristic hotels, apartment buildings and offices for rent 6.59 billion USD, i.e. 36.9%; construction 9.2%; communication, transport, and postal service 6.9%; argo-forestry 4.2%...
Five biggest foreign-investment recipients in the country were Ho Chi Minh city for 5.69 billion USD, i.e. 32%; Hanoi for 3.59 billion USD, 20%; Dong Nai for 2.31 billion USD, 12.9%; Hai Phong 784 million USD; and Ba Ria-Vung Tau 777 million USD.
In the first 10 months of 1995, the Government issued licenses for 312 projects with total investment capital of 5.926 million USD, that is 1.5 time as high as the investment capital of 1994. Foreign investment capital for the whole 1995 was estimated at 7.5 billion USD.
In the first 9 months of 1995, Taiwan was the leading investor with 36 projects totaling 1,098.15 million USD; followed by Japan with 30 projects totaling 921.77 million USD; British Virgin Islands with 25 projects totaling 671.34 million USD; South Korea with 35 projects totaling 485.31 million USD; and the USA with 13 projects totaling 444.02 million USD... Leading FDI recipients included Ho Chi Minh city for 86 projects and 1,792.06 million USD; Dong Nai for 37 projects and 943.88 million USD; Hanoi for 47 projects, and 749.36 million USD; and Ba Ria - Vung Tau for 10 projects and 458.06 million USD...
1996 is a significant year as it is the opening year of the socio-economic development 5-year plan, 1996-2000, which encompasses several trying targets: an increase of 9-10% of GDP; 4.5-4.8% of agro-forest-fishery production value; an attainment of 28 million tons of food; an increase of 14-14.5% of industrial production; 12-13% of services value; an attainment of 70,000 billion VND for development investment, i.e. an increase of 12.9% against 1995 and a ratio of 27% of GDP; an attainment of over 22% of GDP from taxes and fees for the state budget; an increase of 27-28% of export; control of inflation to under 14%...
The prospect of economic development trends in 1996 is as follows:
is combined with a vigorous development of the manufacturing industry and restructuring of ruraf economy.
1996 will focus on a firm settlement of the food problem for the entire society; continue to undertake intensive farming, crop multiplication, and expansion of arable land area; strive to attain 28 million tons of food output (of which 2.7 million tons of rice equivalent being from subsidiary crops), i.e. an average per-capita output of 370-380 kg of food. Efforts will be made to attain, in 1996, 190,000 tons of coffee, 150,000 tons of rubber, 45,000 tons of tea, 1.4 million tons of assorted meat (an increase of 2.9% against 1995), and 1.3 million tons of aquatic products (an increase of 3.2%). Processing industry for argo-forest-fishery products will be developed and the program of restructuring of rural economy continued.
To continue with the trends of investment for the renovation of techniques aimed at accelerating the development of some branches of food processing industry, the production essential consumer goods, the export-oriented industry and some heavy industry installations, and to promote more vigorously rural industry in order to restructure rural economy.
Outputs of some principal branches are estimated as follows: 17 billion kwh of electricity, curtailment of losses of electric energy from 1 to 1.5% against 1995, electric supply for 90% of districts and 65% of communes in the whole country; 7 million tons of coal, of which about 2 million tons are to be exported; 0.7 million tons of laminated steel: construction of some new steel mills; extraction at the Thach Khe iron mine (Ha Tinh) of 10 million tons per year; 7.6 million tons of cement, and construction of new and renovation of several cement plants; extraction of 8.1 million tons of oil, 0.3 billion cubic meters of gas; completion of preparatory work for the building of oil refinery No.1 with capacity of 6.5 million tons per year and the South Con Son - Phu My gas pipeline with capacity of 3-5 billion cubic meters per year.
Total export turnover in 1996 is expected to be over 6 billion USD, an increase of 27.7% against 1995, of' which agro-forest-aquatic products account for 2.8 billion USD, an increase of 16.7%; products of light industry, small industry and handicraft for 1.4 billion USD, an increase of' 55.6%; and products of heavy industry and minerals for 1.8 billion USD an increase of 28.6%.
Import turnover in 1996 is expected to be 8 billion USD. an increase of 23%, of which imports by Vietnamese enterprises account for 6.7 billion USD, making up 83% and increasing by 23%. These imports include equipment in various projects amounting to 600 million USD; materials, fuel, and accessories 5,050 million USD; and equipment of the enterprises with foreign capital 1.3 billion USD, making up 17% and increasing by 53%.
Concerning tourism, 1996 expects to see 1.8 million foreign tourists, an increase of 38.5% against 1995; 5.7 million local tourists, an increase of 26.6%; a total revenue of about 7,200 billion VND, an increase of 31%, including a proportion of 490 million USD, an increase of 40%.
At the requirement of the National Assembly, the 1996 state budget will hinge on the following main principles:
- Current expenditures should be confined within 70% of total revenue from taxes and fees, reserving 30% for development investment and debt clearance.
- Spending for development investment should secure a faster rate of increase than that of current expenditures. Together with investment of the state (through budget and credits), investment by the entire society should be encouraged, raising total investment to 27% of GDP.
- Allocation for clearing debts within and without the country shouldn't exceed 4.3% of GDP; postponement and spacing should be sought for the clearance of the remaining debts.
- Providence fund should amount to 1% of GDP and 3% of total budget spending.
- Budget overspending should be limited to at most 3.3% of GDP.
Based on the above-mentioned principles, the state budget in 1996 is to be proportioned as follows:
- Total revenue for the budget should be 62,000 billion VND, an increase of 16.2% against 1995, of which taxes and fees account for 58,500 billion, increasing by 16.1% and making up 20.9% of GDP.
- Total budget spending should be approximately 71,200 billion VND, an increase of 14.9% against 1995, of which:
+ Spending for development investment accounts for about 15,400 billion VND, an increase of 11.8%.
+ Spending for debt clearance and aids, about 12.300 billion VND, an increase of 18.5% and a ratio of 4.3% of GDP.
+ Current expenditures, about 40,000 billion VND, an increase of 5,8%.
- Budget overspending is expected to be 9,200 billion VND, or 3.3% of GDP, and is to be offset by taking foreign loans to the tune of 4,700 billion VND (equivalent to 427 million USD) and domestic loans 4,500 billion VND.
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