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Overview of Vietnamese economy in 2006 and prospect in 2007
31/1/2007 14:37' Send Print

Joining the WTO and acquiring the Permanent Normal Trade Relations (NPTR) with the US does not reduce severe difficulties and challenges for Vietnam. Results attained in 2006, however, are satisfactory and illustrate great efforts on the part of the administration, branches and localities. The increase of investment projects by the top economic corporations and groups of the US, Japan etc in late 2006 and the successful 14th APEC Meeting have promoted a new foreign investment wave to Vietnam.


In 2006, besides fundamental advantages brought about by 20 years of renovation, the Vietnamese economy faced a number of natural calamities: drought in the early months of the year followed by mega typhoons and torrential rains and floods which devastated our country in the remaining months. Anthrax broke out in a large area. Different kinds of insects devastated rice crops in Mekong River Delta and caused great loss. Prices of some key commodities in the world markets such as gasoline, fertilizers, and pesticides suffered large fluctuations. The EU market for leather shoes shrunk. However, thanks to the close direction of the Government through appropriate solutions and measures, and the efforts of enterprises and branches, the Vietnamese economy still developed strongly in 2006.

The economy attained high growth rate in 2006. Most key economic targets set forth by the National Assembly were achieved or exceeded. The growth of Gross Domestic Products was estimated to grow at 8.2% (planned at 8%), of which the agricultural, forestry and aquatic sector grew at 3.23% (against the planned 3.8%), the industrial and constructional sector grew at 10.46% (planned: 10.2%), of which industry in particular grew at 10.28%. The Services sector’s growth was 8.26% higher than the planned 8% target. The economic growth rate was increasingly higher over the quarters of the year: 1st quarter 7.2%, 2nd quarter 7.4%, 3rd quarter 7.8%, and an estimated 8.4% for the 4th quarter. The transformation of the economic structure continued to progress. The ratio of the first sector decreased from 20.89% in 2005 to 20.37% in 2006, the ratio of the 2nd sector increased from 41.03% in 2005 to 41.56% in 2006 and the ratio of the 3rd sector increased from 38.07% in 2005 to 38.08% in 2006. GDP per capita reached more than VND 11.5 million, equivalent to USD 720 which is USD 80 higher than the figure of 2005.

Thanks to the high economic growth rate, the national fiscal stand remained robust. Total budget revenues were estimated to be VND 261.1 billion in 2006 which is 9.1% higher than the planned figure (the adopted estimates was VND 237.9 billion) or an increase of 20.3%. All major revenue sources achieved the planned targets. The total budget expenditures were estimated to be VND 315 billion which is higher than the adopted estimates of VND 294.4 billion) or an increase of 20% compared with the 2005 level. Major expenditures such as development investment, salary and social insurance, development of health care, education, culture and adjustment of minimum salary, assistance to disaster-affected areas were made on time. The budget deficit was estimated at 5% of GDP (adopted figure was 5%), of which more than 80% was financed by domestic borrowings and the remaining was covered by foreign sources.

Agricultural, forestry and aquatic production continued to grow. Production value of this sector in 2006 was estimated to be 4.15% higher than the figure of 2005, of which the additional increase of agricultural production value was 3.1%, forestry 1.0% and aquatic production 8.5%.

Despite the devastation of insects, food production kept on increasing. Rice production areas in 2006 were 7.32 million hectares, equal to the 2005 areas. Its yield was 4.89 tons/hectare which showed a 0.1% increase. Rice output was 35.83 million tons which was the same level as 2005. Corn output in 2006 was 3.81 million tons. Therefore, the total food output was 39.64 million tons which was 26.6 thousand tons higher than the 2005 output. Rice exports in 2006 were about 4.8 million tons which produced a turnover of USD 1.2 billion. This turnover was lower than that of 2005, but given the loss of 990,000 tons of rice as a result of insect infestation in the Mekong River Delta, it was still a spectacular result.

The production of vegetables, industrial crops and fruit trees showed impressive progress. Starched crops increased 5.6%, vegetables increased 5%, bean output showed a rise of 0.5%, sugarcane 6.9%, tobacco 61.9% etc. perennial plant areas reached 2.490 thousand hectares which increased 22.2 thousand hectares in comparison with 2005, of which perennial industrial crops were 1,652 thousand hectares or an increase of 18.4 thousand hectares from 2005. The outputs of key industrial crops fared well. Tea increased 5.2%, coffee increased 9.6%, rubber 11.8%, pepper 2.4% and coconut 1.4% etc.

Animal husbandry continued to develop and increase in the number of flocks. The Ox herd was 6.5 million, an increase of 17.5%. The Pig herd was 26.9 million, a 3% increase compared with the previous year. The Buffalo herd numbered 2.92 million which was equal to 2005 figure. Poultry was restored after the bird flu epidemic at about 214.5 million which was equal to the 2005 figure. The live weight of meat output of all kinds was 3.1 million tons showing an increase of 9.3%.

The containment of bird flu throughout 2006 was highly appreciated by the international community. Anthrax was put under the control across the country.

Only one day in November 2006, Vietnam attracted USD 2 billion in investments from foreign enterprises which was a record in comparison with previous years

Forestry production faced a shortage of funds but in 2006 the reforestation area still increased 2% compared with 2005. Aquatic production fared well. The total output in 2006 was about 3.68 million tons showing an increase of 8% from 2005.

Given the serious loss in coastal areas caused by typhoons No 6 and 9 etc the output of aquaculture of the whole year still reached 1.68 million tons which increased 16% from 2005. A new feature in aquatic production in 2006 was that the intensive and semi-intensive cultivation of tiger prawns strongly developed in Bac Lieu, Ben Tre and Soc Trang provinces. Extensive farming and improved extensive farming of tiger prawns and the combined farming of prawns and rice are at harvesting time in Ca Mau and Kien Giang province. Crayfish farming in fresh water is expanding in An Giang, Can Tho and Dong Thap provinces. Fish breeding is strongly developed which serves both export and domestic consumption with many high-valued varieties such as tilapia, eel, black fish etc.

The exploited output of aquatic products was estimated to be 2 million tons, an increase of 1% from 2005. With regard to fresh water products, thanks to a high flood of the Mekong River, fish and prawns followed the water stream in considerable quantity and people were able to make big catches.

Industrial production kept on growing. The value of industrial production in 2006 was estimated to increase 17% from 2005, of which the State sector increased 9.4%, non-State sector increased 22.4% and foreign investment sector showed a rise of 19.5%. Provinces and cities which showed high growth rates were Hai Phong 17.1%, Ha Tay 22.7%, Hai Duong 23%, Hung Yen 28.2%, Vinh Phuc 23.5%, Quang Ninh 18.3%, Binh Duong 23.4%, Dong Nai 21.2% and Can Tho 22.2%. Some provinces and cities which had high ratio of industrial production, on the contrary, showed slower growth rates such as Ho Chi Minh City 14.5%, Ba Ria-Vung Tau 5.4% (due to the reduction of exploited oil output), Hanoi 15.8% and Da Nang 6.9%.

Some key industrial products managed to maintain high growth rates, of which coal was estimated to grow at 20.8%, foodstuff and beverage production 21.5%, processed aquatic products 24.6%. Production of parts for leather shoes which accounted for a ratio of 4.7% increased 18.4%, wooden products which accounted for a ratio of 2% increased 23.15% (of which wood and wooden product export increased 24.6%). Rubber and plastic products with a ratio of 5.25% increased 26.8% (of which export of plastic products increased 38%). Metal products increased 25%, electrical equipment 28%, Radio and telecommunication equipment 185%, transportation means (newly-built vessels and repairs) 22.8%, ready made garments 18.5%, restroom-ceramic wares 18.9%. A new feature of 2006 industrial production was that high-quality products managed to maintain the domestic market as well as penetrate foreign markets. Some noteworthy industries were the ship building industry which was able to export big ships to the EU market, chemical fertilizer production, and information equipment production amongst others.

Spontaneous transformation of cultivated crops was still a common practice, of which an adverse trend of transformation occurred according to which non-rice cultivated and prawn breeding areas were converted into rice fields in some provinces, especially in the South.

Capital investment registered progress. Total social investment in 2006 was estimated to be 41% of GDP which was the highest record in recent years (of which investment from non-State enterprises accounted for about 33%). This was a great effort to attract resources from various economic sectors for development investment and also a strong driver to increase GDP growth rate.

The capital construction financed by State budget sources was thriving but not steady. The whole year investment capital roughly reached the set target. Key national constructions and Group A projects were disbursed according to schedule. Some major constructions were completed and put into use such as the national convention centre which was finished on time for the APEC summit meeting, the first generator of the 3rd Sesan hydro power plant, Bai Chay bridge, Thi Nai bridge, which was the longest one in Vietnam at 2.5 km in length connecting Quy Nhon city and Nhon Hoi economic zone in Binh Dinh province, Nga Tu So traffic circle in Hanoi, sea dykes, and some parts of the HoChiMinh highway. Construction activities were started at Dung Quat oil refinery plant, Cau Gie-Ninh Binh highway, and the confluence of Thanh Tri bridge. Progress was expedited at Son La hydro power plant and some other major projects.

Foreign direct investment was the bright spot in the Vietnamese economy. In 2006, the total newly registered capital and supplemented capital reached more than USD 10.2 billion which was the highest record since 1988. The average capital per project was USD 8.4 million showing an increase of USD 1.2 million from 2005. Localities that attracted the biggest number of projects and investment capital were Ba Ria-Vung Tau, HoChiMinh City and Binh Duong. 2006 witnessed some new major investment projects such as steel production project invested by Posco with USD 1.126 billion, USD 605 million project of Vietnam Intel Liability Limited Company, USD 314 million project of THT Development Liability Limited Company, USD 556 million project of Vietnam Tycoon Steel Liability Limited Company. Some companies supplemented their capital, for example Vietnam Intel Products supplemented USD 395 million, Bach Ma company USD 10 million, Linh Luh Shoes company USD 98 million, Canon USD 70. Some major industrial groups transferred investment projects from China to Vietnam. The Nike group avoided business risk in China and expanded its production in Vietnam with 50,000 newly recruited workers. The increase of investment capital in Vietnam to more than USD 1 billion by Intel group was solid evidence of this trend.

Major investment partners of Vietnam in 2006 were Republic of Korea, Hong Kong, the United States, Japan, the Cayman Islands, British Virgin Islands, and Singapore. The increase of investment projects of the top industrial groups, especially of the United States and Japan after the 14th APEC Summit Meeting in last November signaled a new wave of foreign investment to Vietnam. In only one day in November 2006, Vietnam attracted USD 2 billion in foreign investors which was a record over recent years. Late in 2006 Ha Tay province granted an investment license for a USD 300 million project of the Vietnam-Japan Meiko Liability Limited Company etc.

In the international trade area, there were 3 major events: Vietnam became the 150th member of the WTO, the US parliament adopted the Permanent Normal Trade Relations with Vietnam, and Vietnam’s export turnover exceeded USD 39.6 billion which far surpassed the planned target. These 3 major events marked a turning point in Vietnamese trade activities in the process of deeper integration into global economy.

The domestic market maintained its stable growth. The total circulation of retailed commodities in 2006 was estimated to increase 20.4%. Its deflated growth rate was 11%. Revenues from tourism increased 28.5%.

The consumer price index in December 2006 increased 0.5% from the previous month and 6.6% from the same time in the previous year, and was lower than the GDP growth rate. Given natural disasters and epidemics in many localities, markets and prices of essential goods for production and people’s life remained stable without price hikes. This was a great success of the Government in its management at macro level and control of inflation. The exchange rate against the US dollar was relatively stable, and increased 1.2% against the previous year’s level. The gold price fluctuated and stood at a high level. The gold price in December 2006 increased 25.1% against December 2005.

Export turnover was nearly USD 40 billion which increased 24% from 2005. Most key export items registered high growth rates and acquired high turnover. 9 export items reached more than USD 1 billion in turnover such as rice, rubber, crude oil, garments, shoes and footwear, wooden products, aquatic products, electronic appliances etc. The turnover of some items in this group far surpassed the planned targets. Two items that had the fastest growth rates were rubber and coal. Black pepper also registered a strong growth and achieved a record turnover for recent years. Footwear maintained an impressive growth rate despite the imposition of an anti-dumping tax by the EU. Export turnover of footwear increased 21.5% against the same time in 2005. Exports to the US market significantly contributed to this item’s growth rate.

Import turnover in 2006 was about USD 44 billion, an increase of 20% from 2005. Imported items were mainly machinery, equipment, fuel, materials, and supplies of garments. Consumer goods accounted for a small ratio. The trade deficit was estimated to be USD 4.4 billion which was equivalent to 10.4% of export turnover. This deficit was smaller than 2005.

Tourist activities remained unruffled and about 3.56 million international guests visited Vietnam in 2006 which showed an increase of 3.7% from 2005. Visitors mostly came from ASEAN countries, Asia and Europe, of which Singaporean visitors increased 24.3%, Malaysian 23.4%, Republic of Korean 29.3%, Thai 38%, Norwegian 24.8%, Danish 21% etc.

Thanks to high growth rates, objectives of socio-economic development and environmental strategies were fulfilled. Most targets set forth by the National Assembly were met. 1.6 million jobs were created and the percentage of poor households according to new standard was reduced to 19%. The percentage of under-5 year old malnourished children decreased to below 24%. Positive changes were seen in the areas of science and technology, education and training, culture and information, vocational training, health care, sport and physical exercise. People’s life was significantly improved. The income of civil servants and retirees was increased thanks to the adjustment of the minimum salary from VND 350,000 to VND 450,000 from January 1, 2006. The appearance of rural areas was improved. New infrastructure systems were built and upgraded. Food shortages in rural areas in between-crop periods were reduced in comparison with previous years. The number of households which suffered from food shortages decreased 58% and the number of persons suffering from food shortages decreased 58.9%, although the intensity of typhoons and epidemics was more serious than previous years. National defense and security was firmly maintained. Vietnam’s prestige and image in the international arena was heightened. This was proved by the success of the 14th APEC Summit Meeting in Hanoi.

Beside the above-mentioned achievements and progress, socio-economic situation of Vietnam still included various weaknesses and constraints. GDP growth rate was not solid and lower than expected. The quality of growth and competitive capacity remained low. Economic structure transformed slowly. Losses and waste of financial, natural and human resources were still serious. The administrative reform failed to achieve the set requirements. The equitization of State-owned enterprises slowly progressed according to schedule. The Macro balance of the economy and national finance remained unsound. The Socio-economic infrastructure was creaky, especially in rural and mountainous areas. The perception of people, civil servants and Party members on the challenges and advantages of Vietnam acquiring full membership of the WTO and Permanent Normal Trade Relations was blurred. Foreign debts reached almost up to the safe level. These constraints and limitations could be clearly seen in each branch and economic area.

In agriculture, spontaneous transformation of crop plants was a common practice and adverse transformation from non-rice cultivation and prawn breeding areas into rice fields, especially in the South, is a particular concern. Areas of winter-spring rice crop in southern provinces increased 3.2% due to the above-mentioned adverse transformation. In the Mekong River Delta, 21,000 hectares were transformed, as were 22,000 hectares in the south-east and 10,000 hectares in the Central Highlands. This adverse transformation caused the reduction of 0.14 ton/hectare of rice yield. As a consequence, rice output was reduced 709,000 tons compared with the previous crop.

Although the Government did not have any plan to sow rice in the summer-autumn crop, 1.55 million hectares in the Mekong River Delta was still sowed which meant an increase of 3% of cultivated areas for the third crop. Another noteworthy matter was the vast devastation by pestilent insects. The rice yield of the summer-autumn crop in the Mekong River Delta was reduced by 0.36 ton/hectare which led to a decrease of 990,000 tons of rice. The mistake of provincial authorities in this area was not being strict enough in preventing people sowing a third crop. Worse, in some places, local authorities even encouraged people to cultivate a summer-autumn crop to take advantage of a rice price hike and did not apply any measures to prevent pestilent insects. Late in December 2006, an outbreak of bird flu occurred in some southern provinces.

Up to now, anthrax still exists in 25 communes in 6 provinces. Although bird flu has been put under control, quarantine was not strictly carried out, allowing wandering poultry is common, the illegal import of poultry in the northern border area is still rampant, and the free and scattered slaughter of cattle and poultry was left uncontrollable. Thus, there exists a high threat of re-occurrence of epidemic outbreaks. The program of breeding milk cows and cross-bred oxen went bankrupt in some northern and central provinces and no remedy has yet been adopted.

Forestry production grew slowly. Scattered reforestation was only 98.4% of the planned target, the reforested areas which were put under regular nurture increased 0.9% and regenerated forest increased 0.7% from 2005. The program of afforesting 5 million hectares did not achieve the planned target and the National Assembly had to adjust its objectives and implementation period.

Shrimp raising in Ca Mau peninsula and the southern of Central area suffered a great loss due to epidemic and undue preparation of ponds and lakes used to raise shrimp. A great number of households had to change into rice cultivation and incurred great debts. The exploitation of sea products was affected by typhoons No 6, 8, 9 and 10. The output of Tra fish did not show any increase due to low price levels in early months of the year and many households who bred this type of fish changed into other types of production. Some Tra fish processing factories had to close down because of the shortage of material.

The industrial growth rate was lower than 2005 (17.2%). Outputs of some industrial products decreased. State owned industries, especially industrial entities managed by local authorities, posted slow growth. The growth rate of industry in some provinces and cities which have high industrial ratio was lower than expected level. The gap between the growth rate of output and that of added values remained at 2005 level (+6.6%). This situation showed no improvement in the management of industrial production and high intermediated costs compared with 2005.

With regard to the cause of the above-mentioned situation, objective reasons included: reduction in export markets and price hikes in materials and inputs which led to high production costs. On the subjective side, quality and competitiveness of some industrial products manufactured by State-owned enterprises remained low; equitization of State-owned enterprises moved slowly; infrastructure is creaky; economic legal environment is incompatible; management expertise and technical skill of civil servants and laborers did not match the requirements of improving quality and reducing costs.

In capital construction, slow progress of key national projects was a common phenomenon, such as at Thanh Tri bridge, the 3rd ring road of Hanoi city, upgrade project of the national highway No 1A, repair of Van Thanh bridge, and some components of Son La hydro power plant. There were a lot of reasons: imperfect programming, slow disbursement of allocated fund, land clearance, increase of fuel and raw material prices, and the impact of the 18th PMU case. Another matter was that in 2006, we concentrated our efforts on attracting foreign direct investment for industries and services while agriculture and fisheries received small foreign investment and there was no remedy to this situation. The disbursement of ODA was only 50% of the committed capital of international donors (USD 3.7 billion).

With regard to market prices, while food and catering services accounted for the largest share and related to the lives of tens of million households, their prices in the market continued to increase over the past 12 months to the level of more than 8%. A great concern was the constant increase of food price, of which 0.4% in September, 1.3% in October, 3.8% in November and more than 2% in December. Hence the annual price increase was 13%. In coping with this, the Government decided to stop the export of rice. The increase in food price stemmed from great demand while the supply capacity was limited. Rice merchandise of the summer-autumn crop strongly decreased in the Mekong River Delta while demand for exports increased. The growth rate and turnover of rice exports in 2006 significantly increased on an unsolid basis as raw export items still accounted for a major percentage such as crude oil, aquatic products, rubber, black pepper and rice etc. Processed commodities accounted for a small volume. These weaknesses and constraints should be addressed in the coming years.


The 10th meeting of the National Assembly (XI Tenure) issued a resolution on the objectives of 2007 socio-economic development. In economic area, the resolution set forth: GDP grows at 8.2%-8.5%, export turnover grows at 17.4%, and total social investment capital achieves 40% of GDP. Based on the new capacity and momentum created in 2006, the forecast of socio-economic situation in 2007 is bright. The basis of this forecast includes: the increase of resources for development investment, especially ODA and FDI. With the approval of the PNTR with Vietnam by the US Parliament, the ability of attracting FDI and ODA will strongly increase in the early months of 2007. The 2006 Consultative Meeting held in Hanoi from 14-15 December 2006 announced a record of committed ODA for Vietnam in 2007– USD 3.74 billion which is higher than 2006 figure. With regard to FDI from the US, now that Vietnam acquired the PNTR, OPIC and EXIMBANK will further their activities to promote investments and trade activities of the US companies in Vietnam. According to Mr. Michael Marine, the US Ambassador to Vietnam, in 2007 investments from the US in Vietnam will double the present level (USD 4 billion). The increase of investments from American companies will spur investors of other major economies such as Japan, Republic of Korea, China and EU to do business in Vietnam. A new strong wave of investment will flow into Vietnam and support development investment of our country. Industry, financial and banking and insurance services are the target areas of the new investment wave. It is anticipated that the volume of FDI to Vietnam in 2007 will increase to more than USD 11 billion which will be USD 2 billion higher than 2006. Export activities will be more robust in 2007. In trade activities, the PNTR will be the basis for the US administration to review preferential tax rates (in previous years there was only 3,600 lines, from 2007 this figure will increase to 10,000 lines) applicable to imports from Vietnam. In addition, with the PNTR and WTO membership at hand, quotas of garments, footwear and aquatic products exported to the US will be removed together with anti-dumping measures applied to Basa fish, prawns and leather shoes. Hence, the export of Vietnamese commodities to the US will strongly increase particularly rice, coffee and rubber etc. It is likely that investment and trade activities between the two countries will witness a new and prospective turning point. It is estimated that the mutual import and export turnovers will reach USD 11 billion in 2007 (in 2006, this turnover was roughly USD 10 billion, of which Vietnam exported USD 8 billion). According to Mr. Walter Blocker-Chairman of the American Chamber of Commerce in Ho Chi Minh City, with the PNTR and WTO membership, the Vietnamese economy will witness major changes and the trade balance will lean towards Vietnam. The trade relations between Vietnam and other major markets such as the EU, China and Japan will enjoy sudden acceleration.

The increase in investments and export will bring about a new flow of capital and new markets for the higher development and growth of industry, agriculture and services. Based on this background, the 8.5% growth rate of GDP is a realistic target. If the Mekong River Delta had not suffered from super typhoons and pestilent insects, our GDP growth rate in 2006 would have reached 8.5%. Therefore, there is no reason for us not to believe that our economy will grow more slowly than 2006. The 5 year experience of China after having joined the WTO and acquiring the PNTR showed that its GDP growth rate has been constantly higher than 9%/year and about 10.5% in 2006.

To materialize the prospective in 2007, at the beginning of the year, all branches and administrative levels should strictly follow the direction of the Government in implementing various solutions, making good use of opportunities, addressing inherent weaknesses and overcome challenges to successfully achieve 2007 planned targets.

Nguyen Sinh Cuc