Puzzle pieces of the market in 2016

Thursday, 2016-01-14 16:35:45
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A farmer is tending her flowers.
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NDO - Vietnam ended 2015 with a bang as many bilateral and multilateral trade agreements were signed or concluded. The door to world trade has become more wide open than ever. Whether Vietnamese enterprises can take advantage of this opportunity more or less depends on efforts to modernise market institutions.

A lesson from investment in agriculture in Lam Dong province

For the last ten years, a wave of foreign investment in agriculture in Lam Dong has made the Central Highlands province become more vibrant. People throughout Vietnam flocked to the province to learn from its experience in developing high-tech agriculture. Foreign investment in agriculture reached more than US$600 million. Many investors have become popular names such as Agrivina-Dalat Hasfarm, Dalat Flower Forest Biotechnology Corporation, Dalat GAP Store and so on. Last year, Lam Dong saw the opening of a beef cattle project in collaboration with Belgium’s East Flanders province and a vegetable seed production project of Bejo from the Netherlands.

Other enterprises in mechanical, electronic, processing and IT industries have also invested in agriculture. Rang Dong Group, for example, invested in a lighting technology while Dalat University used nuclear technology for mutation breeding. Investors and farmers in Don Duong, Duc Trong districts and Dalat city do not have to worry because most of their vegetables, fruits and flowers are bought by domestic and foreign enterprises.

It is true that Lam Dong’s agriculture is undergoing rapid changes thanks to access to both domestic and foreign markets, in addition to other factors such as investment climate, capital, science and technology.

Deputy Chairman of the Lam Dong People’s Committee Pham S says there are four reasons why enterprises and farmers are keen on investment in agriculture.

First, the local government has been active in calling for investment, taking charge of building and protecting trademarks while enterprises concentrate their resources on production.

Second, governments at different levels, scientists and experts are active in helping farmers apply science and technology.

Third, the province encourages practical initiatives in agricultural production. In the last four years, Lam Dong has had nearly 50 projects on high-tech agriculture and 119 enterprises and production facilities have been granted quality certificates such as VietGap, GlobalGAP, Organic, UTZ and 4C.

And finally, provincial leaders are willing to hold dialogue with enterprises to address their difficulties. The time to grant investment licences has been cut to one week and only 12 hours in many cases.

In addition to favourable weather and geographical conditions, Lam Dong has many enthusiastic scientists and managers devoted to agriculture. Pham S is himself a famous scientist with more than 70 scientific works on applied high technology. Thanks to those like him, scientific research has become more practical to agricultural production. Output and quality have greatly improved. Revenues on a hectare have more than quadrupled in the last ten years to VND122 million (US$5,490). Lam Dong now has 15% of its farming area, or 39,000 hectares, employing high technology. Of which, more than 10 hectares record annual revenues of between VND500 million and VND2.5 billion (US$22,500-US$112,500) per hectare.

And the long-term gain is that farmers are now aware of the importance of the application of science and technology in agriculture. According to many scientists, farmers are completely able to acquire and apply new knowledge if they are given proper training and support. Due to demand to expand their business, small households have proactively united to become more dynamic and effective entities.

A thought on modernising the market economy

However, the most worrying thing is the market for agricultural produce. Vietnam surely will experience enormous challenges when the Trans-Pacific Partnership, the ASEAN Economic Community and other free trade agreements with the EU, Republic of Korea and the Customs Union of Russia, Belarus and Kazakhstan come into effect.

Vietnam’s agriculture can only make a breakthrough by expanding domestic and foreign markets, which requires the country to quickly address institutional and policy shortcomings. It is a must to build a true market economy, in addition to streamlining State management.

Emphasising this as a key task in 2016 and subsequent years, head of the Central Economic Commission Vuong Dinh Hue said the spirit of the upcoming Party Congress is building a modern socialist-oriented market economy in line with international standards and with harmonious coordination between the State and market, economic and social affairs.

In order to achieve this, the role of the State in the economy should be further clarified. Does this revolve around the allocation of resources? North European, North American countries and recently China do not distinguish between central and local hospitals, which do not come under the management of a central ministry but local governments. How can the ministries of health and education have time for policy formulation when they are in charge of managing hospitals and universities? The phase-out of the role of ministries and provincial-level people’s committees in representing State ownership in enterprises and the establishment of a specialised agency for this task poses many issues in a new stage of international integration. Determining the role of State management agencies will continue to be a hot topic in 2016.

At a press briefing at the end of 2015, head of the Central Economic Commission mentioned the development of a debt market. According to Hue, the leader of a US insurance company said he was willing to buy Vietnam’s government bonds, even those with a terms of 15-20 years. But if they did not know anything about yields, the yield curve, if there was discount or not, whether they were able to trade them and so on, they did not dare to hold bonds for a period of 15-20 years. Only when Vietnam has a debt market can they participate. Currently Vietnam only relies on commercial banks to issue bonds so the result is usually far below expectations.

Hue affirmed that 2016 holds many favourable conditions for Vietnam to make an economic breakthrough, but noted that the country needs to focus on two tasks: achieving a balance between the domestic and foreign sectors to avoid a situation known as a “two-speed economy”; and making the goods, services, financial, property and sci-tech markets more open while facilitating the establishment of debt, forex and asset markets.

It is the means to materialise the Party and State’s guidelines and determination to build a modern and effectively adaptable market economy in the context of global integration. The laws on investment and enterprises have been amended with modern principles in mind, with progressive content and high transparency, expected to precipitate a second wave of investment in Vietnam.

Many economists say the number of enterprises in Vietnam can increase by three or four times the current level, reaching 2 million in 2020 if markets become more open, the business environment improves in line with market principles, efficiency is used as the criteria to assess enterprise performance, there are equal treatment of public and private sectors and strict penalties on those violating market principles.

With a solid foundation laid firmly in the past 30 years of Doi Moi, Vietnam’s economy in 2016 is expected to be dominated by the bright tone of the national start-up spirit.