More efficient utilization of resources would help Vietnam achieve annual GDP growth of 9 – 10%, equivalent to that of Japan and South Korea during their economic booming periods, according to Nguyen Dinh Cung, former director of the Central Institute for Economic Management (CIEM).

Illustrative photo.

Efficient allocation and utilization of resources should be the core issue during Vietnam’s economic restructuring, said Cung in an interview with the governmental portal.

Cung added the incremental capital-output ratio (ICOR) showed signs of improvements, but remained at modest level of 6, while that of South Korea and Japan at their similar phases of development was only at 4 and 3, respectively.

ICOR explains the relationship between the level of investment made in the economy and the consequent increase in GDP. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. 

Cung referred to a recent article written by Prime Minister Nguyen Xuan Phuc that stressed the government must give priority to the development of market for the sale and rental of land-use rights for farmland.

Cung said it is essential for Vietnam to have a legal framework for the operation of land-use rights market, instead of focusing on the real estate market.

“Vietnam has to make laws to capitalize land-use rights of farmers, taking them into the market, not just issuing land acquisition orders or administrative measures.”

Cung stated a well-developed land-use rights market is the best instrument to protect farmers’ benefits, particularly at a time of rampant bureaucracy in the country.

Failure to comply with market principles would be a major barrier to the land grouping policy, Cung continued.

Cung also said state-owned enterprises (SOEs) are holding huge state capital under disposal, adding market-based motivation and rightful benefits of related parties are key to utilize this resource efficiently.

Another key issue for Vietnam is to build trust from the business community towards the judicial system. Following the latest Doing Business of the World Bank, Vietnam has not seen any improvement in criteria of enforcing contracts and resolving insolvency.

Last but not least, Cung said Vietnam should be aware and grasp opportunity arising from new business models of the Fourth Industrial Revolution.

Vietnam should have incentive policies to nurture creativity, and timely address restriction and shortcomings that may emerge.

“The state must send a strong message that the citizen could do anything not forbidden by the law, instead of waiting for regulation to roll out the new business models.”

“We should not be too afraid of new business models, as those harmful to the society would not survive,” the senior economist added.