HCMC - Vietnam’s economic locomotive begins to gather pace again

The business situation in HCMC is steadily becoming brighter.

The city’s economy grew by only 0.7% in the first quarter of 2023.

Many businesses say they have seen a lot of hope in public investment disbursement, the city’s growth engine.

"There has never been a national-level project in the city that has moved so fast," Luong Minh Phuc, director of the HCMC Traffic Construction Investment Project Management Board, which is building Ring Road No.3, says.

The manager of an infrastructure investment company says the city is making great efforts to solicit investment in projects in the form of public-private partnerships.

These indicate that the city’s economy has basically recovered.

Retail sales of consumer goods and services were worth VND298 trillion (US$12.6 billion) in the second quarter, up 13% and 9% from the previous quarter and a year earlier.

Public spending in the second quarter was estimated at VND10.26 trillion, an 89% increase from the first quarter and 44% higher than in the same period of last year.

The spending in the first half of the year was up 44% year-on-year at VND15.7 trillion.

HCMC GRDP growth

Thanks to all this, the city’s economy grew at 5.87% in the second quarter, taking the first half growth to 3.55%.

Online sales too have prospered in recent months, according to Nguyen Khac Hoang, director of the HCMC Statistics Office.

According to analysts, people spent more thanks to two main reasons, decreasing inflation and demand stimulus efforts by businesses and city authorities.

The city’s inflation was just 0.17% in June. The price rise has in fact been easing since the beginning of this year.

HCMC's Consumer Price Index

In recent months the city has organized a number of trade fairs, linking up with various provinces and cities to sell their goods.

With prices generally being steady, demand stimulus measures have proven effective.

HCMC's retail revenues from goods & services, 2023

Meanwhile, the services sector has been the largest contributor to growth in the first half, accounting for 86%, as it expanded by 4.96% year-on-year, according to the HCMC Statistics Office.

The city’s tourism revenues were the highest in the country: VND80.8 trillion, up 163% from the same period in 2019, the year before Covid broke out.

Over 18 million visitors came to the city, a year-on-year increase of 48% and 5% higher than in 2019.

A study by the General Statistics Office found that for every 1% increase in public spending, there is a 0.06 percentage point increase in GDP.

But in HCMC, the impact could be even greater.

After the economy hit rock bottom in the first quarter, Phan Van Mai, chairman of the city People’s Committee, decided that during difficult times the city has to focus on speeding up public spending.

So priority was given to public spending on key infrastructure projects such as Ring Road No. 3, metro lines 1 (Ben Thanh - Suoi Tien) and 2 (Ben Thanh - Tham Luong), the An Phu intersection, renovation of the Tham Luong - Ben Cat - Nuoc Len canal network, and widening of National Highway 50.

The city also added to its medium-term development plans some other projects such as sections 1 and 2 of Ring Road 2, renovation of the Xuyen Tam Canal, and construction of the Moc Bai - HCMC Highway.

The entire administration has become involved, many working groups have been set up and meetings are held every week to identify and remove obstacles.

These efforts paid off.

Spending in the first quarter had been only 4% of the year’s outlay of more than VND70 trillion. But by June 29 it had risen to 21% and was expected to rise to 23% the next day.

"Though we did not hit the target of 35%, we managed to spend more than VND14 trillion as against less than VND6 trillion in the same period last year," Mai said at a meeting held on June 29 to assess the city’s economic situation.

HCMC public spending

Along with the increase in public spending, efforts to revive the property market over the past few months have also had a positive effect.

The industry only accounts for 3.7% of the city’s economy, but has spillover effects.

When it is in good health, it has a positive impact on 40 other industries, and drives economic growth, according to the HCMC Real Estate Association.

Some property businesses in HCMC are on the path to recovery after the slump of the last year or so.

Though its economy is recovering, HCMC still has some weaknesses. The HCMC Institute for Development Studies had predicted that imports and exports would decline from May, and it has come true. In the first half the city’s trade balance was negative, with both exports and imports decreasing year-on-year.

Analysts and business executives agree the city economy is likely to remain troubled since the world’s major economies, which are also its key trading partners, have seen recessionary pressures since the beginning of May.

Differences in monetary policy responses by major economies are causing exchange rate volatility, affecting the city’s trade.

HCMC's exports value

Fewer orders, weaker exports

Orders for many industries have decreased by 30-50%, even 70% in some cases. Only a few such as heavy engineering have sufficient orders.

The lack of exports has caused many workers to lose jobs or be furloughed.

Taiwanese shoemaker Pouyuen Vietnam, the city’s largest employer, said it was preparing to terminate the contracts of nearly 5,700 workers in June and July.

Anh at Dony says it is necessary to retain existing customers while waiting for the global economy to improve.

To achieve this, his company is forced to offer discounts of 5-7% to customers.

A recent survey by the HCMC Union of Business Associations found some 95% of businesses faced losses and large inventories.

To achieve growth, companies have had to make tradeoffs.

The city’s business environment is improving month after month, with the number of businesses pulling out of the market being lower than that of new ones since March.

HCMC's business registration

Many businesses have had to settle for lower profit margins, down even to merely breaking even, to get orders or attract consumers. But it is surely not a long-term solution.

Measures and recommendations

According to experts, what need to be done immediately are to stabilize the bond market and help businesses get loans on easy terms.

Nguyen Phuoc Hung, vice chairman of the HCMC Union of Business Associations, suggests that bank lending interest rates should be reduced to below 8% from the unaffordable rates of over 10% now.

To continue to support businesses and sustain the recovery momentum amid the difficult export markets, the HCMC Institute for Development Studies says the city needs to focus on tapping the domestic market with promotions and linkages to stimulate demand and by combining trade and tourism and expanding consumer credit.

It is necessary to support businesses through a mechanism for linking them with banks and faster processing of tax, customs and fire prevention procedures by authorities.

Acceleration of public spending is also a good measure in the context that the city’s production and exports largely depend on overseas demand.

Source: Vneconomy, july 2023

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