Vietnam has plunged 10 notches in an annual ranking of its financial and business environment following a year marked by skyrocketing inflation, a lack of access to credit, and “rampant corruption,” a global economic foundation said in a new report released Thursday.
The country fell to 75th from 65th a year ago and 59th in 2010, making it the second-lowest ranked among eight of the 10 members of the Association of Southeast Asian Nations (ASEAN) covered by the Switzerland-based World Economic Forum (WEF) annual report on global competitiveness.
The report ranks 144 countries based on the strength of 12 different factors, including institutions, infrastructure, macroeconomic environment, and market efficiency.
“Inflation approached 20 percent in 2011, twice the level of 2010, and the country’s sovereign debt rating worsened,” the report said of Vietnam.
“In an effort to stem inflation, the State Bank of Vietnam tightened its monetary policy, thus making access to credit more difficult,” it said.
Vietnam grappled with double-digit inflation until April this year. It hit 23 percent in August last year, forcing the government to push up interest rates. An official told parliament last week that inflation was at around 6-7 percent at present.
The WEF said that infrastructure, strained by rapid economic growth, remains a major challenge for Vietnam, despite some improvement in recent years, with particular concerns about the quality of roads and ports.
“Public institutions are characterized by rampant corruption and inefficiencies of all kinds,” the report said, adding that respect of property rights and protection of intellectual property are “insufficient,” according to the business community.
“Private institutions suffer from poor ethics and particularly weak accountability,” it said.
The WEF noted that the health of Vietnam’s macroeconomic environment had plummeted in the last year after making significant gains the year before, calling it a “sign of its fragility and extreme volatility.”
Among the most problematic factors for doing business in Vietnam were access to financing, inflation, and inadequate supply of infrastructure, the report said.
The WEF listed Vietnam’s “few competitive strengths” as a “fairly efficient” labor market, a large market size, and “satisfactory” public health and basic education.
“The challenges going forward are therefore numerous and significant and will require decisive policy action in order to put the country’s growth performance on a more stable footing,” it said.
China dropped slightly in its global competitiveness rank to 29th from 26th last year, returning to its ranking of 2009 after several years of “incremental but steady progression,” the report said. The country had ranked 27th in 2010.
“Although China’s decline is small … the deterioration is more pronounced in those areas that have become critical for China’s competitiveness: financial market development, technological readiness, and market efficiency,” it said.
The WEF said China’s lack of domestic and foreign competition in terms of market efficiency was “of particular concern.”
But it said that the country’s macroeconomic situation “remains very favorable,” despite a long period of high inflation.
The report praised China’s moderate budget deficit, low government debt, and healthy gross savings rate.
It also commended the country’s sovereign debt rating, high marks in health and basic education, and enrollment figures for higher education, though it said improvements should be made to the quality of education and the disconnect between educational content and business needs.
China’s competitiveness performance was notably weakened once sustainability measures are taken into account, the WEF said, especially in terms of environmental sustainability.
“Although some political actions toward environmental improvement … have been taken, the country continues to suffer from high emission levels … and the agricultural sector places a great deal of pressure on the environment,” the report said.
The WEF noted that social stability was only partially measured for China, as the country does not report data related to youth unemployment or vulnerable employment.
“However, the available indicators show a somewhat negative picture, with rising inequality and general access to basic services such as improved sanitation remaining low.”
The report listed access to financing, inflation, and policy instability among the most problematic factors for doing business in the country. Other factors included an inefficient government bureaucracy and corruption.
Cambodia improved its global competitiveness rank to 85th from 97th last year and from 109th the year before, the report said, although it did not provide details on the reason for the rapid improvement.
It listed corruption, an inadequately educated workforce, and an inefficient government bureaucracy as among the most problematic factors for doing business in the country.
Reported by Joshua Lipes.