Strengthening domestic market’s role

Assoc. Prof., Dr. Dinh Trong Thinh, economist

In the first seven months of 2023, the domestic market grew at a double-digit rate, adding a bright point to Vietnam’s economic picture. Could you describe the domestic market’s role in the Vietnamese economy?

Vietnam’s economic growth in the first half of 2023 did not meet expectations. To achieve the 6.5 percent growth target set by the National Assembly and the Government, it is necessary to promote production, consumption and other factors.

Since the fourth quarter of 2022, foreign trade has shown signs of decline. In the first seven months of 2023, exports and imports respectively decreased by 10.3 percent and 17.4 percent compared with the same period last year. Foreign trade has been a driving force of the Vietnamese economy over the past many years. Due to difficulties facing import and export activities, stimulating domestic consumer demand is crucial to maintaining the growth of the economy.

In January, the total retail sales of consumer goods and services grew by 20 percent year-on-year. The growth rate decreased to 13 percent in the first two months, 13.9 percent in the first three months, 13.8 percent in the first four months, 12.6 percent in the first five months, 10.9 percent in the first six months, and 10.4 percent in the first seven months, however.

Suitable measures should be taken to stimulate domestic consumer demand in order to promote production and contribute to economic growth.

The Government has put in place timely policies to help businesses and people overcome difficulties, aiming to stimulate domestic consumer demand and promote economic recovery. Could you elaborate on these policies?

To encourage domestic consumption, the Government has applied various policies to facilitate domestic trade in goods, while encouraging businesses to reduce product prices to stimulate consumption.

Since July 1, the Government and the National Assembly have decided to lower the value added tax (VAT) by two percent, helping reduce prices of goods by 1.7 percent. Lower VAT has also helped reduce the production cost, enabling producers to increase sales promotion and after-sales services to stimulate consumption.

Also from July 1, the Government has increased base salary for public employees, thus enhancing consumer purchasing power. At the same time, the Government has extended the time for tax payment and exempted/reduced land and water surface rents, improving the financial capacity for businesses and enabling them to reduce production costs.

The Ministry of Industry and Trade (MoIT) has supported businesses in organizing fairs to promote the sale of local products facing export difficulties, such as textiles and garments, leather and footwear. Business linkages have been tightened to facilitate transportation, logistics and warehousing, helping reduce the cost of goods circulation.

I think the Government and the MoIT’s timely efforts have contributed to promoting production and trade as well as to facilitating the circulation of goods in the national economy. Domestic consumption is expected to increase during the final months of the year to further encourage production and trade.

Do you have any recommendations to State authorities as well as to the business community for further growth of the domestic market?

Policies of State management authorities and efforts of local governments have contributed significantly to increasing domestic consumption. However, these policies merely have short-term effects. In the long term, further efforts are needed to reduce the cost of production and trade. Notably, linkages among relevant units are necessary to minimize the time for transportation of goods from producers to consumers as well as the cost of warehousing.

Consumer demand is diverse. We can organize suitable programs to encourage Vietnamese people to buy Vietnamese goods. Media organizations’ participation in these programs is necessary. For their part, businesses should learn carefully about consumer demand based on their age and the region where they live in order to create the most suitable products to their tastes.

Businesses should also cooperate with each other in an effort to minimize production and transportation costs, thus reducing the prices of goods when they reach consumers.