Commentary

Vietnam’s economy shows promising sign ahead

In less than two generations, Vietnam has emerged from a war-torn nation to become one of the most dynamic economies in ASEAN. Our local MD takes a pulse-check of the domestic economy in this first of a two-part article series.

The world has changed a lot in four decades: yesterday's foe has become today's closest trading partner. Last year was an important one for Vietnam. Just eight years after joining the World Trade Organisation (WTO), the country has emerged as South East Asia’s largest exporter to the US. It overtook traditional regional manufacturing powerhouse like Singapore, Thailand and Malaysia to claim a 20% market share. The country shipped $28.5bn worth of goods and services to the US (an increase of 19.6% from 2013), with textiles and garments being the key export item.

Between 1998 and 2008, the Vietnamese economy achieved an average gross domestic product (GDP) growth of 7.5%. After a decade of high growth, the country fell into recession due to high inflation in 2011, but now the tide is turning once more for Vietnam. It is set to bounce back by leveraging its strategic geographic location, ripening demographic dividend, low labour cost structure and growing foreign direct investments (FDI).

Despite the gloomy global economic outlook in 2014, Vietnam’s GDP managed to grow at the fastest rate (5.98%) in four years to reach US$180.8bn. The country also saw its inflation stabilising to the lowest rate in 10 years at 4.1% (37.88% lower than 2013). The strong growth in Vietnam was driven by its record high export worth US$150bn after rising 13.6% from the previous year. This brought the country trade surplus to US$2bn.

For the next two years, the Asian Development Bank (ADB) projects the Vietnamese economy will expand at an even faster pace of 6.1% in 2015 and 6.2% in the following year. Currently, Vietnam is Asia’s fifth-strongest growing economy. The ADB believes the country could become the second growth engine for Asia (besides India) as China enters a slower growth cycle. According to the ADB’s Asian Development Outlook 2015, Vietnam is also the most promising economy in VISTA (a new acronym encompassing Vietnam, Indonesia, South Africa, Turkey and Argentina). 

It seems foreign investors agree with the ADB’s view. Last year, Vietnam attracted US$15.6bn (up 9.6% from 2013) fresh FDI inflow on top of US$ 4.6bn being injected by existing projects.  Korea was the largest source of FDI with Samsung being the country’s single largest foreign investor and exporter. Last November, the electronic giant announced its plan to spend US$3bn in expanding an existing factory into the largest smart phone production facility in the world. This came just four months after the company received permission to build a US$1bn display module production plant.

In line with growing production capacity in Vietnam, Samsung is expected to become the largest foreign employer in the country as it increases its local headcounts to 100,000 in July. At the moment, Samsung produces most of its smart devices in the country. Their operation has become so large that it will start operating its own private cargo terminal at Noi Bai International Airport in capital Hanoi by year-end. And Samsung plans to invest more. According to the Planning and Investment Ministry of Vietnam, Samsung has invested a total of US$12.6bn in the country and the investment is going to reach US$20bn in two years. 

Apart from Samsung, multinational corporations like LG, Intel, Microsoft, Nokia, Panasonic, Procter & Gamble and many more are stepping up their investment in Vietnam. This is evident in the country’s latest figures. Vietnam just posted the highest first-quarter GDP growth since 2010 (6.03%) while exports gained 6.9% year-on-year to touch US$35.7bn. 

Vietnam’s future certainly looks bright. But will it replace China as the next world’s factory? Keep an eye out for part two of our article series, we will examine the fundamentals that make the country tick.

Read the second part of our article series

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