The economy of Vietnam is going though a dynamic shift, marked by robust growth and the development of several key trends supporting a stronger looking future. The IMF places Vietnam among the top twenty fastest growing global economies, with a projected GDP growth of 5.8 percent in 2024. Pietro Karjalainen, Asian Insiders partner in Vietnam examines the forces driving the economic outlook for Vietnam and offers insights into the country’s promising future.
The population of Vietnam is around 102 million and with a nominal 2024 GDP at USD 469 billion, the 35th largest in the world or 26th if measuring by PPP. In modern times, the economy of Vietnam is centrally directed through a series of five-year plans. These are a series of economic development initiatives, broadly shaped by the central government, mapping strategies for economic development, growth targets and launching reforms.
Recognising the need for technical innovation for the economy of Vietnam, the government has made substantial investments in research and development, evident both in the rapidly improving economy as well as its ascent on the Global Innovation Index (GII), ranking 46th of 132 countries in 2023, according to the GII report released by the World Intellectual Property Organisation (WIPO). The country maintains its second position amongst lower middle-income countries.
Improvement in innovation and technical competence is key to attracting significant investment from industry, especially as most major manufacturers seek to diversify their production as well as take advantage of Vietnam’s still lower labour rates. Companies like Samsung, LG, Foxconn, Panasonic, Bosch, GE, Piaggio and Yamaha have established either local research and development facilities or a full manufacturing base – underlining Vietnam’s potential for being an innovation as well as production hub.
Vietnam’s geographic location supports this also, its long 3,300km eastern coastline offering 45 seaports of various grades. The economy of Vietnam is significantly enhanced by recent and looming improvements to its infrastructure. See that story here.
The improving economy off Vietnam is made possible with the major influx of foreign direct investment (FDI). The country has been successful in attracting significant investments making it one of the top countries globally in attracting FDI. In 2023, the economy of Vietnam attracted USD 36.6 billion, a 32% increase on the previous year. Further this includes newly registered capital of around USD 20 billion, a remarkable increase of 62% on the previous year. That reflects 3,188 newly registered projects in 2023.
This volume of investment came from 111 countries and territories with the bulk coming from other Asian countries – with Singapore leading and followed by Japan and Hong Kong. The Foreign Investment Agency, in its assessment of the FDI landscape in 2023 emphasised the role of the government and the close coordination with various ministries and localities in addressing and removing legal and bureaucratic obstacles hindering investment and business outcomes. The strong recent FDI inflows speak of improved confidence in the future prospects for the economy of Vietnam.
Vietnam’s largest trading partner is China, with the US being its largest export market. This is likely to grow further with the signing last year of the Comprehensive Strategic Partnership with Washington, in preparation for the coming US recognition of Vietnam as a market economy. While the US are a fair way behind most of the rest of the world in this, it will allow an improved trading and tariff structure, likely leading to an increase of US engagement in and with Vietnam.
Vietnam is looking to take a leading role also in the green economy and sustainability, with the Ministry of Planning and Investment last year announcing ambitious goals of increasing the green economies contributions of GDP from USD 6.7 billion in 2020 to a remarkable USD 300 billion by 2050. The plan offers domestic and international business partners a framework with which to align their strategies, with a potential to contribute USD 40 to 50 billion annually.
Vietnam also is seeking to dramatically improve its digital infrastructure, issuing a national digital transformation programme in 2020, a national strategy on e-government in 2021 and a national strategy on the development of the digital economy and digital society in 2022. Early outcomes seem positive with the National Committee on Digital Transformation reporting that over 50 new digital platforms have been developed and that the rate of online public services at Level 4 has reached over 96%. Vietnam ranks 86 out of 193 countries and territories in terms of digital government according to the UN with the e-government development index higher than the global average. Good progress, but with some ways to go yet.
With strong GDP growth, a solid increase in FDI and significant improvements in infrastructure, Vietnam remains one of the globes rising economies. With the labour market rebounding and a surging middle class, there is a noticeable uptick in domestic consumption. The double impact of export-driven growth and a thriving domestic market position the economy of Vietnam for sustained and dynamic growth.
Asian Insiders offers experience in investing and operating successfully in the economy of Vietnam. To discuss investment and partnership opportunities in Vietnam, please contact Jari Hietala, Managing Partner: jari.hietala(at)asianinsider.com or Pietro Karjalainen, Vietnam Partner: pietro.karjalainen(at)asianinsiders.com
