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As manufacturing increasingly transitions from China to India and ASEAN nations, Vietnam has emerged as the driving force for growth in the region. Following the outbreak of the US-China trade war, the country experienced impressive growth rates of approximately 7.4% in both 2018 and 2019. Remarkably, Vietnam managed to avoid negative growth throughout the pandemic, further demonstrating its resilience and economic potential.
Regarding the opportunities in Vietnam, the country presents far more than just the manufacturing sector. With a burgeoning middle class, increasing wealth, rapidly improving business environment, accelerated infrastructure development, expanding healthcare access, and a thriving IT industry, Vietnam is capturing everyone’s attention across the globe.
From the macroeconomic point of view, Vietnam has 100 million population and growing. Many of them are still young with a median age of 32.8 (2023). As household incomes in Vietnam rise rapidly, demand for luxury goods and services will increase, though from a relatively low base. However, the retail sector offers promising entry opportunities, as trade barriers are being reduced with numerous partners through a variety of bilateral and regional trade agreements. A consumerist culture is taking root among young adults, supported by greater access to modern retail outlets in urban areas and the expansion of e-commerce platforms.
From the perspective of the manufacturing sector, Vietnam has gained a reputation as the primary low-cost regional alternative to China for export-focused manufacturing. This, along with the country’s rapid economic growth and participation in several major free-trade agreements like ASEAN, RCEP and EVFTA, have been instrumental in attracting foreign investor interest. As reported by the Ministry of Planning and Investment (MPI), Singapore was the leading source of foreign investment commitments in 2021, followed by South Korea, Japan, mainland China, Hong Kong, and Taiwan. In 2021, the manufacturing and processing sector continued to be the top recipient of FDI, accounting for 58.2% of foreign investment commitments.
From the perspective of healthcare, the market in Vietnam presents significant opportunities for growth and development. As of November 2021, the country had insured 88 million citizens, which represents 90% of its population, achieving this milestone two years ahead of schedule. The government aims to reach universal healthcare coverage by 2030 and is on track to accomplish this goal early. However, the range of treatments covered by health insurance is expected to remain limited, with substantial co-payments. Private expenditure accounted for 55% of total healthcare spending in Vietnam in 2019, with the government encouraging the adoption of private insurance to reduce out-of-pocket expenses. Despite gradual decentralization of the healthcare funding system and increased managerial autonomy for provincial and district healthcare facilities, public facilities continue to face challenges such as overcrowding, poor local infrastructure, and inadequate equipment. The ratio of hospital beds to population in Vietnam is below the global average, and there is an ongoing effort to improve this situation.
From the infrastructure perspective, Vietnam’s new PPP Law has streamlined the legal framework for private investment in infrastructure, broadening its scope and introducing standard contracts and revenue-sharing systems. Despite concerns about government assurances and project agreements being subject to Vietnamese law, the successful allocation of segments of the North-South Expressway to the private sector signals positive reception. With increasing demand for infrastructure and budgetary limitations, private sector involvement is expected to increase, presenting growth opportunities for investors. Vietnam’s position in the regional supply chain, trade agreements, and economic reforms contribute to its expanding transportation infrastructure.
From the energy perspective, the market of Vietnam remains uncertain. During the COP26 climate change conference in 2021, Vietnam announced its commitment to achieving net-zero emissions by 2050. However, the multiple delays in finalizing the PDP-8 and its most recent draft version, which expanded the role of coal in Vietnam’s energy mix, have raised concerns about the country’s genuine dedication to a comprehensive energy transition.
From the digital economy perspective, we are seeing an acceleration of IT developments as well as the software innovation. With more people, companies, and the entire country going online, the market potential is huge, particularly through the integration of IT solutions into private and public sector operations and processes. The adoption of cloud applications and infrastructure services is expected to gain momentum, as customers increasingly bypass the on-premises era. The pandemic has further accelerated trends such as e-commerce, online content and service consumption, mobile payments, and remote work, which will continue to be fueled by ongoing investments in data networks, logistics, retail, and channel operations. The government’s initiative to develop an IT services industry over the next 15-20 years, including the National Technology Innovation Fund, is anticipated to expedite the growth of local enterprises. Additionally, a robust purchasing power growth trend will enhance the local currency affordability of imported PCs and those assembled locally with imported components, contributing to the overall potential of the IT sector in Vietnam.
Vietnam’s population of approximately 99.5 million has supported its stable economy and strong productivity, with a working-age population of around 67 million or 71.6% of the total population in 2021. However, a declining population growth rate, now at 0.8%, coupled with the government’s strict two-child policy, has slowed the population growth. With a small number of immigrants and a significant outflow of labor, Vietnam faces challenges related to an aging society and the prospect of getting old before getting rich.
Vietnam’s per capita income is 40% of the global average, and with an aging population, the country has limited time to adapt to an aging society compared to many advanced economies. The old-age dependency ratio is projected to increase from 13% in 2021 to 22% in 2039, nearing the 26% of high-income countries like the United States. As a result, Vietnam must address a range of crucial challenges to ensure continued economic growth and stability in the face of an increasingly aging population.
Vietnam’s economic growth, fueled by proactive foreign trade policies, infrastructure development, and a growing middle class, presents an $80 billion opportunity in the retail market over the next five years. This expanding market is driven by increasing demographic diversity, with a projected rise in the population spending $30-$70 per day from 4% in 2020 to 18% by 2030. Geographical diversity is also contributing to this growth, as cities beyond Hanoi and Ho Chi Minh City, such as Binh Duong, experience significant population increases, leading to a surge in demand for a wide array of products and services.
As the retail sector evolves, informal retailing continues to hold a strong presence in both urban and rural areas. This diverse sector, ranging from street vendors to C2C e-commerce via social media, offers a broad selection of products at lower prices due to reduced operational costs and tax avoidance. Additionally, emerging business models, such as mobile commerce and the increased use of credit cards, are gaining popularity in Vietnam, driven by high internet and smartphone penetration rates and initiatives from major banks. This shift is fostering growth in product categories that were traditionally less popular in developing countries.
Vietnam’s economy is experiencing remarkable growth, primarily driven by the transfer of corporate supply chains from China amid the ongoing Sino-US trade war. Three key factors are propelling this growth: diplomacy, business and infrastructure, and a stable labor supply. Vietnam’s diplomacy efforts have resulted in numerous trade agreements signed with various countries and regions since joining the International Trade Organization in 2007. The EVFTA and UKVFTA agreements highlight Vietnam’s strong position in the regional economy, making it an attractive destination for industries with low gross profit margins and high labor intensity.
Moreover, Vietnam boasts a relatively complete business and infrastructure landscape, and a high level of domestic political stability due to its one-party dictatorship. This gives the country an edge over other competing economies in the region. The Vietnamese government has also signed a nine-year infrastructure construction plan, which is expected to improve roads across the country and launch 5G infrastructure development in early 2023. As the global geopolitical situation continues to evolve, particularly the confrontation between China and the US, Vietnam emerges as a popular choice for companies looking to adopt a “China Plus One” strategy, further propelling the nation’s economic growth.
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