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The Economy of Vietnam - Industry & Market Trends in 2023
Last Updated: February 16, 2023
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Vietnam’s economy has been growing rapidly despite the ongoing Sino-US trade war. The transfer of corporate supply chains from China to Vietnam has been a major contributor to this growth. In 2020, despite the global pandemic, Vietnam still managed to maintain a growth rate of 2.8%, which is remarkable among major economies outside Taiwan. Although the annual growth rate will drop to 2.58% in 2021 due to the impact of the domestic Delta outbreak and government’s epidemic control measures, the overall trend of economic development remains unchanged. The Vietnamese government estimates a growth rate of 8% for 2022. This growth rate is nearly twice the ASEAN average of 4-5%.
Future’s growth is driven by three key factors: diplomacy, business and infrastructure, and a stable labor supply. Additionally, the ongoing global geopolitical situation, particularly the confrontation between China and the US, has also played a role in Vietnam’s growth. With the trade war during the Trump administration and the sanctions during the Biden administration, many labor-intensive industries in China are moving south, making Vietnam a popular choice for companies looking to “China Plus One.”
Vietnam’s diplomacy has been a major advantage, with the country signing numerous trade agreements with various countries and regions in just ten years after joining the International Trade Organization in 2007. Its signing of the EVFTA and UKVFTA agreements demonstrates its strong position in the regional economy, making it an attractive destination for industries with low gross profit margins and high labor intensity.
The country also boasts a relatively complete business and infrastructure, with a high level of domestic political stability due to its one-party dictatorship. This gives it an edge over other competing economies, such as Indonesia and the Philippines, Laos, Myanmar, and Bangladesh. 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.
Info Chart | 2021 Data |
|---|---|
Name | Vietnam |
3-Code | VNM |
Region | East Asia & Pacific |
Income Level | Lower middle income |
Currency Unit | Vietnamese dong |
Nominal GDP | 362.6 billion $ |
Population | 96.5 million |
Land Size | 310070KM sq |
Net Income Per Capita | 2163 Nominal $ |
GDP Per Capita (PPP) | 11553 Nominal $ |
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
Vietnam’s economy is heavily reliant on exports, with exports making up 110% of its total GDP in 2021, much higher than the 62% average in ASEAN. This is expected to increase even further in 2022. After Singapore, Vietnam is the most export-driven economy in Southeast Asia.
In recent years, Vietnam, like Indonesia, has experienced growth due to strong foreign direct investment (FDI). In 2020, FDI made up 15% of total investment, but due to factors such as the disruption of Chinese supply chains citing lockdown reasons, this rose to 21.8% in 2021. It also indirectly contribute to an increase in fixed investment to 31.7% of total GDP, which is the highest in ASEAN.
The majority of FDI is invested in the manufacturing sector (59%), with examples like LG’s investment worth $2.15 billion in Haiphong, the third largest city in Vietnam, VKPC’s $611 million paper factory in Yongfu, and Far East New’s $610 million investment in textile factories in Vietnam.
Despite this growth in investment, private consumption remains the main contributor to the Vietnamese economy, accounting for 50-60% of its total GDP. However, with increasing investment, net exports, and the government’s focus on export-oriented strategies, the proportion of private consumption has decreased over time.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
Kinh (Viet) 85.3%, Tay 1.9%, Thai 1.9%, Muong 1.5%, Khmer 1.4%, Mong 1.4%, Nung 1.1%, other 5.5% (2019 est. by CIA)
Vietnamese (official), English (increasingly favored as a second language), some French, Chinese, and Khmer, mountain area languages (Mon-Khmer and Malayo-Polynesian)
Catholic 6.1%, Buddhist 5.8%, Protestant 1%, other 0.8%, none 86.3% (2009 est. by CIA)
After Vietnam gained independence in 1945, the government split into a communist-backed North Vietnamese government and a U.S.-backed South Vietnamese government. Ultimately, the civil war ended with a North Vietnamese victory in 1975 and established Communist Party rule over all of Vietnam. Subsequently, in 1978, Vietnam launched an aggression against Cambodia on the grounds of national security, and the Chinese government responded by invading Vietnam.
This series of events made Vietnam have very little contact with the Western world, and its economy and domestic political stability depended heavily on the Soviet government. It was not until the Vietnamese government launched the reform and opening up policy in 1986 that Vietnam began to increase political and trade exchanges with other countries, and made more progress after joining the World Trade Organization in 2007.
In recent years, as many enterprises in advanced countries have transferred many labor-intensive manufacturing industries to Vietnam due to cost considerations, Vietnam received more than US$1.5 trillion in foreign direct investment between 2010 and 2019. In recent years, considerations such as the Sino-US trade war, China’s continued zero-clearing policy, and improving supply chain resilience have also led more companies to shift investment to Southeast Asian countries and India.
Vietnam, which has relatively advantages in trade agreements, labor costs and infrastructure construction, has consolidated its position in undertaking these capital investments and has become the main beneficiary country in this wave, which has greatly stimulated Vietnam’s economic development. It is one of the fastest growing countries in ASEAN and even in the world.
However, corruption, the business environment, continued privatization and infrastructure are still unresolved issues in the country. As far as corruption is concerned, although the ten-year anti-corruption strategy plan launched in 2019 resulted in the punishment of more than 160,000 party members and the conviction of more than 7,000 party members, institutional factors still exist, so corruption persists . Nguyen Phu Trong, who will be re-elected for the third time in 2021, said in a speech broadcast on Vietnamese national television in October 2022 that he will continue to increase efforts to combat corruption.
As can be seen from Vietnam’s five-year plan, the current policy focus of the Vietnamese government will continue to focus on market liberalization and reduce government intervention in business, markets and the overall economy. There are not only political elements to this move, such as incentivizing foreign investment through greater market freedom, but also operational considerations. In Vietnam, so-called state-owned enterprises account for 30 percent of the state budget and 28 percent of GDP, and are also responsible for 60 percent of the country’s non-performing loans.
Based on the remarkable success of the Vietnamese government in trade and investment agreements, its follow-up policies will also increase productivity, especially labor supply, land supply and industrial infrastructure. Especially for land supply, the Vietnamese government also stated that it will reform land use, even foreign ownership (currently only restricting 50-year use rights, and lack of clear mechanisms and regulations on transactions), and provide new means of control.
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