Why Vietnam’s Economic Future is Bright – and Growing Brighter

Recently, the International Monetary Fund altered Vietnam economic growth forecast for 2022, revised upward from 6 to 7 percent. This was the only significant upward revision among Asian economies, and higher than that of other major regional economies such as India, Japan and China, whose projections were lowered between 0.7 and 1.1 percent. This week, the World Bank similarly revised his projection for Vietnam’s economic growth from 5.3 percent to 7.2 percent, the highest figure for any nation in East and Southeast Asia.

Although surprising to many, this was predictable to those who have closely followed Vietnam over the past decades. Vietnam has quietly gone from being one of the world’s poorest economies to one of the fastest growing, while intensifying competition between China and the United States has only helped its recent growth.

After the US Army retired of Vietnam in 1975, the country’s economy experienced serious development problems resulting from the inefficiencies of a centrally planned economy, residual effects of the war, and low productivity rates that made it dependent on imports. Meanwhile, Viet Nam invasion The Cambodian government in 1979 to overthrow the Khmer Rouge government compounded these economic problems by redirecting resources to the war effort while also making Vietnam vulnerable to international pressure, including from the US. sanctions and the vengeful Chinese invasion. These economic shortages and global tensions result in Vietnam’s economy being one of the poorest in Asia, with a GDP growth rate of 2.8 percent in 1985 and an inflation rate of 378 percent in 1986.

However, in 1986, the Communist Party of Vietnam (VCP) set out to transform its economy from a centrally planned model to one that used market forces to allocate resources. The reforms, known as doi moi, encouraged private industry, recognized private land rights, and abolished collective farming. These changes, along with Vietnam’s military withdrawal from Cambodia in 1989, set the country on course for one of the most rapid and impressive periods of economic development in world history.

When the PCV first implemented the reforms, Vietnam was one of the more poor countries in the region, with a poverty rate of over 70 percent. By 2020, this rate had refused to 5 percent, and more than 10 million people have been lifted out of poverty in the 2010s alone. The country’s GDP per capita also raised nearly tenfold from under $300 in the 1980s to $2,800 in 2020.

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Because Vietnam’s economy has developed rapidly and because its labor standards have remained low, it has become a more attractive place for investment. It has also become a key part of the global textile, footwear and electronics manufacturing supply chain: textiles and footwear manufactured 18 percent of its exports in 2018, while electronic and electrical equipment accounted for 40 percent. Big companies like Adidas, Nike and Samsung, among many others, now have a manufacturing presence there. Not surprisingly, foreign direct investment (FDI) from Vietnam has grown up more than 200 times since 1986, from $40,000 in 1986 to about $15.8 billion in 2018. Meanwhile, its exports raised by 19 percent from 2020 to 2021.

More recently, Vietnam has benefited from great power competition between the United States and China when it comes to FDI. As tension between the United States and China has grown, the Chinese Communist Party has taken a less business-friendly stance, and China’s COVID-19 policy has become draconian and seemingly permanent, companies have begun looking to diversify their operations. supply chains to mitigate any disruptions In 2021 alone, at least 11,000 foreign companies cancelled registering their company in China, a stark contrast to the net increase of 8,000 registered foreign companies in 2020. Among others, companies such as Apple, Samsung and Hasbro, which have long-standing and significant manufacturing operations in China, have He decided reduce its operations in the country.

Vietnam has benefited as major companies have moved their manufacturing there to take advantage of low costs, developed infrastructure, supportive business environment, and success in mitigating the economic effects of COVID-19. For example, Foxconn, the prominent electronics manufacturer that has contracts with all the major technology companies, including the giant Apple, Announced would invest $300 million in a new factory in northern Vietnam. Google recently announced that it plans change up to half of the production of its Pixel phones to Vietnam, while Microsoft has used Vietnam for some of its Xbox production. A few years ago, these corporations would have produced these items exclusively in China. In general, FDI from Vietnam raised 8.9 percent between January and June of this year compared to the same period in 2021.

Still, Vietnam faces severe obstacles to future growth. The most limiting factor is the size of the country’s population, which will never amount to more than a fraction of China’s. Similarly, Vietnam’s workforce is relatively unskilled, its energy supply is struggling to keep up with demand, and although the country has made significant progress in infrastructure development, it is still ranges 47 of 160 countries in this regard.

However, Vietnam has made incredible economic gains over the last 40 years, making it an attractive destination for FDI. Furthermore, given that the consequences of the growing divide between China and the United States negatively affect the ease of purchasing goods, and given Vietnam’s role as an attractive investment destination for China, we should expect the country’s economic forecast to trend increasingly positive in the years to come.

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