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Impressive economic growth of Vietnam, the newest rising star in Asia

Top 10 fastest-growing economies in 2016

The rapid and stable growth of Vietnam’s economy in recent years has brought Vietnam to become a nation leading growth in Southeast Asia and one of the attractive markets for investors. Vietnam economy is considered as a potential market with lots of advantages and opportunities to develop in the future.

Vietnam’s amazing rapid economic growth

Vietnam is experiencing the quickest rate of growth in gross domestic product (GDP) since the global financial crisis. It has a favorable environment of low inflation, accommodative monetary policy, and consumer confidence. Domestic demand has recovered and tended to grow strongly.

Vietnam’s economic growth since 2005
Vietnam’s economic growth since 2005

While economic growth in most parts of Southeast Asia has been hobbled by the effect of a global trade recession and a slower-growing China, Vietnam has been at the top of the GDP growth leaderboard. Vietnam’s GDP annual growth averaged 6.5% annually between 2000 and 2014. In 2015, a government report showed that Vietnam’s fourth quarter GDP rose 7.01% compared to the 6.9% growth over the same period in 2014. That surpassed the government’s official target of 6.2% and became the fastest growth in the last five years. This growth rate is forecast to expand 6.7 percent in 2016, continuing a stable level.

Growth outlook of Asia's developing countries
Growth outlook of Asia’s developing countries

 

Huge Foreign Direct Investment (FDI)

Furthermore, the accelerating growth has been powered by a large amount of FDI. Through the past 10 years, the magnitude of the inflow FDI into VN has increased significantly. According to  Mr. Biswas, the chief economist for Asia-Pacific at IHS Global Insight, this flurry of global interest helped FDI inflows to hit a record high of US$14.5 billion thus far in 2015, up 17.4 per cent year-on-year. In the first half of 2016, the total FDI registered in Vietnam reached more than US$11.2 billion.

Especially, real estate becomes one of the attractive potential fields for investors in recent years. Foreign Investment Department (Ministry of Planning and Investment) recognized that the real estate sector ranked second overall among sectors that attracted the most FDI in October 2016, just behind manufacturing and processing industry. This trend will continue due to Vietnam’s rapid pace of integration into global commerce and the high rate of urbanization.

That quick and stable growth, together with abundance of FDI will make Vietnam among the fastest-growing markets in the world. According to the Bloomberg’s “Top 10 fastest-growing economies” figure below, Vietnam is the one shining star amid the regional economies.

Top 10 fastest-growing economies in 2016
Top 10 fastest-growing economies in 2016

 

Potential market for investment

Commitment from the Government

The government is aiming for average annual expansion of as much as 7% until 2020. To meet its goal, the government has shown strong determination for reforms and discussed policies to promote economic development. Vietnam’s 2011 – 2020 Socio-Economic Development Strategy (SEDS) gives attention to structural reforms, environmental sustainability, social equity and emerging issues of macroeconomic stability. It is noticeable that Vietnam aspires to become a modern and industrialized nation by 2035. To make the aspiration come true, the government attaches special importance to enabling economic modernization with a competitive private sector firmly in the lead, improving the country’s technological and innovative capacity, reshaping urban policies and investments for more dynamic cities as well as urban centers.

Favorable environment for business

The government is trying its utmost to establish a favorable environment for the development of businesses, specifically for the enterprises to prosper and become a driving force for the economy. This pledge is explicitly expressed in Resolution No. 35/2016/NQ-CP on supporting and developing enterprises over the next five years. Accordingly, the State will protect citizens’ and businesses’ lawful property rights and freedom to conduct a business. At the legislature’s previous meeting in July 2016, Prime Minister Nguyen Xuan Phuc said that the government was intensifying to help businesses. There will be steps to spur domestic demand, tourism and industries that provide inputs to manufacturers.

In addition, the government also encourages businesses through special zones featuring lower corporate income tax rates and limited-duration tax exemptions. According to the official, Vietnam is trying to increase the efficiency of investment projects. Therefore, the government is now offering various incentives to companies in supply chain management.  US multinationals from Portland and Oregon all have the same feeling that the Vietnam operations are among the most cost competitive and have the best quality of any production bases outside the US, said Runckel, who is also President of Runckel & Associates.

Vietnam is lowering  corporate tax rate  since 2006
Vietnam is lowering corporate tax rate since 2006

Benefits from Trade Agreements

Moreover, to broaden economic opportunities, Vietnam has enhanced international integration by signing many free trade agreements. Vietnam’s trade liberalization policy has allowed it to be a beneficiary of these agreements. It is also one of the strong reasons for foreign investors flocking to Vietnam.

Becoming a partner of the Eurasian Economic Union, the Trans-Pacific Partnership and especially the ASEAN economic integration in 2015 will give Vietnam greater access to both foreign markets and capital. That also makes Vietnamese enterprises stronger through increased foreign competition. With the Trans Pacific Partnership, Vietnam’s economic connectivity to major global markets will improve rapidly. More industries will relocate and set up shop in Vietnam due to the lowering of import tariffs of “made-in-Vietnam” products. This will accelerate the country’s growth as a manufacturing powerhouse. The Asian Economic Community will perpetuate a single market in Southeast Asia. It allows Vietnam to create more jobs, increase GDP as well as improve its standard of living.

Strategic location

In addition, many strengths of Vietnam’s economy such as strategic location, young and large labor force, low operating cost are significant factors that attract investors.

Having a favorable location in the center of Southeast Asia, bordering China, the second largest economy in the world, Vietnam is a trade gateway, a boundary of the adjacent region between two continents namely Europe-Asia and Oceania. The ideal geographical location enables Vietnam to reach the world first-class active trade centers easier and more convenient. The country can construct a world-class deep-water ports and become a center of transshipment hub between multiple international areas. Consequently, Vietnam has a great potential for economic development within nations in the region and others all over the world.

Furthermore, convenient and diversified transportation systems make travelling and delivering easier. Within 3 hours by plane from Hanoi and Ho Chi Minh City, people can travel to almost all ASEAN capitals such as Bangkok (Thailand), Kuala Lumpur (Malaysia), Manila (Philippines), Singapore, as well as Hong Kong, Taiwan.

Strategic location of Vietnam
Strategic location of Vietnam

Young population and large workforce

Cheap labor is also a competitive advantage of Vietnam. The country is considered having the abundant labor force and the young population base which are available for business. By the last quarter of 2015, Vietnam had more than 69.6 million people aged 15 and older (the data from Vietnam’s General Statistics Office). Among them, there were 54.6 million people in working age, accounting for more than half of the population. A typical example of successful investors in Vietnam is Samsung. It has taken advantage of this abundant and low-wage workforce that the South Korean electronics giant no longer finds in China to build the world’s largest factory of manufacturing mobile phone in Thai Nguyen, Vietnam.

Nowadays, the government pays special attention to promote skills development and enhance the quality of the labor force. Consequently, Vietnam has a high number of university graduates with skilled degrees and a high literacy rate. Technical workforce in the domestic market has mastered science and technology. They can undertake most complex job positions in the manufacturing businesses that previously hired foreign experts.

Low operation cost

Besides, low operation cost in Vietnam will enable investors to start their business as well as maximize their profit. The chairman of the US-Vietnam Chamber of Commerce, Chris Runckel, said that the cost competitiveness of Vietnamese operations was far greater than that offered by China or other regional destinations. The government has reduced its corporate income tax rate from 22% to 20% in 2016. This rate was five percent lower than that in China and the average in others. Depending on the type of business, there may be available preferential tax rates, tax reductions and tax holidays.

Impressive achievements and favorable situation of Vietnam in the last years have painted a rosy outlook for Vietnam’s economy. Vietnam now becomes an attractive market in Southeast Asia. “In 2016 and 2017, we definitely believe that Vietnam is positioned to be one of the fastest growth stories,” economists at Australia & New Zealand Banking Group Ltd. led by Eugenia Victorino said in a report in January 2016. It is also believed that Vietnam has enough potential to be Asian “tiger” in the future.

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