Understanding Vietnam’s Transformational Economic Growth

Ho Chi Minh City

Even in the midst of the uncertainty arising out of the US-China trade war, in recent times Vietnam has clearly emerged as one of the bright spots in the world. Its economic rise has been taken note of globally, by not just other governments but numerous multilateral bodies and consultancies.

Image credit: dronepicr [CC BY 2.0], via Wikimedia Common

According to government estimates, the South East Asian nation attained a growth rate of 7% in 2019, which is truly remarkable given the economic situation globally. The country has also received big ticket investments in recent years, due to some of the advantages, especially high quality labor, and favorable demographics,  vis-à-vis it’s competitors in South East Asia.  

Vietnam’s geopolitical importance 

Vietnam’s geopolitical importance too has witnessed a significant rise in recent years. The U.S. President Donald Trump attended a summit with North Korean leader Kim Jong-Un in Vietnam in 2019. The US President praised Vietnam in a tweet for the economic progress it has made in recent years, saying, “it is thriving like few places on earth”. 

Trump also made the point, that North Korea should aspire to be like Vietnam. The U.S. Secretary of State Mike Pompeo in his  message on the 25th anniversary of US-Vietnam relations, referred not just to Vietnam’s remarkable economic leaps, and its stupendous growth rates, but the fact that today less than 10% of the Vietnamese population is in poverty, as compared to 60% in the 1990s.

It would be pertinent to point out, that the US President articulated his detailed vision for strategic and economic cooperation in the ‘Indo-Pacific’, for the first time in an address in Vietnam. While speaking at the Asia Pacific Economic Cooperation (APEC) CEO’s Summit held in Danang in 2017, Trump said: “What an honor it is to be here in Vietnam — in the very heart of the Indo-Pacific — to address the people and business leaders of this region.”

In 2018, the U.S. Navy aircraft carrier, the USS Carl Vinson arrived at Vietnam’s port city of Danang. This was the first such occasion, since the end of the Vietnam war which ended over 4 decades ago (in 1975).

Vietnam’s FDI inflow in 2019

A number of emerging economies in South East Asia — a prominent example being Myanmar — have drawn media attention and focus, but the inability to usher in much needed reforms, and political challenges, have obstructed economic progress. 

Vietnam’s stellar performance in attracting FDI in 2019

In the year 2019, Vietnam managed to get Foreign Direct Investment (FDI) pledges  of 38.2 billion USD (a 7% rise from last year). What is significant is the nature of commitments. Nearly 2/3rd of the total amount (24.38 billion USD) was directed into the processing sector, 10% into real estate and the rest into other areas such as retail and science and technology.

While as a result of the U.S.-China trade war, there has been an increase in investment from mainland China. The South East Asian country has also managed to draw investments from a number of other Asian countries. Due to the instability and uncertainty in Hong Kong, a number of investors have moved to Vietnam.

Vietnam emerging as an important investment destination for Singapore and East Asian nations

Amongst the top investors for 2019 were South Korea, which accounted for well over 20% of the total investment (7.92 billion USD),  followed by Hong Kong and Singapore. A senior official in the Ministry of Planning and Investment stated that South Korean and Taiwanese firms were looking to invest in Vietnam.

Apart from not being dependent just upon any one country, Vietnam has also tried to ensure, that development is not restricted to any one city or region. Hanoi and Ho Chi Minh were the frontrunners as far as FDI is concerned. Other regions too have emerged as attractive FDI destinations for overseas investors. The southern province of Binh Duong had set a goal of drawing 7 billion USD in FDI for the period between 2016-2020, until September 2019, it had received nearly 10 billon USD. Dong Nai (another southern province) received 1 billion in the first 10 months of 2019. A total of 45 countries have invested in the province.

Like Bangladesh, another important engine of growth in Asia, the South East Asian country has focused on reforms and not got enmeshed in geo-political rivalries. The South East Asian country, has been willing to reinvent itself, and is focusing now on Research and Development (R&D) (a number of incentives have been provided to firms engaged in R&D) and the government is paying more attention to the sphere of education.  What is also crucial is that unlike some of its peers in South East Asia, Vietnam has been able to draw FDI, from a number of countries and not been totally dependent upon Beijing.

Vietnam has adopted a pragmatic approach towards strategic and economic relations with both the US and China. Its geographical location and logistical advantages have played a crucial role in making it a preferred destination for investors. So far it has been successful in dealing with Trump’s unpredictability, but Hanoi would be closely watching the China-US relationship and the direction of the trade talks. Vietnam’s economic performance in 2020 is likely to be way ahead of its competitors, but it cannot insulate itself from global dynamics.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Geopolitics.

Image credit: dronepicr [CC BY 2.0], via Wikimedia Common