The key ingredients for Vietnam’s economic success

The key ingredients for Vietnam’s economic success

In spite of the global slow down, Vietnam has managed to register an impressive growth rate of  7.02% for the year 2019, according to government estimates. The Southeast Asian nation had surpassed 7% even in 2018 (it grew at 7.08%). It would be fair to say that amongst emerging economies, it certainly is a star performer along with the South Asian nation of Bangladesh, which in recent times has become the fastest growing economy in South Asia surpassing India) and has also fared well in terms of drawing Foreign Direct Investment (FDI).

The US-China trade war may have taken its toll on other developing economies, but the Southeast Asian nation has managed to benefit from the trade war, at least for the time being. Vietnam managed to draw investment pledges of over 38 Billion USD in FDI for the year 2019.

Vietnam’s success in FDI: Key features 

GDP figures, or FDI, can sometimes be misleading. What is remarkable in the case of Vietnam is that FDI is spread out. Efforts are being made to ensure that cities and regions focus on their strengths. Binh Duong, and Ho Chi Minh City, in South Vietnam, the key industrial hubs, are specializing in areas like textile, and electronics, leather and wood processing. 

Even if one were to look at the sectoral break-up, while the manufacturing and processing sector drew well over 60% of the pledged capital of the FDI, other sectors like real estate, wholesale, retail, science and technology are catching up.

Key reasons for success and outdoing ASEAN peers 

While many other countries, including Indonesia, Myanmar and the Philippines, have attained healthy growth rates and have drawn the attention of overseas investors, Vietnam has overtaken them. Several reports, such as the US News and World Report, ranked Vietnam as the 8th most competitive out of 29 countries globally, and the most favorable destination in ASEAN. A number of reasons are cited, and they include the Vietnam government’s focus on infrastructure, quality labor with reasonable wage rates, cheaper electricity, the ability to go ahead with successful reforms, relative predictability in terms of policies (in all these spheres it has outdone Indonesia, Myanmar and the Philippines) and of course its strategic location. The opening of the Lach Huyen port, which will save stops in Hong Kong and Singapore, will benefit Vietnam in general and the Northern region in particular (this could reduce one week in shipments). Vietnam’s membership in the CPTPP is also likely to enhance its economic position and make it an essential player in ASEAN. 

It would also be pertinent to point out that Vietnam can think ahead and does not seem to be satisfied with international attention and its achievements so far. It is focusing on the tech sector, education and Research and Development. Vietnam also realizes that if it wants to remain competitive in terms of drawing FDI, labor needs to be skilled, and efforts are being put into the same. 

Another critical feature of Vietnam’s impressive performance is its ability to draw FDI from not just China (which has risen as a result of the US-China trade war), but other countries like South Korea, Hong Kong, Singapore.

So far, Vietnam has also successfully navigated geopolitical rivalries and has not allowed differences in the strategic sphere to come in the way of its economic dealings. A perfect instance is it’s close commercial links with Beijing, in spite of differences over the South China Sea issue

In conclusion, there are numerous lessons that not just its competitors in ASEAN, but even other emerging economies can learn from Vietnam. One of them is getting the basics right.

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