According to the International Monetary Fund (IMF), Vietnam’s economy will see a slow-down in growth to 2.7% in 2020. Nevertheless, Vietnam has relatively strong macroeconomic fundamentals and is expected to recover quick. Indeed, a study by PricewaterhouseCoopers suggests that the Vietnam economy is among the fastest-growing on the planet, and could enter the top 20 in the world by 2050.
Vietnam Economy Overview
Vietnam is a country with a horrific recent history, but one that is steadily recovering from the infamous Vietnam War. With a population in excess of 95 million people, Vietnam is the 15th most populated country in the world. Located in eastern Asia, Vietnam has built up strong relationships with neighbours such as China and Thailand. Its capital city is Hanoi, but its largest city in terms of population is Ho Chi Minh City, formerly Saigon.
Unlike many other countries in the region, Vietnam is very much a socialist state, but one that still boasts a market economy. The economy of Vietnam is rated as the 44th largest in the world via Gross Domestic Product, and the 32nd largest as measured by purchasing power parity. Vietnam is a member of Asia-Pacific Economic Cooperation, Association of Southeast Asian Nations and the World Trade Organization.
Following a period of reform, Vietnam has shifted from its previously centralised nature into a mixed economy, which utilises both direct and indicative planning. This has resulted in rapid economic growth.
The GDP of Vietnam is $255 million, and the country has achieved GDP growth of 6.5% in recent years. Due to the coronavirus pandemic, also Vietnam’s growth is affected. The IMF expects the country’s growth to slow to 2.7% this year but expects a recovery to 7% for 2021.
GDP per capita in Vietnam is equal to $2,567, while the state also boasts low unemployment. Over the last 10 years, unemployment has never risen above 3% in Vietnam, and is currently at 2.16%.
Vietnam economy – emerged string after Vietnam War
There is no doubt that the Vietnam War cast a cloud over this country for many years, but since the 1980s it has emerged with a strong, confident, and flexible population of skilled workers. It is also a fascinatingly diverse country, with the Vietnamese government recognising 54 distinct ethnic groups within the country.
Unlike many other nations, there is little evidence that Vietnam is struggling from either a greying population or an inability to replace its existing populous. This bodes well for the continuing economic development of the country in the future.
Currency and Central Bank
Vietnam uses the đồng, which was introduced as its proprietary currency shortly after the Second World War. The chequered recent history of Vietnam has meant that the đồng has never been a particularly valuable currency, and as it stands today one United States dollar is equal to 23,250 units of the Vietnamese currency.
Inflation certainly isn’t out of control in Vietnam, but equally it can’t reasonably be described as low. The annual inflation rate in Vietnam has been hovering around 5%. The government has a target of below 4% this year – and is holding onto it also with weeks-long coronavirus lockdowns.
Savers are richly rewarded in Vietnam, as the country has benefited from high interest rates for many years. As it stands currently, the interest rate in Vietnam is around 7.5%, although it remains to be seen whether the highly publicised coronavirus will have any impact on this figure.
The State Bank of Vietnam is the central bank of Vietnam. It is also a 65% stakeholder in VietinBank – the country’s largest listed bank by capital. The State Bank of Vietnam is a ministry-level body under the administration of the government, with the bank governor being a member of the cabinet.
The State Bank of Vietnam defines its principal roles as promoting monetary stability and formulate monetary policies, promoting institutions’ stability and supervise financial institutions, providing banking facilities and recommend economic policies to the government, providing banking facilities for the financial institutions, managing the country’s international reserves, and printing and issuing banknotes.
Industry and Trade
Several industries have become prominent in Vietnam, not least the electronics industry. In common with many other Asian nations, Vietnam’s economy has developed a powerful manufacturing infrastructure in electronics, which sees it contribute 24% of the country’s GDP. Samsung and Panasonic are both prominent in the country, and both have employed a huge number of Vietnamese people.
Vietnam is also skilled in the food processing industry, with this niche contributing to 40% of the country’s exports. The construction industry is also particularly important in Vietnam, particularly as the country has rapidly urbanised over the last few decades.
Arguably the most important industry in Vietnam, though, is services and tourism, with this sector being responsible for nearly 40% of the country’s GDP. Vietnam is a rugged and naturally beautiful country, and its polite and helpful population makes it an ideal tourist destination for many Westerners in particular.
China – important trade partner of Vietnam
Since the economic system of Đổi Mới was introduced in 1986, trade in Vietnam has been significantly liberalised. This has accelerated since Vietnam joined the World Trade Organisation in 2007. The country had frequently posted a trade deficit, but managed to post its first surplus in 2012, and has continued to grow this surplus ever since.
Trade with China dominates the Vietnamese economy, with a raft of territorial disputes with the country having been solved in the 21st century. Vietnam’s membership of the Association of Southeast Asian Nations is also considered critical to its economic competitiveness. Vietnam also trades heavily with other major economies in the Southeast Asian region, such as Thailand and Malaysia.
While relations with the United States have historically been frosty, not least because of the prolonged Vietnam War, economic cooperation between the two countries has improved recently.
Surveys and Rankings
Vietnam is ranked 67th in the most recent Global Competitiveness Report, but this still represents a significant improvement from previous years (2018: 77th rank).
Vietnam ranked 70 among 190 economies in this year’s Doing Business 2020 report released by the World Bank. The country fell one spot from its position last year.
Vietnam’s economic freedom score is 58.8, making its economy the 105th freest in the 2020 Index. Vietnam is ranked 21st among 42 countries in the Asia–Pacific region, and its overall score is slightly below the regional and world averages. Clearly, it still has some work to do here.
Stock Exchanges and Capital Markets
Ho Chi Minh City Stock Exchange is the largest stock exchange in Vietnam, which was established in 2000. The Vietnam Stock Index, or VN-Index, is the most important index in Vietnam, being based on a capitalisation-weighted index of all the companies listed on the Ho Chi Minh City Stock Exchange.
The stock market has performed reasonably well in recent years, and has attracted some foreign capital. But it is it still maturing in this respect. While overseas investors poured $36 billion into the market in the most recent financial year, and this represented an year-to-year increase of nearly 12%, this is still a relatively paltry figure compared to other more developed markets.
Vietnam lacks the mega-corporations of some other Asian nations, but there are four Vietnamese companies listed in the Forbes Global 2000. These are the Vietinbank, the Vietcombank, Bank for Investment and Development of Vietnam, and conglomerate Vingroup.
The Vietnamese bond market was formed in the 1990s, and has mobilised steadily in recent years. It can still be seen as a relatively embryonic bond market compared to many, but foreign investors have become more prominent in recent years. Also, the Government of Vietnam continues to push ahead with reforms and legislation to further improve the bond and capital markets.
Government bonds dominate the debt market, followed by corporate bonds, government-guaranteed bonds, and then municipal bonds. Government bill and bond maturities vary from less than 1 year to 30 years.
Standard & Poor’s credit rating for Vietnam stands at BB with stable outlook, and this is par for the course across the major ratings agencies.
Real Estate Market
Foreign buyers are very common in the Vietnam real estate market, accounting for 50% of all residential sales. Investors from Singapore, Hong Kong and Taiwan are very common, and are responsible for 75% of the total buyers in the buy-to-let market. Considering how rapidly the Vietnamese economy is developing, Vietnam is considered a prime and dynamic emerging market, with potential for further growth in real estate.
Prices have escalated rapidly, meaning that the affordability of housing can be challenging for the native population. Vietnam has a price-to-income ratio of 21.79, which is more than double that of the United Kingdom; one of the Western nations with the highest property prices.