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Trip note - Vietnam


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November 2022

Newton’s Richard Bullock reports from Hanoi, Vietnam, on some key investment findings as well as some potential threats the country faces to its economic trajectory.

Vietnam’s population is still one of the top two or three countries in Southeast Asia in terms of growth and investment potential. Its population is still predominantly low-to-middle income with a nominal annual per capita GDP of around US$3,000i, but it has an expanding middle class. Furthermore, only 37% of the population lives in urban areas, compared to 65% in China.ii

Meanwhile, Vietnam’s GDP is forecast to grow at around 6% per annum over the coming years, according to the International Monetary Fund (IMF)iii, while it has a manageable debt level with public debt-to-GDP at less than 40%iv, with foreign debt making up less than half the total. Additionally, and perhaps most importantly, Vietnam is a structural winner from the supply-chain realignments taking effect owing to deglobalization, as companies seek to adopt a ‘China plus one’ strategy.v

Foreign investment
While in Hanoi I met with a senior representative from the Ministry of Planning and Investment who told me annual foreign direct investment (FDI) into the country has averaged around US$20-25bn in recent years, but the ministry expects this to hit US$30-35bn this year.

Historically, a sizeable portion of FDI into Vietnam has been in low value-add manufacturing industries such as textiles and apparel. However, consumer electronics and auto components are growing sources of FDI, with both Japan and South Korea being major investors.

As FDI grows it also increases the development of Vietnam’s domestic players, such as its IT services industry. IT services has traditionally been viewed as a stronghold of the Indian economy but one of Vietnam’s largest IT outsourcing companies told me it believes in tapping into the growing pool of Vietnam’s technology graduates to offer services at around 20% cheaper than India.

Another notable talking point while in Hanoi was around governance and the crackdown on corruption recently initiated by the governmentvi, particularly in the real estate sector and for land acquisition. This has caused a near-term weakening of confidence and led to a run on Vietnam’s fifth largest bank, Saigon Commercial Bank.vii Unlike China, however, I don’t believe the real estate issues are systemic because with Vietnam it is about targeting specific cases of corruption and fraud. Also, according to Bloomberg, the real estate bond refinancing needs in Vietnam are at a manageable US$15bn over the next three years.

The government is also starting to take climate change seriously and aims to reduce coal as a share of Vietnam’s power mix, from a third currently to less than 10% by 2045. Over the same time frame, it seeks to grow renewable energy (wind and solar) to 50%.viii

Vietnam’s location on the Mekong River means it already produces a meaningful share of its power from hydroelectric sources. However, climate change poses a serious threat to Vietnam, with the IMF forecasting without mitigation and adaptation the country could lose 10-15% of its GDP by 2050.ix It was encouraging on my meeting with the European Chamber of Commerce in Hanoi to discuss the free-trade agreement Vietnam signed with the European Union in 2020. As a result, this and future FDI from that region is likely to come with much more stringent environmental, social and governance terms and conditions.

The next China?
In general, Vietnam’s development model has some clear parallels with China over the past 30 years: it is a state-directed, FDI-intensive and export-orientated country. However, I don’t think it will replace China in terms of supply chains and exports. The most notable reason is the fact Vietnam has less than a tenth of the population of China. China attracts around US$250bn in annual FDIx, so even if that were to fall by half (an extreme scenario) owing to geopolitical competition, Vietnam would only have the capacity to gain about a quarter of this share.

Having the opportunity to talk to company representatives, government officials and international agencies really reinforced how much development potential there is in Vietnam. The pace of growth and prosperity can also be felt in some of the softer measures and personal anecdotes – the number of tower cranes, the Western consumer brands popping up on the high street and the replacement of two-wheelers by four-wheelers on the roads.

i, as of December 2021.

ii, as of December 2021.

iii Vietnam Bucks Asia’s Weakening Growth Trend. September 6, 2022.

iv, as of December 2021.

v “China plus one” is a strategy in which companies avoid investing only in China and diversify their business to other destinations (source:, July 26, 2022).

vi Reuters. Vietnam’s “blazing furnace” crackdown burns $40 bn off stocks. April 29, 2022.

vii Bloomberg. Vietnam To Put Lender Under “Special Scrutiny” After Bank Run. October 15, 2022.

viii Vietnam Briefing. Vietnam’s Power Development Plan Draft Incorporates Renewables, Reduces Coal. April 29, 2022.

ix IMF. Vietnam country report. July 2022.

x, as at end of 2020.


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