Economy

Vietnam’s Economy: Driving Forces and Future Trends

Trường Lăng

December 3, 2023

Economy

Vietnam’s Economy: Driving Forces and Future Trends

Trường Lăng

December 3, 2023

Vietnam’s economic landscape is undergoing dynamic shifts, marked by robust economic growth and evolving trends. In this exploration of the key factors shaping Vietnam’s economy in 2024 and beyond, we delve into recent trends and emphasize the critical role of understanding metrics like GDP growth and other essential economic indicators. This article unravels the forces propelling Vietnam’s economic growth and provides valuable insights into the nation’s promising future.

Current Economic Growth Drivers

Technology and Innovation in Vietnam’s Economy

Technological advancements and innovation stand as pillars propelling Vietnam’s economic growth. Vietnam’s substantial investments in research and development activities have yielded promising results, evident in its ascent on the Global Innovation Index. Ranking 46th out of 132 countries in 2023, Vietnam has distinguished itself among middle-income nations making remarkable progress in the last decade.

Foreign firms, including industry giants like Samsung, LG, and Foxconn, have chosen Vietnam as a manufacturing base. Notably, international groups such as Panasonic, Yamaha, Bosch, GE, HP, and Piaggio have established local research and development (R&D) operations. This trend positions Vietnam not just as a manufacturing hub but as a potential center for innovation.

Technology and Innovation in Vietnam's Economy
Technological advancements and innovation stand as pillars propelling Vietnam’s economic growth. Source: Panasonic

Foreign Direct Investment (FDI) Impact on Vietnam’s Economy

Vietnam’s robust economic growth is intricately tied to the significant influx of Foreign Direct Investment (FDI). Despite global challenges, the country has been successful in attracting substantial foreign investments, becoming one of the top countries globally in FDI attraction. In the 2015-2019 period, FDI inflows expanded from 22.7 billion USD in 2015 to an impressive 38.95 billion USD in 2019, showcasing a trajectory of consistent growth.

This momentum continued even during the challenging times of the COVID-19 pandemic. In 2020, Vietnam remained among the top countries globally in terms of FDI attraction, securing 28.53 billion USD. The figures further increased to 31.15 billion USD in 2021, highlighting the resilience and attractiveness of the Vietnamese economy to foreign investors. Notably, foreign capital has been injected into 19 out of the 21 civil economic sectors, with a predominant focus on retail, wholesale, manufacturing-processing, and science-technology.

As a result of these investments, Vietnam’s GDP growth reached an unprecedented 8.02% in 2022. The economy’s strong recovery is evident, with GDP per capita estimated at 95.6 million VND (4,110 USD) and labor productivity at 188.1 million VND (8,083 USD)/laborer. These indicators demonstrate not only the increasing economic output but also the positive impact of FDI on elevating living standards and productivity in the country. Foreign investors’ confidence and contributions have played a pivotal role in propelling Vietnam’s economic trajectory towards new heights.

Infrastructure Development and Its Role in Vietnam’s Economy

Infrastructure development, a crucial element in the Party and state’s plan for economic growth, has been a driving force in Vietnam’s economic expansion. The commitment to completing 2,000km of expressways by 2025 reflects the government’s focus on enhancing connectivity. Significant projects include the Long Thanh International Airport, the My Thuan-Can Tho expressway, and ongoing metro lines in Hanoi and Ho Chi Minh City.

Infrastructure Development and Its Role in Vietnam's Economy
The My Thuan-Can Tho expressway. Source: Ministry of Transport

Government initiatives at the local level, such as Hanoi’s investment of 76.3 million USD in essential infrastructure projects, exemplify a bottom-up approach to development. Ho Chi Minh City’s scheme to invest 1.95 billion USD in infrastructure, including central government funding, underscores the commitment to upgrading and building essential facilities for sustained economic growth. The holistic approach towards infrastructure, including roads, channels, railways, and healthcare facilities, signifies Vietnam’s dedication to comprehensive development and economic resilience.

Emerging Trends and Opportunities in Vietnam’s Economy

Green Economy and Sustainability: Driving Vietnam’s Future

Vietnam’s commitment to a sustainable future is not merely rhetoric but a strategic vision backed by concrete targets. Minister of Planning and Investment Nguyen Chi Dung revealed an ambitious goal of increasing the green economy’s contribution to GDP from $6.7 billion in 2020 to a staggering $300 billion by 2050. This forward-looking approach positions the country as a trailblazer in sustainable development, offering businesses a roadmap to align their strategies with the nation’s green objectives. Notably, the clean hydrogen ecosystem, anchored in renewable energy, holds immense promise. With the potential to contribute $40-45 billion to GDP annually, create 40,000-50,000 jobs, and open avenues for both domestic market growth and exports to developed countries, it exemplifies the symbiosis of economic prosperity and environmental stewardship.

Digital Transformation: Catalyst for Sustained Economic Growth

Vietnam’s swift strides in digital transformation have been a key driver of its economic resilience. The government’s proactive measures, including a national digital transformation program, a strategy for e-government, and a blueprint for the digital economy, have borne fruit. Over 50 digital platforms have been developed, and online public services at Level 4 have reached an impressive 97.3 percent. Internationally, Vietnam has gained recognition, ranking 86th out of 193 countries in digital government and 76th in the online public services index. According to the Ministry of Information and Communications, the digital economy, now constituting 14.26 percent of the country’s GDP, underscores the integral role of technology in sustaining economic growth. Businesses that capitalize on this digital momentum position themselves at the forefront of innovation, efficiency, and competitiveness.

Global Trade Dynamics: Navigating Shifts in Bilateral Ties

The intricate web of global trade is undergoing notable shifts, and Vietnam is strategically adapting to emerging trends. The rise of “friend-shoring” since late 2022, marked by a reorientation of bilateral trade flows to align with shared political values, presents both challenges and opportunities. The ongoing geopolitical landscape, including the Ukraine conflict, U.S.-China trade dynamics, and Brexit consequences, has shaped key bilateral trade trends. While there’s a decline in diversification of trade partners, indicating a concentration of major trade relationships, this evolution underscores the need for businesses to navigate geopolitical nuances. The report highlighting the decreasing trade interdependence between the United States and China emphasizes the importance of strategic positioning in response to evolving global trade dynamics.

Economic Outlook for 2024 and Beyond in Vietnam’s Economy

The economic prospects for Vietnam in the coming years signal an impressive trajectory, with forecasts from the International Monetary Fund (IMF) placing the country among the 20 fastest-growing global economies. Projections point to a substantial GDP growth of 5.8 percent in 2024, highlighting Vietnam’s prominence in the evolving international economic landscape.

Economic Outlook for 2024 and Beyond in Vietnam's Economy
Viet Nam would be among the world’s 20 highest growing economies in 2024. Source: IMF

This positive outlook is underpinned by a combination of factors, notably the vibrancy of export activities that drive the economy, especially as the global landscape experiences post-pandemic recovery. Frederic Neumann, HSBC’s chief Asia economist, and co-head of Global Research Asia emphasizes the instrumental role of exports in propelling Vietnam’s economic momentum. The anticipated resurgence of the global economy further amplifies this effect.

Additionally, the domestic market’s revival emerges as a robust support mechanism for Vietnam’s economic journey. With the labor market rebounding and a growing middle class, there is a notable uptick in domestic consumption. This dual impact of export-driven growth and a thriving domestic market positions Vietnam for sustained economic dynamism.

As Vietnam enters 2024, the IMF’s forecasts and insights from economic experts portray a landscape characterized by resilience and expansion. The country’s strategic positioning in global trade, coupled with the vibrancy of its internal market, makes Vietnam an enticing prospect for investors and businesses aiming to leverage the opportunities presented by a flourishing and dynamic economy.

Final Thoughts

In synthesis, the discussed economic trends and growth drivers affirm the robust nature and future potential of Vietnam’s economy. With a projected spot among the fastest-growing economies globally in 2024, Vietnam offers unparalleled opportunities for businesses. To strategically navigate this landscape and capitalize on the country’s economic growth, businesses can benefit from professional consulting services. Viettonkin, as your guiding partner, specializes in tailored solutions, ensuring you optimize your approach and thrive amid the dynamic evolution of Vietnam’s economic outlook. Contact us now to embark on a journey toward impactful business growth.

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