After turbulent 2023, Vietnam braces for another uncertain year

[HO CHI MINH CITY] The past year was an eventful if somewhat turbulent one for Vietnam, with the global economic slowdown and weaker external demand inflicting some pain on the export-reliant economy.

The country’s gross domestic product (GDP) grew by 5.05 per cent in 2023 – well below the government’s official growth target of 6.5 per cent and significantly less than the 8 per cent expansion in 2022 as Vietnam rode a post-pandemic boom to become one of the world’s fastest-growing economies.

The National Assembly has handed the government a target to achieve GDP growth of between 6 and 6.5 per cent in 2024, although there are question marks about whether this goal is realistic given the economic uncertainties ahead.

Key milestones

The past year will be remembered for several milestones. One was a historic cabinet reshuffle in January 2023 which took place amid lengthy investigations driven by a sweeping anti-corruption campaign that has rounded up over 3,500 bureaucrats and business people since 2021.

Among the scandals that enraged the public were a former health minister involved in the production and distribution of overpriced Covid-19 test kits, and another involving senior government officials who took hefty bribes in exchange for arranging flights home for Vietnamese citizens stranded overseas during pandemic lockdowns.

In January 2023, the National Assembly voted to dismiss two deputy prime ministers as Communist Party chief Nguyen Phu Trong called for the “timely” discharges of incompetent and corrupt officials.

Also that month, President Nguyen Xuan Phuc stepped down after the ruling party found him responsible for the violations and wrongdoings of officials under his watch when he was prime minister.

That shock resignation paved the way in March for 53-year-old Vo Van Thuong to become the youngest person in Vietnam’s history to become president. He is set to occupy the largely ceremonial position at least until the next party congress is held in 2026.

The corruption crackdown took a heavy toll on the country’s property market, in which developers reeled from a liquidity crunch, soaring interest rates and tighter rules on private placement bonds following several high-level arrests.

One of the high-profile cases was the downfall of major property developer Van Thinh Phat. This after the police released a report accusing the company’s chairwoman Truong My Lan of embezzling 304 trillion Vietnamese dong (S$16.6 billion), a sum equivalent to 3 per cent of Vietnam’s 2022 GDP.

There were some positive breakthroughs in the technology scene as two of the sector’s behemoths – electric vehicle (EV) maker VinFast and Internet firm VNG – filed for initial public offerings in the United States.

Only VinFast, a unit of Vietnam’s largest private conglomerate Vingroup, made it to the Nasdaq in August. On the first day of trading in August, its share price soared to the extent that the company had a valuation greater than US auto giants Ford and General Motors.

On the political front, Vietnam celebrated improved ties with the US and China with presidents Joe Biden and Xi Jinping visiting Hanoi in the space of three months. During Biden’s visit to the Vietnamese capital, he announced US$2 million of seed funding to help Vietnam develop its semiconductor workforce.

Vietnam also elevated Japan to one of its six comprehensive strategic partners, the highest rung on Vietnam’s diplomatic ladder that also includes the US, China, South Korea, Russia and India.

It is all part of Vietnam’s unique “bamboo diplomacy”, which seeks to balance the country’s ties with the world’s superpowers and promote a foreign policy of independence, self-reliance, flexibility and diversification of relations.

The year 2023 was significant as Vietnam saw several key policies and regulations passed, including a long-awaited power plan that will require US$134.7 billion in funding for new power plants and grids for this decade.

The aim is to double Vietnam’s power-generation capacity to 150 gigawatts (GW) by 2030 (from 69 GW at end-2020) and transition to carbon neutrality with a total phase-out of coal by 2050.

Foreign investment

Vietnam experienced severe energy shortages during heatwaves in May and June last year that led to lengthy blackouts, interrupting production in the industrial zones of several northern provinces. 

In November, parliament approved a new global minimum tax for multinationals, which sees these larger companies paying a 15 per cent effective minimum tax rate in Vietnam from January 2024.

Analysts say that these events would cast a blight on Vietnam’s attractiveness to foreign investors who have been looking to relocate or expand production in the country to diversify supply chains away from China.

According to latest figures from the investment ministry, foreign direct investment in Vietnam rose 32 per cent year on year to reach US$37 billion.

In the past year, Vietnam’s government has also been tightening its grip on cross-border service provisions by foreign social media platforms.

Following the 2018 law on cybersecurity, the information ministry is accelerating the introduction of new rules regarding the management, provision and use of Internet services, online information and online video games.

Busy year ahead

Analysts have said that the likelihood of major changes in Vietnam’s key leadership is low in 2024, which could give investors more confidence as they look to diversify their supply chains.

On Jan 5, Deputy Prime Minister Le Minh Khai said that the government aims to keep inflation at between 4 and 4.5 per cent in 2024. There is a target for exports to grow by 6 per cent to US$724 billion.

A number of major infrastructure projects are expected to be operational during 2024, including the Ben Thanh-Suoi Tien Metro Line in Ho Chi Minh City.

Vietnam’s stock market – the smallest among the main South-east Asian economies – is eager to achieve emerging economy status by 2025 and attract billions of dollars in foreign capital inflows.

Over in Ho Chi Minh City, all eyes are on what will happen this year after the National Assembly in June 2023 passed a resolution on special mechanisms and policies for the development of the country’s economic hub and most populous city.

Observers expect some detailed guidelines to be released in the coming months, including a tax-exemption scheme for income derived from startup investments, incentives for buyers of EVs, and mechanisms to pilot a carbon credit trading market.