Wealth in Vietnam growing fast, but low productivity tests high-income goal

[HO CHI MINH CITY] Vietnam is expected to experience one of the sharpest surges in wealth in the next 10 years, as the South-east Asian nation becomes increasingly popular as an investment destination and safe manufacturing base, says a wealth report.

Over the next decade, Vietnam’s number of millionaires – estimated at 19,400 as at end-2023 – is expected to grow faster than in any other country in the world, noted wealth-intelligence firm New World Wealth.

This observation was based on research for the firm’s wealth report series, carried out with investment migration advisers Henley & Partners.

By 2033, Vietnam’s wealth per capita is forecast to more than double its 2023 level of US$6,700; its growth rate of 125 per cent surpasses India’s 110 per cent expansion over the same timeframe.

Luxury brands that have set up in the country in recent years are having a field day, tapping this surge in wealth.

The total sales of more than 10 distributors of some 30 luxury brands in the country, including Louis Vuitton, Chanel, Dior and Hermes, shot up 67 per cent in 2022 to 25 trillion dong (S$1.36 billion) from the year before, according to Vietdata. Profits have nearly tripled to 3.8 trillion dong.

Retail properties and malls in Vietnam’s two key cities – the capital Hanoi and the economic hub Ho Chi Minh City – are buzzing with solid rental growth and high occupancy rates despite tough economic conditions.

A report by consultancy CBRE Vietnam said international brands – especially high-end ones in food and beverage, entertainment and fashion – have opened new stores or expanded their existing ones in prime locations.

British real estate services company Savills also told The Business Times that it brokered a number of high-street premises in Hanoi on behalf of a significant number of luxury retailers last year.

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Troy Griffiths, deputy managing director of Savills Vietnam, said: “Luxury retailers see Vietnamese consumers spending in other locations, so this gives them confidence to open their foreign invested enterprises (FIEs) in Vietnam, moving away from wholesaler arrangements (a practice in the past).”

He sees the investments by retailers with FIE status and rising spending in the country as a “long-term trend”.

But the super rich are not the only ones growing in number: Vietnam is set to add 23.2 million individuals to its middle-class population by 2030. This puts the country in seventh place among the top nine countries with the fastest-growing middle classes, said World Data Lab, a UK-based analytical non-governmental organisation and data refinery enterprise.

With rapid urbanisation and growing disposable income, the middle class in developing countries tends to drive demand for foreign brands and higher-quality goods and services.

Research released by the Asian Development Bank Institute in 2017 suggested that the consumption capacity of the middle class is what matters most. A middle class that is large and comprises more of those on the upper end of this class has a greater impact on the growth of middle-income countries.

Data from 1985 to 2012 showed that the size and economic weight (or total consumption share) of the middle class increased with the development levels of the economy. 

Bolstering productivity

The other half of the picture is how Vietnam could strengthen consumption through sustainable wealth creation in the coming decades. The country has set a goal to transform from lower-middle income to upper-middle income by 2030, and to high income by 2045.

But much of this depends on increasing the productivity of its domestic private sector.

Vietnam’s labour productivity grew by about two-thirds between 2010 and 2020, the fastest among Asean’s main economies, said a World Bank report. This growth was fuelled by improvements in the business environment, higher-quality workforce, and large foreign direct investment inflows.

Over the past few years, thanks to the relocation and diversification of major multinational firms, Vietnam has been able to participate more deeply in high-tech supply chains of electronics and components, especially semiconductors. 

Observers see this as the long-awaited economic moment for Vietnam. The debate is turning on whether the country can supercharge its productivity to fuel the transition towards higher value-added, more technology-intensive production. 

But for now, Vietnam’s absolute labour productivity levels are still well below its regional peers, according to World Bank data.

Countries with higher productivity levels such as Malaysia and Thailand, previously regarded as the next generation of newly industrialising countries in East Asia back in the 1990s, are also facing the “middle-income trap”.

Their productivity growth has slowed down in the new millennium, hampered by tough competition in traditional export markets and weak linkages between foreign and domestic enterprises.

Chris Malone, partner at US-headquartered strategic advisory firm Dalberg, identified two sectors that Vietnam can leverage to achieve its high-income goal in the next two decades – services and the artificial intelligence, information and communication technology sectors. 

He said Vietnam has a compelling cost advantage, a relatively disciplined and hard-working workforce and improving performance in education, especially in the Stem (science, technology, engineering and mathematics) fields.

“The limitation today is that it’s very difficult to find high volumes of professionally business educated and professionally experienced business leaders (in Vietnam),” he said.

The long-term solution is to attract the diaspora of international scholars, entrepreneurs and technologists back to Vietnam for the workforce.

He said a short-term fix would be to attract the participation of foreign companies from high-standard environments like Singapore or South Korea.

He suggested that Singapore could blend its services supply chains into Vietnam. This way, “some of the intermediate-value activities can go to Vietnam and you can grow at twice the rate if you have a Vietnamese component in your business”, he added.