VIETNAM could account for about 4 per cent of global electronics exports by 2025 as the country looks set to continue its momentum as an emerging global manufacturing hub, said a report by Oxford Economics.
The country was one of a few economies globally to grow in 2020, with a strong recovery in export-oriented manufacturing fuelling a 2.9 per cent growth in gross domestic product (GDP) despite the Covid-19 pandemic, the report authored by Oxford Economics' lead Asia economist Sian Fenner said.
It also further strengthened its world market share to 1.6 per cent of goods exports last year, up from 1.4 per cent the year before and just 0.5 per cent in 2010, Ms Fenner said.
This comes as a substantial rise in foreign direct investment (FDI) has increased the country's role in global manufacturing supply chains.
Some factors for Vietnam's recent export outperformance include its successful containment of the coronavirus, which enabled the manufacturing sector to normalise faster than most other countries in the region, she said.
"These tailwinds will likely fade this year as an easing in restrictions will allow production in other countries to normalise. We also think last year's demand for computers and furniture is unlikely to be repeated," she said.
Even so, she believes Vietnam's exports will continue to outperform others in the region this year and beyond.
This is because Vietnam's export manufacturing sector would likely be buoyed by a rebound in world trade this year.
In addition, Oxford Economics is expecting the electronics sector to grow by 6.4 per cent this year, up from 2.8 per cent in 2019, supported by telecommunications equipment relating to upgrades to 5G infrastructure.
"We believe Vietnam will benefit from this rise in global demand for electronics because its participation in global supply chains has increased significantly over the past five years following a surge in FDI," she said.
Although Vietnam's FDI fell 25 per cent during the pandemic year, it accounted for 1 per cent, or US$16.1 billion, worth of global FDI inflows, which is more than Malaysia and Thailand combined.
In addition, the rise in US-China trade tensions since 2018 and the imposition of large import tariffs on China by the US has further enhanced Vietnam's attractiveness as a destination for FDI, with a notable increase in inflows from China and a surge in US consumer demand, said Ms Fenner.
"We expect Vietnam will remain an attractive destination for global FDI inflows in the medium term, given its attractive labour dynamics, close proximity to China, and favourable trade and FDI policies," she said, adding that its share of global electrical exports will continue to rise, accounting for about 4 per cent of global electronics exports by 2025.
She also said the market share could be even higher, but it could be constrained by supply bottlenecks around key ports serving industrial clusters.
"Projects to ease this problem will require foreign investors. But even if funding is secured, these infrastructure upgrades will take time," she said.
One potential dark cloud is the prospect of punitive tariffs on Vietnamese exports to the US, with the US Treasury having designated Vietnam a "currency manipulator", she noted.
However, US action is unlikely for now, she believes, since the US is likely to have little appetite to further disrupt its companies' supply chains.
"Vietnam is also an important US strategic ally for countering China's influence in global trade and the region, which the US is likely to consider before undertaking any significant action against Vietnamese exports," she said.