Vietnam - The coming of age of a vibrant Tiger Cub Economy
VIETNAM IS the youngest - and most vibrant - member of the so-called "Tiger Cub Economies". Its economy is expected to grow by up to 6.8 per cent in 2018, underpinned by an open economy, foreign direct investment and a youthful and literate population. The government National Assembly set a GDP growth target of 6.6 per cent-6.8 per cent for 2019 which we see as achievable despite the continued uncertain global environment.
Of the Tiger Cubs - which include Indonesia, Malaysia, the Philippines and Thailand - Vietnam is a relatively latecomer in terms of economic development in the region. However, it is forecast to be the fastest growing economy among the Tiger Cubs over the next five years.
Vietnam achieved its remarkable growth performance through a foreign direct investment (FDI) led export-oriented strategy which was successfully used by other countries such as China and the Asian Tiger economies.
But three areas have made the country stand out: trade liberalisation, foreign investment and demographics.
Vietnam has strongly embraced trade liberalisation. When it joined the World Trade Organisation (WTO) in January 2007, it was part of only two free trade deals. Since then, Vietnam has been involved in more FTAs, both through its Asean membership and also from bilateral negotiations. At the time of writing, Vietnam has 10 FTAs which are in effect with countries that account for 35 per cent of global GDP.
It has signed a further two FTAs in the last 12 months which are waiting to take effect, concluded negotiations on an FTA with the European Union which is now awaiting approval from EU members and the European Parliament, and is also in negotiations on three other trade deals. The FTAs under negotiation, waiting for approval or waiting to go into effect, cover 28 per cent of global GDP, giving Vietnam huge access to the global market place.
Second, Vietnam has opened its doors to foreign investment and has made it easier to do business in the country. This has resulted in marked improvements in its ranking in the World Bank's Ease of Doing Business score, where it came in at 69 this year, a big jump from its 104th placing in 2006.
During that time, Vietnam has also improved in the World Economic Forum's Global Competitiveness Report ranking, going from 77th place to 55th currently. Better governance, with the World Bank reporting a consistent rise in Vietnam's Rule of Law ranking over the past few years, has also helped attract multinationals.
HIGH YOUTH LITERACY RATE
But it is people who make Vietnam stand out. The country is home to 96 million people, the 15th most populous in the world. Half of them are under the age of 30.5. But more importantly, Vietnam has a very high youth literacy rate at 98.1 per cent. Its primary school students achieved scores that are well above the average of advanced economies in science and maths, based on the OECD's Programme for International Student Assessment (PISA). In addition, the country also boasts one of the highest female labour force participation rates in the world at 73 per cent.
Unsurprisingly, Vietnam has become a magnet for multinationals seeking to set up manufacturing production. Inward FDI into Vietnam was US$2.4 billion in 2006, 0.2 per cent of global FDI inflows. This has grown to US$14.1 billion in 2017 which is equivalent to one per cent of global FDI inflows. The extent to which Vietnam has become an important trading hub in the region is reflected in the rapid rise of the country's total trade as a percentage of GDP, which was almost 200 per cent in 2017, up from 9 per cent before the reforms.
But even more remarkable is the rapid shift in the composition of Vietnam's export mix. A decade ago, textiles & garments were the top export items, accounting for around 15 per cent of the total value of exports. While textiles & garments remain an important export product, its top position has been replaced by phones and parts, which now account for a fifth of all exports. The rapid shift up in the manufacturing value-added chain in Vietnam in large part is due to the capability of its workforce.
Vietnam is actually likely to benefit from the more fraught global geopolitical environment. Escalating trade tensions between the US and China look set to accelerate the shift of manufacturing production by multinationals into Vietnam. A survey of 219 companies from various countries by the American Chamber of Commerce in South China - conducted between Sept 21 and Oct 10, after the latest round of tariffs were imposed by both the US and China - showed that almost two-thirds are considering relocating some production out of China. South-east Asia emerged as the top choice and Vietnam is likely to emerge as one of the main contenders for the production shift.
While Vietnam is currently seen as a manufacturing hub, it will not be long before it emerges as an attractive consumer market as well. The country's per capita income is still low at US$2,500, but set to double over the next 10 years. Given the high female labour force participation rate - which means a higher proportion of dual income households - and the third largest population in Asean, the mass consumer market is set to grow strongly and provide another driver for growth.
As a Tiger Cub, Vietnam is growing up fast.
