What is the secret to Vietnam’s emerging economic prosperity?

Vietnam is expected to grow at the fastest rate among Southeast Asian emerging economies, according to World Bank forecasts. The World Bank has released a new forecast that states Vietnam’s economy will grow by 6.1% at the end of 2024 and 6.5% in 2025.

According to the report, both forecasts are higher than the estimates from April, with the growth increase attributed to a rebound in manufacturing exports, tourism, and investment. This indicates that Vietnam may grow more rapidly in 2025 than other developing nations like the Philippines, Malaysia, Indonesia, Thailand, and Cambodia. 

Nguyen Khac Giang, a researcher and visiting fellow at the ISEAS Institute, told DW that although Vietnam faces some significant obstacles, including an unhealthy domestic sector and an excessive reliance on the foreign direct investment sector, the country’s economic prospects are still favorable when compared to those of other Southeast Asian nations.

What helps growth? 

Similar to other nations in Southeast Asia, Vietnam is highly dependent on foreign direct investment. The ASEAN Investment Report 2024 states that FDI inflows into Vietnam, Thailand, Indonesia, Malaysia, Singapore, and the Philippines averaged roughly $236 billion annually between 2021 and 2023.

Southeast Asian nations are increasingly becoming popular destinations for foreign investment from the US, Japan, and EU as Western investors attempt to diversify away from China in the midst of geopolitical tensions between Washington and Beijing. 

Vietnam, according to Nguyen, was capitalizing on those tensions. “With a population of 100 million and a growing middle class at home, Vietnam can sustain its growth momentum and maximize the advantages of its geopolitical location in the great power competition between China and the US,” the speaker stated. With the establishment of their “comprehensive strategic partnership” between Beijing and Hanoi in 2008, China has also made investments in Southeast Asia.

“China +1” 

Similar to China, Vietnam’s economy is being driven by a one-party system, in which the Communist Party controls all governmental operations as well as social groups and the media. China is Vietnam’s largest trading partner, but more significantly, because it supplies the majority of the country’s inputs, China is vital to the country’s manufacturing industry. That won’t change in the near future, in my opinion,” Nguyen stated.

A global economic business strategy known as “China Plus One” aims to expand into other nations while keeping a presence in the Asian giant, allowing investors to become less dependent on the market and supply chain operations in China.

Southeast Asian nations are thought to be suitable substitutes. Vietnam is a common choice, according to Bich Tran, an adjunct fellow at the Center for Strategic and International Studies (CSIS), who spoke with DW.  

Because of its proximity and shared culture, Vietnam is a top option for many companies’ China-plus-one policy, according to Tran. “Moving to Vietnam is much easier for those who have been operating in China, and dealing with the Vietnamese would be more familiar than dealing with Indonesia or Malaysia,” the spokesperson stated. However, given its smaller size than China, Vietnam can only accommodate a limited number of businesses looking to relocate there. India would have a far greater chance of competing with China than Vietnam if they opened up their economy, the speaker continued.  

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Western economies are drawn to Vietnam 

Vietnam’s largest export market and second-biggest trading partner is the United States. Washington and Hanoi signed a “Comprehensive Strategic Partnership for Peace, Cooperation and Sustainable Development” in September 2023, thereby enhancing their diplomatic ties. According to analysts, the agreement’s main goal was to increase economic gains. Vietnam’s growing list of strategic allies includes the United States, Australia, China, India, South Korea, Russia, and, more recently, France.  

But Washington’s massive investment is essential to Vietnam’s economic prospects. The US tech giant Apple was once again crowned the world’s most valuable company this year. During the last five years, Apple has invested over $15 billion (€13.76 billion) in Vietnam, making it a major manufacturing location for the business. Vietnam is a desirable place to invest because it has cheap labor costs and a sizable labor force, with 58% of its nearly 100 million people under the age of 35.

More reforms are required 

On the other hand, the rapid expansion is running into domestic obstacles. Vietnam’s economy is among the fastest growing in the region, but the country is not well known for its civic society, human rights, political censorship, or corruption. Vietnam’s small and medium-sized businesses are finding it difficult to match the competitiveness of manufacturers who ship their products to other countries. 

Events related to climate change, like the most recent Typhoon Yagi, are also driving up the cost of necessities like food production. Vietnam frequently experiences power outages, so experts advise using more renewable energy. The World Bank’s practice manager for East Asia, Sebastian Eckardt, stated that structural changes were required. “The recovery in export demand helped Vietnam’s economy in the first half of the year. Eckardt stated that in order to maintain growth momentum in the medium term as well as for the remainder of the year, the authorities should intensify structural reforms, boost public investment, and closely monitor new financial risks. 

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