DBS Macro Insights: Vietnam, the Rising Star
Summary
TLDREconomist Ervin discusses Vietnam's promising economic outlook despite past challenges. With the second-fastest GDP growth in Asia, Vietnam attracts significant FDI, particularly in electronics manufacturing, bolstered by robust infrastructure and a young, well-educated population. The country's competitive labor force and extensive network of FTAs position it to benefit from global trade shifts, potentially doubling its economy by 2029, surpassing Singapore's. However, domestic issues remain to be addressed.
Takeaways
- 📈 Vietnam has the second-fastest GDP growth in Asia, following India in 2018.
- 🚀 The country experienced economic turbulence about a decade ago, with inflation reaching 28%, but has since stabilized by mid-2012.
- 💼 Policymakers in Vietnam are currently prioritizing stability and sustainability, informed by their past challenges.
- 🏭 Jeonnam, Vietnam, is a top recipient of FDI in the region, with investments from Japan, Korea, Singapore, China, and Hong Kong.
- 🔌 Electronics manufacturing is a key sector attracting significant FDI, with global tech giants investing heavily in Vietnam.
- 🔄 Vietnam is the second-largest electronics exporter in the region, indicating a strong manufacturing base.
- 🛠️ Infrastructure spending as a percentage of GDP in Vietnam is high, supporting continued FDI and economic growth.
- 👥 Vietnam has a young population, which is a significant asset for its human capital development.
- 🎓 The government's consistent allocation of 20% of its budget to education over the past 20 years has resulted in high-quality human capital.
- 💼 Vietnam's productivity growth is high in the region, despite having one of the lowest labor costs, which is about one-third of China's.
- 🌐 Vietnam has an extensive network of FTAs and is well-integrated into the regional supply chain, attracting significant FDI from China.
- 📊 The script predicts a GDP growth rate of 6-6.5% for Vietnam in the coming years, outpacing the regional average.
- 🏢 By 2029, Vietnam's economy could potentially surpass that of Singapore, indicating significant growth opportunities for investors and companies.
- 🚧 While there are domestic issues to be addressed, Vietnam's economic policies and fundamentals are strong, making it a rising star for investment.
Q & A
What makes Vietnam stand out economically in the recent years?
-Vietnam has stood out due to its second-fastest GDP growth in Asia in 2018, just behind India, and its exceptional long-term prospects despite facing economic challenges such as high inflation and currency devaluation in the past.
What was the inflation rate in Vietnam about ten years ago?
-About ten years ago, Vietnam experienced a challenging period with inflation rates reaching as high as 28%.
When did Vietnam's economy stabilize after the inflation crisis?
-Economic stability in Vietnam took hold around mid-2012, following the inflation crisis.
What are the two key components Vietnam needs to focus on for economic transformation?
-The two key components for Vietnam's economic transformation are investment and human capital. Investment is seen in the form of FDI from various countries, and human capital is being developed through significant budget allocations to education.
Which industries are attracting the most foreign direct investment (FDI) in Vietnam?
-Industries attracting the most FDI in Vietnam include manufacturing, real estate, banking, telecom, and electronics manufacturing.
Why is the electronics manufacturing sector particularly important for Vietnam?
-The electronics manufacturing sector is important because many global tech giants have invested heavily in Vietnam, making it the second-largest electronics exporter in the region.
What percentage of GDP does Vietnam invest in infrastructure?
-The exact percentage is not specified in the script, but it is mentioned that Vietnam's infrastructure spending as a percent of GDP is among the highest in the region.
How does Vietnam's population compare to more mature economies in terms of age?
-Vietnam has a fairly young population compared to more mature economies such as Singapore, Thailand, and China.
What percentage of Vietnam's budget is allocated to education, and how long has this been consistent?
-The Vietnamese government has consistently allocated about 20 percent of its budget to education for the past 20 years.
How does Vietnam's productivity growth compare to other countries in the region?
-Vietnam has achieved very high productivity growth in the region, despite having one of the lowest labor costs, which is about one-third of that of China.
What is Vietnam's potential economic growth rate in the coming years, and how does it compare to Singapore's?
-Vietnam is expected to achieve a GDP growth rate of 6 to 6.5 percent in the coming years, which is significantly higher compared to Singapore's mature economy, expected to grow at about 2.5 percent.
What implications does Vietnam's potential economic growth have for investors and companies?
-Vietnam's potential economic growth implies significant growth opportunities for investors and companies, as it is on track to become a larger economy than Singapore by 2029.
What are some of the domestic issues that Vietnam still needs to resolve?
-While the script does not detail specific domestic issues, it acknowledges that there are several challenges within Vietnam that need to be addressed for sustained growth.
How is Vietnam's economic policy direction viewed in the context of its growth prospects?
-Vietnam's economic policies are viewed as being in the right direction, with strong domestic fundamentals, which is encouraging for investors and companies to focus on this rising economy.
Outlines
📈 Vietnam's Economic Growth and Transformation
This paragraph introduces Vietnam's impressive economic growth, ranking second in Asia with a GDP growth rate just behind India. It highlights the country's past economic challenges, including high inflation and currency devaluation, and how it has since stabilized and focused on stability and sustainability. The speaker emphasizes the importance of investment, with Jeonnam being a top recipient of FDI, particularly in diverse industries such as manufacturing, real estate, banking, telecom, and electronics. The electronics manufacturing sector is particularly noted for attracting significant investment from global tech giants, positioning Vietnam as a key player in the regional electronics export market.
🏗️ Infrastructure and Human Capital Investment
The second paragraph delves into Vietnam's investment in infrastructure, which is a significant percentage of its GDP, and the importance of human capital. With a young population, Vietnam is investing heavily in education, resulting in a high-quality workforce that is competitive in the region. The government's consistent allocation of 20% of its budget to education over the past two decades is highlighted as a key factor contributing to the country's high productivity growth. Despite having one of the lowest labor costs in the region, Vietnam's productivity is noted as a significant advantage, potentially benefiting from the ongoing trade tensions.
🌐 Regional Integration and Future Prospects
This paragraph discusses Vietnam's extensive network of Free Trade Agreements (FTAs) and its integration into the regional supply chain, which has been bolstered by substantial FDI flows from China. The speaker suggests that this could indicate a new trend of Chinese investment into regional countries like Vietnam. The paragraph concludes with a positive outlook on Vietnam's future GDP growth, predicting a rate of 6-6.5% in the coming years, which is significantly higher than the regional average. By 2029, Vietnam's economy could potentially surpass that of Singapore, presenting significant growth opportunities for investors and companies.
🚧 Challenges and the Path Forward
The final paragraph acknowledges the domestic challenges that Vietnam still faces but asserts that the country's economic policies are on the right track. With strong domestic fundamentals and a focus on the right economic strategies, the speaker encourages investors and companies to pay more attention to Vietnam as a rising star with promising growth prospects. The paragraph ends on a note that suggests the need for continued focus on leveraging these opportunities for sustainable economic development.
Mindmap
Keywords
💡Economist
💡Cataclysm
💡GDP Growth
💡Inflation
💡Economic Stability
💡FDI (Foreign Direct Investment)
💡Infrastructure
💡Human Capital
💡Productivity Growth
💡FTA (Free Trade Agreement)
💡Supply Chain
💡Domestic Issues
Highlights
Vietnam is exceptionally positive about its longer-term prospects despite the challenging external environment.
Vietnam registered the second fastest GDP growth in Asia in 2018, just behind India.
About ten years ago, Vietnam experienced a challenging period with inflation reaching 28% and the dong plunging sharply.
By mid-2012, Vietnam saw economic stability taking hold.
The experience of economic instability has led Vietnam's policymakers to focus more on stability and sustainability.
Vietnam is one of the top recipients of FDI in the region, with investments from Japan, Korea, Singapore, China, and Hong Kong.
Investment in diverse industries such as manufacturing, real estate, banking, telecom, and electronics is notable.
Vietnam is now the second-largest electronics exporter in the region.
Vietnam has invested heavily in infrastructure, with infrastructure spending as a percent of GDP outpacing many regional peers.
Vietnam has a relatively young population, which is advantageous for future growth.
The government has consistently allocated about 20% of its budget to education for the past 20 years.
Vietnam has achieved high productivity growth, with labor costs remaining among the lowest in the region.
Vietnam could potentially benefit from the ongoing trade tensions by attracting investment from China.
Vietnam has an extensive network of free trade agreements and is well-integrated into regional supply chains.
Vietnam is expected to achieve a GDP growth rate of 6-6.5% in the coming years, potentially surpassing Singapore's economy by 2029.
Despite domestic issues that need resolution, economic policies are moving in the right direction, making Vietnam an attractive prospect for investors and companies.
Transcripts
[Music]
hi everyone
this is Ervin now there's one economist
that stood out recently Cataclysm it the
challenging external environment and
that is Vietnam we are exceptionally
positive about longer term prospect at
the anomaly first and foremost Vietnam
registers second fastest GDP growth in
Asia in 2018 just managing behind India
however it hasn't been smooth sailing
for this emerging economy just about ten
years ago the ANA went through a
challenging period inflation went all
the way up to 28% the don plunged
sharply it was only until around mid
2012 where we saw economic stability
taking hold in fact it is the experience
of this period there so the save for
Vietnam economic transformation
policymakers today are more focused
about stability and sustainability to do
them there are two key components they
need to be put in place first investment
jeonnam is one of the top recipient of
FD a-- in the region coming from Japan
Korea Singapore China and Hong Kong the
investment going to a diverse industries
such as manufacturing real estate
banking telecom harbour it is in
electronics manufacturing that Cod eyes
of many in fact many global tech giants
has invested heavily into Vietnam this
is a laudanum to live from here on many
regional pills today Vietnam is the
second largest electronics exporter in
the region everything such trends will
continue now to support all this FDI
Vienna invested heavily on
infrastructure infrastructure spending
as a percent of GDP to have many of the
region appears inside investment another
important component is human capital
Vietnam has a fairly young populations
compared to some of the more mature
economies such as Singapore Thailand and
China but it is the quality of human
capital that matters more and we'll bang
meringues Vietnam very favorably just
valley below Singapore and on par with
China now I think that can be attributed
to the fact that the government has
allocated about 20 percent of its budget
spending on irrigation consistently for
the past 20 years it is is very high by
gold standard
there has a love Vietnam to be able to
achieve very high productivity growth in
the region however that's why is more
interesting is this is by having a
higher productivity Vietnamese which
cause is actually one of the lowest in
the region and about one third of that
of China and this is deafening one of
the key factor of wine Vietnam could
potentially benefit from the ongoing
treatment now besides having an
competitive labor force general has an
extensive network FTA
it is also said to be located and
integrated with the regional supply
chain indeed one reason phenomenons that
way since tremendous FDI flows from
China into Vietnam this could be a sign
of a new trend about investment that is
creation our China into regional
countries such as Vietnam now if you
consider all these underlying
fundamentals we think that Vietnam
should be able to achieve a GDP growth
rate of was six to 6.5 percent in the
coming years
a view compared to one the region
appears simple example sample will be
growing at about two and a half percent
because this is a mature economy in
Vietnam if he's able to grow at about 66
now half going forward then by 2029 the
Vietnam economy could potentially be
bigger than Singapore economy now this
implies to manage growth opportunities
for investors and companies of course
it's not picture-perfect there are still
a whole slew of domestic issues that
need to be resolved within it ya know
however one thing is for sure economic
policies are in the right directions
domestic fundamentals are to music
so therefore investors and companies
must start focusing more on this rising
star in order leverage on this growth
prospect
[Music]
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