DBS Macro Insights: Vietnam, the Rising Star

Summary

Economist 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.