DBS Macro Insights: Vietnam, the Rising Star

DBS

24 Jun 201904:01

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

00:00

📈 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

An economist is a professional who studies the production, distribution, and consumption of goods and services. In the context of the video, the term refers to the speaker, Ervin, who is analyzing the economic situation in Vietnam. The script discusses his perspective on Vietnam's economic growth and future prospects, highlighting his role as an expert in economic analysis.

💡Cataclysm

Cataclysm refers to a sudden and violent event leading to great changes, often used metaphorically to describe a significant upheaval or disaster. In the script, it is used to describe the challenging external environment Vietnam faced, emphasizing the difficulties the country has overcome to achieve its current economic status.

💡GDP Growth

GDP Growth, or Gross Domestic Product Growth, measures the rate at which the economy of a country is expanding. The script mentions Vietnam's second-fastest GDP growth in Asia, indicating its strong economic performance and potential for future prosperity.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video script refers to a period when Vietnam experienced high inflation, reaching 28%, which is a critical economic challenge that the country had to address for stability.

💡Economic Stability

Economic stability implies a state where an economy is not subject to wild fluctuations in growth, employment, and inflation. The script discusses how Vietnam achieved economic stability around mid-2012, which is a key factor in its transformation and the focus of its policymakers on stability and sustainability.

💡FDI (Foreign Direct Investment)

FDI refers to an investment made by a firm or individual in one country into business interests located in another country. The script highlights that Jeollanam, Vietnam, is a top recipient of FDI in the region, attracting investments from various countries, which is crucial for its economic development.

💡Infrastructure

Infrastructure encompasses the basic physical and organizational structures needed for the operation of a society or enterprise. The video mentions Vietnam's heavy investment in infrastructure, which is a percentage of GDP, indicating the country's commitment to creating a solid foundation for economic growth.

💡Human Capital

Human capital represents the skills, knowledge, and experience possessed by an individual or population, which can be utilized for economic value. The script points out that Vietnam has a young population and a high-quality human capital, which is attributed to the government's consistent allocation of budget to education, positioning the country favorably for productivity growth.

💡Productivity Growth

Productivity growth is the increase in output per unit of input, reflecting improvements in efficiency. The video notes that Vietnam has achieved high productivity growth despite having one of the lowest labor costs in the region, which is a significant advantage and a key factor for its potential to benefit from global trade tensions.

💡FTA (Free Trade Agreement)

An FTA is an agreement between two or more countries where they reduce barriers to trade, such as tariffs. The script mentions Vietnam's extensive network of FTAs and its integration into the regional supply chain, which positions it to attract investment and enhance its export capabilities.

💡Supply Chain

A supply chain is the network of organizations, people, activities, information, and resources involved in producing and delivering a product or service. The video script discusses how Vietnam is integrated into the regional supply chain, which is a strategic advantage that has led to significant FDI flows from China, indicating a new trend of investment creation.

💡Domestic Issues

Domestic issues refer to problems or matters that are confined to a country's internal affairs. The script acknowledges that despite the positive outlook, Vietnam still faces a variety of domestic challenges that need to be resolved for sustained growth, suggesting that while the economic policies are on the right track, there is still work to be done internally.

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.