Vietnam, the land of the 'Ascending Dragon'

In this picture taken on December 31, 2014, vehicles file the road in front of Hanoi's opera house where a large open-air stage is being prepared for a New Year's Eve concert in downtown Hanoi, Vietnam. (AFP Photo/Hong Dinh Ham)

Vietnam - also famously known as the land of the “Ascending Dragon” for its geographical shape on the world map - is a land of opportunities. As Vietnam celebrates its 72nd independence today, it is remarkable to note how far the country has progressed over recent years. Moving away from a centrally planned system into a market based economy, Vietnam has advanced into the "lower middle income countries" bracket since 2009. In 2017, the nation is now considered one of the most dynamic emerging markets within Southeast Asia.

In a press release issued by the World Bank, Vietnam’s Acting Country Director Sebastian Eckardt said “Vietnam’s economy is strong, as a result of strong momentum of Vietnam’s fundamental growth drivers — domestic demand and export-oriented manufacturing.”

Vietnam has had a communist past where the government directly controlled its economy, businesses and other related regulations. This resulted in limited foreign trade as production was heavily regulated by the government. Following the liberalisation of the Vietnamese market, the government has since adopted a more market driven socialist theme for all its economic related activities. Economic reforms under "Doi Moi" launched in 1986 have spurred rapid economic growth and development. The Doi Moi (which translates to “reconstruction”) is a name given to initiative that emphasises on economic decentralisation, foreign trade and privatisation of state-owned assets.

Today, Vietnam is growing as a trade and investment hub driven by the following factors.

The heart of ASEAN

Vietnam is strategically located at the centre of ASEAN (Association of Southeast Asia Nations). Its long coastline provides direct access to the South China Sea – which is a prominent shipping route – setting the perfect condition to boost trading opportunities in Vietnam. It is also located in close proximity to major Asian markets like China and Japan. The two major cities in Vietnam are Hanoi and Ho Chi Minh. Hanoi (the nation’s capital city) is located at the north and is closest to the South China Sea trading route. Ho Chi Minh on the other hand, has a larger population which makes it the perfect location to cater to its large domestic market. It also provides the labour force for industries like manufacturing, particularly the textile and electronics sectors.

Ease of doing business

The Vietnamese government has been actively amending its economic and trade regulations to make its market more transparent and accessible to foreign investors. In terms of ease of doing business, Vietnam moved up to the 82nd rank out of 190 countries in 2016 – an improvement of nine positions from its ranking in 2015. Vietnam is becoming an attractive business option mainly due to its expanding market capabilities and a stronger focus on social compliance. Recently, the Vietnamese government begins rolling out policies to promote English as a medium for doing business at the management level as well as investing in new machineries and factory automation in order to make its manufacturing sector more attractive to foreign investors. As factories begin to move away from urban settings into rural areas, the cost for labour has also been significantly reduced. According to the World Bank report titled "Doing Business 2017", the government has made the procedures of obtaining power and paying taxes easier. Aside from that, Vietnam is an attractive option for investors due to its relatively low startup costs. There is also no minimum capital requirement for setting up most businesses in Vietnam.

Trade agreements boost economic cooperation

Over recent years, Vietnam has signed numerous trade agreements as another indication that the country is becoming more open to the global market. Some of the agreements and international organisations that Vietnam has participated in include AFTA (ASEAN Free Trade Area), WTO (World Trade Organisation), BTA (Bilateral Trade Agreement) with the US and the Free Trade Agreement with the EU (European Union) which is expected to come into effect in 2018. It is also part of the eleven countries who decided to revive the TPPA (Trans-Pacific Partnership Agreement) in May 2017 without the US's participation. These treaties are a reflection of Vietnam's eagerness to strengthen the country's economy and its commitment in driving foreign trade. The Vietnamese government is set on implementing other measures to improve its investment landscape by supporting the growth of SMEs (Small and Medium-sized Enterprises) through Resolution 35 in particular, which aims to create one million private enterprises by 2020 - from the current number of 515,000 - and increasing the private sector's contribution to the national GDP (Gross Domestic Product) from 43 percent to 49 percent. Vietnam plans to reach the upper-middle income category in the near future and is well on its way to becoming a high-income economy by 2035.

Increased openness to foreign investments

Vietnam has always welcomed FDI (foreign direct investment) by constantly renewing business regulations. The government of Vietnam also offers several incentives to foreign investors who invest in certain geographical areas or sectors of special interest like in high-tech industries or the healthcare sector. These tax benefits include lower corporate income tax rate or exemption from the tax, exemption from import duty for raw materials as well as reduction on or exemption from land rental or land use tax. In July 2015, Vietnam has also implemented the long awaited "Decree 60/2015" which allows foreign investors to invest in areas with extreme socio-economic conditions and economic sectors. As such, Vietnam recorded $24.4 billion in foreign direct investment throughout 2016.

A young and growing skilled workforce

With a population of 92.7 million, Vietnam currently ranks as the 14th largest population in the world and the 9th most populated nation in Asia. As its population grows, the middle class population in Vietnam is also increasing faster than any other Southeast Asian country, driven by a steadily improving economy and increasing household income. According to a Nielsen’s market research report, the middle class population in Vietnam is expected to grow to 44 million by 2020 and to 95 million by 2030. This will support the growth of consumerism, thus making Vietnam an attractive market for foreign investors. As one of ASEAN’s frontier economies, Vietnam is becoming an important manufacturing hub within the region amidst low labour costs, growing consumer markets, rapid infrastructure developments and increasing quality in human capital. Nielsen has also estimated that 60 percent of the Vietnamese population is aged under thirty-five. The potential workforce is young and large. In addition, the country is also increasing its investment into education in comparison with other developing countries. These factors will contribute to the growth of a large and skilled Vietnamese workforce.

Vietnam's growth in the coming years

Over the last few decades, Vietnam’s economic growth has been one of the fastest in the world. This rapid development started after economic reforms were launched in 1986. According to the World Bank, the GDP rate in Vietnam is growing at a stable rate over the years, averaging around 6.46 percent a year between 2000 and 2017.

The government of Vietnam continues to show its commitment towards reforms in developing Vietnam. Vietnam’s SEDS 2011-2020 (Socio-Economic Development Strategy) - a ten-year strategy - highlights the need for structural reforms, environmental sustainability, social equity and emerging issues of macroeconomic stability. It identified three crucial breakthrough areas - skills development, industry innovation and infrastructure development. On the other hand, the SEDP (Socio-Economic Development Plan) for 2016-2020 - approved by the government in April 2016 - acknowledges the slow progress on certain policy priorities and emphasises on the need to accelerate reforms under the SEDS.

Though Vietnam is regarded as one of the emerging economies in ASEAN, there is still room for growth in terms of basic and advanced infrastructure, adequate financing, skilled human capital and enterprise innovation.

Staying true to its name, the land of “Ascending Dragon” has continued to show ascending growth in recent years. The World Bank predicts that Vietnam’s medium-term outlook remains positive, with real GDP growth projected to accelerate slightly to 6.3 percent in 2017 driven by buoyant domestic demand, rebounding agricultural production and strong export-oriented manufacturing, aided by a recovery in external demand. Vietnam has indeed come a long way since gaining independence. The nation still has plenty of room to grow, but it is on the right path to reach greater heights. Hence investors should seriously consider tapping into investment opportunities in Vietnam in view of increasing market liberalisation!