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Vietnam has achieved economic success after claiming the title of the fastest-growing economy in Asia in 2022, with an impressive growth rate of 8%. Vietnam also maintains a low inflation rate, averaging 3.3% in the first half of 2023. Mr. Khanh Vu, the Deputy CEO of VinaCapital Fund Management, shared his insights on the prospects of the Vietnamese economy and promising investment sectors with The Banker.
The signs of improvement
It is noted that there are signs of improvement in the business cycle, along with positive signals in terms of profit and income growth. It is predicted that the Vietnamese market will witness an average income growth of 10% in 2023 and 25% in 2024. The cautious approach in lending, with a focus on sectors such as manufacturing, transportation, logistics, and construction, has directly supported economic growth.
The real estate sector has faced challenges due to limited liquidity. Mr. Vu stated, "The government is promoting construction activities. The demand for housing is still high due to a shortage of affordable housing in Hanoi and Ho Chi Minh City. Although urbanization is increasing at a rate of just under 2% per year, Vietnam's population is still divided, with around 60% in rural areas and 40% in urban areas, indicating a significant housing demand."
There are also indications that the manufacturing space may start to recover as export demand increases. Vietnam's economy has also benefited in recent years from companies expanding their production bases in Asia. The government is also keeping pace by enhancing cooperation with new markets. Mr. Vu assessed, "Vietnam currently has 16 free trade agreements with various countries and trade blocs. Vietnam is also negotiating three other agreements. We have observed a positive trend of foreign direct investment (FDI) from the beginning of the year, and we expect an increase in investment in the second half of 2023."
Vietnam signed a trade agreement with Israel in July 2023, which involves eliminating tariffs on at least 86% of Vietnamese products and 93% of Israeli products, according to the Ministry of Industry and Trade. Bilateral trade between Vietnam and Israel is projected to reach $3 billion, after recording $2.2 billion in 2022.
Positive signals from FDI inflows
As the Vietnamese economy grows, FDI inflows are becoming increasingly important. Many global brands have decided to open operations in Vietnam. Mr. Vu stated, "Lego has announced that they plan to start production at their first carbon-neutral factory in Vietnam in 2024. This company will play a significant role in supporting the local community by providing employment for over 1,400 people. Other companies such as Foxconn, Apple, and Pandora have also committed to shifting production to Vietnam."
While these are positive developments, Vietnam cannot rely solely on low-skilled manufacturing or services in the long run. Mr. Vu assessed, "In the long term, Vietnam needs to ensure that it continues to upgrade its position in the value chain of production. We can see that many high-tech companies are coming to Vietnam due to its skilled workforce, improved infrastructure and logistics, as well as a favorable business environment."
While the government supports FDI enterprises, Mr. Vu also emphasizes the need to prioritize domestic brands and technology. He states, "Vietnam needs to develop domestic brands and technology and also develop an ecosystem for local businesses to compete with regional and global companies."
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