Vietnam weathered an epic drought in 2016 and the World Bank estimates a third of its 93 million people still live in poverty. You hear about corruption and faltering agriculture, perhaps a reason why people are poor.
But so much for the bad news. The Southeast Asian country with a $200 billion-plus GDP and the welcome reputation as a cheaper manufacturing base than China will keep drawing investment, expanding export production and watching domestic consumption spread, according to forecasts. Vietnam’s economy that’s been on that track since the late 1980s probably grew around 6.3% last year for a lot of the same reasons and the government expects 6.8% in 2017. Why the country will at least come close to that target despite poverty, drought and corruption come down to these five points:
1. The Trans Pacific Partnership will be revived or replaced. U.S. President-elect Donald Trump is expected to scrap the 12-nation trade agreement that’s known as the TPP and that would particularly help member Vietnam as an exporter. But a few people suspect Trump will somehow salvage it. If not, Vietnam already takes part in 16 FTAs, including with economic powerhouses China and Japan. It can pursue bilateral agreements with other TPP members if the U.S. Congress declines to ratify the deal signed in 2016. Vietnam is also on the list to join a Chinese-championed Regional Comprehensive Economic Partnership trading group that would encompass 30% of the world’s GDP.
2. Vietnam keeps giving foreign companies reasons to invest. Foreign investors already benefit from lower tariffs under the trade deals. Some get lavish tax breaks, too. In 2015 the country made its rules on foreign investment clearer and sped up permit processing. Last year was a “transition year” for those changes, and in 2017 Vietnam will start to “collect the fruits of having a more structured and competitive business legislation, which is having an impact on attracting more FDI and also helping Vietnam become one of the major manufacturing hubs in the world,” says Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City.
3. People are getting richer and spending more. Vietnam’s middle class will double by 2020 to 33 million people and that means more consumption, the Boston Consulting Group estimated last year. People in that group earn at least $714 per month, enough for phones, motorcycles, travel and health products, items that usually make the short list of local consumer preferences. The middle class got where it is because wages are rising along with a boom in jobs linked to growth in export manufacturing.
4. Factory work is moving up in value from traditional industries. High-tech’s share of total exports from Vietnam reached 25% in 2015 from 5% percent in 2010 and kept going last year with no signs of abating now. Investments by electronics giants Hon Hai Precision, Intel and Samsung – worth billions of dollars -- have led the shift. Samsung Display is considering a new $2.5 billion investment in a project already worth about $4 billion, according to a stock market research firm in Hanoi. Electronics are replacing traditional industries such as garments and shoes, production of which is slowing moving to other Asian countries. Policymakers in Vietnam aim to increase annual export value by 8% to 10% this year, notes Louie Nguyen, editor and founder of the news website VietnamAdvisors. The trend will bring new skills, higher wages and more revenue for the companies making high-value stuff.
5. Private business is expanding, and doing more kinds of work. Vietnam, long dominated by clumsy enterprises under the Communist government, has been slow to foster private business, creating a dependence on Chinese imports of goods that could technically be made at home. But now private business, which was rated in 2015 by the World Bank as an economic sore spot, is expanding. There’s retail and export manufacturing. You also see a boom in craft beer and startups in media, entertainment and online payments. Three localized venture capital funds hatched in 2016 helped startups get past a previous lack of funding.