Vietnam remains open for business
In April 1975, Vietnam’s disappearance from the front pages and our consciousness was swift. No sooner had the wheels of the last helicopter cleared the US embassy roof in Saigon than the world, weary of a conflict that had claimed millions of lives and a US presidency, moved on. Left behind was a country that, according to US historian Gabriel Kolko had won a war but lost the peace.
It didn’t help that the US ensured the international community would shun Vietnam. America pushed for trade bans and encouraged the World Bank and International Monetary Fund to keep their hands in their pockets. Two wars – one against China in 1979 and another against the Khmer Rouge in Cambodia didn’t help matters.
The country struggled for another 11 years until its leadership, aware that the post-war economic structure was failing badly, introduced a reform programme called Doi Moi or economic renovation. The strategy aimed to kick-start a socialist‑oriented market economy, something a communist state had never attempted. The modernisation and liberalisation of economic policies, later described as a “big bang” by the OECD, proved successful. Between 1986 and 2012, Vietnam grew on average 8.3% a year, moving from a mostly agricultural base to one focused on manufacturing. Over time, the country’s exports evolved from oil, rice and food, as well as textiles and garments, to high-tech goods.
In short, Doi Moi set Vietnam on the successful economic path it follows today.
A middle-income economy in one generation
As the World Bank has pointed out – Vietnam went from one of the world’s poorest nations to a “middle-income economy in one generation.” And trade has been central to Vietnam’s rise. The country joined organisations like the Association of Southeast Asian Nations (ASEAN) and the ASEAN Free Trade Agreements (AFTA). And in July 2000, after five years of negotiation, Vietnam signed a bilateral trade agreement with the United States. This was followed by one with Japan in December 2008 and the European Union (EU) in June 2019.
But most significant of all, Vietnam became the World Trade Organization’s 150th member on 11 January 2007. This removed most of its trade barriers and has allowed the country to enter the global marketplace. As Vietnam has done so, foreign direct investment (FDI) has accelerated. The Foreign Investment Law in 1987 opened the country to FDI inflows, which have surged ever since.
Between 2015 and 2019, total registered FDI into Vietnam almost doubled to US$39 billion, while the number of newly registered FDI projects rose from 1,843 in 2015 to 3,883 in 2019. Vietnam is not only integrated into the world economy, it is essential to its success.
An oasis of investment
It is worthy of note that Vietnam remained an oasis of investment even while the world struggled with the pandemic. This was not just the result of free-trade agreements. Rather the country’s success is being supported by a number of factors that saw poverty rates slump and GDP per capita increase by 3.6 times between 2002 and 2021.
First and foremost, it remains a young country. Those aged 10 to 24 make up 21% of the population. This, what human rights group the United Nations Population Fund calls a “demographic window”, is expected to endure until 2039.
At the same time, Vietnam continues to be supported by its geographic location. The country has around 3,200km of coastline, offers 114 seaports and is based along vital shipping routes. It has easy access to other ASEAN markets, and thanks to its land border with China, it has taken advantage of the China +1 dynamic. This has seen companies diversify some of their operations from China to other destinations. While this has happened, Vietnam is politically stable, the government has maintained its pro-business stance, and infrastructure continues to improve.
Foreign companies flock to Vietnam
In the first six months of 2023, Singapore was the largest investor in Vietnam, with US$3 billion making up almost a quarter of the registered FDI that has flowed into the country since the start of the year.
In fact, the city-state has remained the largest foreign investor in Vietnam since 2020, thanks largely to its position as a financial hub which helps it channel FDI from other countries. But the attraction of Vietnam as a stable and competitive regional manufacturing centre, connected to the rest of the world, saw 108 countries invest US$27.7 billion there last year.
South Korea, Japan, and China remain the backbone of investments. South Korean companies like Samsung and LG, in particular, have made Vietnam their home. Indeed, after China, Vietnam is currently the world’s second-largest smartphone exporter, with Samsung making up more than a quarter of the country’s total exports.
But Europe is in play too. The Netherlands, France, Luxembourg and Germany have traditionally been the EU’s top investors in Vietnam. German high-tech steel manufacturer VFT Industry and British pharmaceutical company AstraZeneca have both indicated significant investment this year. And they were joined last year by Denmark. Notable has been Lego, which started constructing a US$1.3 billion factory in 2022. The company has seen double-digit growth in the region for the past five years and will use Vietnam as a hub to help it shorten supply chains.
The US is upping its investments in Vietnam across a number of sectors too. Organised by the US-ASEAN Business Council, 52 US firms took part in the largest-ever mission to Vietnam in March this year with companies as diverse as aerospace group Boeing and media company Netflix.
Open for business
It is hard to think of a country that has rapidly changed in a generation, with Vietnam moving from an economic backwater to regional power. The economy remains strong, despite recent events in its financial markets. In fact, at a time when many economies struggled to maintain growth, Vietnam still managed to post an 8% increase in GDP last year.
At the heart of its success are a young population, a fortunate strategic location and a politically stable government. Above all, Vietnam is open for business and a key investment gateway to Southeast Asia.