Why Vietnam ?

With its rising costs, China is no longer the go to destination for many businesses, and Vietnam has arisen as a serious competitor. Recent trends show that the number of orders shifting from China to Vietnam has seen a significant increase. For example, China’s Pearl River Delta, long known as one of the key factory centers for the world’s manufacturers (particularly those from Hong Kong) has now become too costly for many companies to stay in the region.

In the past three years alone, a growing number of businesses have relocated their operations from China to Vietnam in an attempt to escape rising costs and an increasingly complex regulatory environment. Located in a strategic position for foreign companies with operations throughout Southeast Asia, Vietnam is an ideal export hub to reach other ASEAN markets.

Compared with other developing markets in the region, Vietnam is emerging as the clear leader in low-cost manufacturing and sourcing, with the country’s manufacturing sector now accounting for 25 percent of Vietnam’s total GDP. Currently, labor costs in Vietnam are 50 percent of those in China and around 40 percent of those reported in Thailand and the Philippines. With the country’s workforce growing annually by around 1.5 million, Vietnamese workers are inexpensive, young, and, increasingly, highly skilled.

Another driving force behind Vietnam’s growing popularity is the country’s collection of free trade agreements (FTAs)—most notably, the soon-to-be-signed Trans-Pacific Partnership (TPP) and EU-Vietnam FTA. Additional FTAs currently under negotiation include the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN Economic Community (AEC). When these trade agreements come into force, Vietnamese exports will be freely accessible to many of the world’s largest markets with few tariffs or restrictions.

In terms of regulatory and financial incentives, Vietnam has become increasingly investor-friendly in recent years –the government has taken such actions as reforming its financial sector, streamlining business regulations, and improving the quality of its workforce. Since the mid-2000s, the Vietnamese government has offered extremely competitive financial incentives to businesses seeking to set up operations in the country, in addition to a zero percent withholding tax on dividends remitted overseas and a low corporate income tax (CIT) rate of only 22 percent (set to drop to 20 percent in 2016). These advantages have enabled Vietnam to become a premier “sourcing economy” in the eyes of many companies.

BACKGROUND

The Socialist Republic of Vietnam remains a Communist dictatorship characterized by political repression and an absence of civil liberties. Economic liberalization began in 1986 with the doi moi reforms, and Vietnam joined the World Trade Organization in 2007. In 2012, Prime Minister Nguyen Tan Dung acknowledged mismanagement of the economy and affirmed his commitment to reforming the state sector, but the Vietnamese are still waiting for dynamic action. Vietnam’s economy is driven primarily by tourism and exports. Persistent inflation and the absence of a transparent legal and regulatory system are disincentives to long-term investment. Vietnam is a party to the recently concluded Trans-Pacific Partnership, which, if implemented, will require further economic liberalization.

GDP Growth Rate in Vietnam is expected to be 6.30 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate GDP Growth Rate in Vietnam to stand at 6.20 in 12 months time. In the long-term, the Vietnam GDP Growth Rate is projected to trend around 6.20 percent in 2020, according to our econometric models.

Vietnam | Economic Forecasts | 2016-2020 Outlook

Vietnam has gradually been transforming itself into a more open, more market-oriented economy and is beginning to enjoy the benefits of its steady but slow integration into the global commercial system. Reforms have included partial privatization of state-owned enterprises, liberalization of the trade and investment regimes, and modernization of the financial sector.

Vietnam’s fast changing society

Every time when I visit Vietnam, I notice that the country is developing in very high speed. It is
inevitable that such development brings changes with it. Some changes are for the benefit of the people; Vietnam’s mid-class society is growing fast. But it also brings social disintegration and exclusion, where the poorest of society, often the ethnic minorities do not benefit at all.
This phenomenon interests me most; first of all the question why the economically deprived are left behind, even when a country is developing the way Vietnam is developing. And moreover, what need to be undertaken to strengthen the position of the oppressed and economically deprived groups in Vietnam society. My Master’s thesis, which I wrote in 2013, also deals with these themes.

By Pim Verweij – Anthropologist / Vietnam specialist

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