According to the recent projections made by the World Bank, Vietnam’s economy is all set to touch new economic milestones within the Southeast Asia region by 2030. It is expected that the country’s economy will grow by 5.5% in 2022, up from 2.6% in 2016. As the COVID-19 pandemic is being contained effectively both domestically and abroad, the forecast predicts that Vietnam’s services sector will slowly bounce back. The manufacturing sector will reap benefits from sustained demand from the United States, Europe, and China.
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According to the same report, Vietnam needs to counter three major economic challenges as far as trade is concerned in order to achieve its targets:
- facilitating eco-friendly trade,
- promoting green FDI (foreign direct investment), and
- developing carbon-free industrial zones
Vietnam’s economy to surpass Singapore by 2036
The Centre for Economics and Business Research’s (CEBR) World Economic League Table 2022 predicts that the Vietnamese economy will be the second-largest in Southeast Asia by 2036 after Indonesia. By 2021, based on purchasing power parity, Vietnam’s GDP will be USD 11,608 per capita. Taking leverage of favorable global trends, the country has been able to register impressive economic growth and become a middle-class nation.
Economic forecasts are based on five-year plans, and the current plan runs from 2021 to 2025, aimed at the smooth continuation of the current economic development model. As part of the growth strategy, manufacturing will be backed by integration into global supply chains, as well as by creating trade partnerships and diversifying exports.
As reported by VIR, the Vietnamese government aims to achieve the status of a high-income country by 2045. It is necessary for the country to grow at an average annual rate of approx 5% per capita in order to achieve this milestone. According to Vietnam’s current five-year plan, the country is expected to grow at an average rate of 6.5% per year over the next decade, in line with the country’s goals.
In spite of promising growth trends, it faces a number of key challenges on its way to becoming a high-income country. As global trade declines and its population ages, it must foster its policy implementation performance significantly. These factors will disproportionately affect sectors affected by automated processes and climate change.
Moreover, in order to facilitate FDI activities in Vietnam, the legal framework is to be updated and modified continuously, with priority given to high-tech industries and the interconnection of economic zones throughout the country.
According to CEBR, Vietnam’s position in the World Economic League Table is expected to grow significantly between 2021 and 2036. By 2036, it is expected to rise from 41st to 20th. Southeast Asia will have only two countries ranking higher than Vietnam at that time: Indonesia and Malaysia.
According to the IMF(International Monetary Fund), Vietnam will rank third in SEA in terms of GDP by 2025 with USD 571.12 billion, trailing Indonesia (USD1.63 trillion) and Thailand (USD632.45 billion). It will surpass Malaysia (USD 556 billion), the Philippines (USD 523.53 billion), and Singapore (USD 496.81 billion). Also it is worth mentioning that Vietnam’s economy is predicted to surpass Thailand’s after 2028.
Moreover, by 2036, it is expected that Vietnam’s economy will surpass those of Switzerland, Belgium, Sweden, Poland and Australia, according to CEBR.
An aggressive push for foreign investment
According to Deputy Prime Minister Phan Binh Minh, Vietnam plans to attract up to 50% of Fortune 500 companies by 2021-30. In terms of registered investment capital, it aims to increase investment from Asia, from countries such as India, Singapore, China & Thailand; as well as from Europe, Russia, and the US by 70-75% by 2030.
The strategy aims to accomplish the following:
- Streamlined and fair business environment
- Enhanced economic efficiency and competitiveness
- Developing the country’s industrial infrastructure and finding new markets for Vietnamese products made with foreign partners
- Utilizing many free trade agreements to the fullest extent possible
- Innovating and cultivating a culture of creativity
As part of the country’s industrialization process, supporting industries will be developed. Moreover, the transfer of technology needs to be facilitated between MNCs and domestic industries.
In the past years, the government has emphasized collaboration between foreign direct investment and domestic firms. Science and technology are applied to national development through collaboration.
As a top priority, the strategy outlines Vietnam’s commitment to overseeing FDI investments and mergers and acquisitions in order to safeguard the country’s security and national interests.
Challenges Remain – the Middle-income trap
Vietnam’s top priority is rapid economic growth and escaping “the middle-income trap”. To accomplish this objective, Vietnam has adopted the ‘dual economy’ model, in which certain geographical areas and economic sectors are prioritized, which can have a higher level of development than the rest of the economy.
In order to achieve overall prosperity, these prioritised regions and sectors have been expected to lead the growth process. In the last 20 years, the dual economy model has emphasized industrialization and urbanization. The result has been that some regions have attracted more investments and have experienced double-digit growth. It is more advantageous for some businesses to access resources (e.g., state-owned enterprises and large-scale private companies with broad social connections), which gives them a competitive edge.
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However, Vietnam has experienced uneven socioeconomic development, i.e., some regions are much more advanced and active while others are underdeveloped and passive. The exploitation of natural resources aids in driving economic growth but has also resulted in environmental problems.
There have been widening income and social welfare gaps between rural and urban areas, and between geographical regions. Because industry, service, and agriculture are developing unevenly and separately, economic restructuring is stagnant.
For the decade of 2021- 2030, the Central Ideology Theoretical Council (CITC) will be responsible for developing a new economic growth ideology model for Vietnam. With the new model, Vietnam will be able to escape the middle-income trap and complete its industrialization and urbanization processes. The CITC has proposed a model of ‘Inclusive Development Economy’, which prioritizes investment in sectors with comparative advantages in each region of the country (called ‘target investment policy’).
In early 2021, the successful implementation of this policy formed the basis for the national economic development to follow in the next ten years.
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