In a speech in the US last summer, Vietnam’s President Truong Tan Sang welcomed plans for a “comprehensive partnership” to strengthen relations between the two countries. But he began by talking about another partnership – the Association of Southeast Asian Nations (ASEAN). He said: “We link our own interests with those of ASEAN. We strive to help enhance ASEAN’s role, stature, unity and consensus.”
Vietnam is a young country in economic terms, even by the standards of emerging markets
The emphasis reflects Vietnam’s changing economic focus and the growing importance of ASEAN as an economic and political alliance.
Vietnam is a young country in economic terms, even by the standards of emerging markets. The government allowed international banks to operate in Vietnam from 1995, after a long absence. The first stock exchange opened for business in 2000. In 2013, GDP per capita was less than a third of China’s in nominal terms.
There is a strong enterprise culture and people have been quick to embrace new technology in the country. Wireless telecommunications, for example, are well developed. But energy, transport and water networks require significant investment. Further improving regulatory and legal frameworks would help secure the confidence of investors.
Economic reforms, including the development of the financial sector and greater openness to foreign investment, have already helped to create conditions for brisk growth, with GDP increasing by an average 7 per cent each year since 2000.
- Population of 89 million
- Two-thirds aged under 35
- 6 per cent of GDP invested in education – the highest proportion in Asia
- Literacy rate of 93 per cent
- Merchandise exports of USD115 billion
- Merchandise imports of USD114 billion
- USD2,000 GDP per capita in nominal terms in 2013 – compared to more than USD6,000 in China and more than USD10,000 in Malaysia
Traditionally, Vietnam’s most lucrative exports have included commodities such as rubber, rice and coffee. More recently the country has attracted manufacturing industries. Vietnam has a young and educated population, with around two-thirds under the age of 35, and literacy rates of 93 per cent, according to official statistics. Labour costs are competitive, and as wage costs rise in nearby China multinationals have looked to Vietnam as a manufacturing base.
Over the past two decades the United States has played an important role as an export destination for Vietnamese goods. In 1994, Vietnamese exports to the US were worth USD50.5 million; by 2012, they had grown to USD20.3 billion, according to the US Census Bureau. Vietnam is the second largest supplier of clothing and footwear to the US, behind China, according to HSBC’s latest Global Connections report.
This report suggests that a shift towards Asia is underway as the region’s middle classes grow. China is set to overtake the US as the most important destination for Vietnam’s exports by 2030. It also forecasts that Vietnam’s exports to the rest of Asia (excluding Japan) could grow by more than 15 per cent a year between 2013 and 2020. It also shows Germany’s relative importance as an export destination is decreasing, while Malaysia’s is set to increase.
This changing pattern of trade may be behind the growing support for alliances such as ASEAN.
Investment and trade with other Asian countries is already helping Vietnam to produce and export higher-value goods. Electronic companies headquartered in South Korea and Japan have set up business in the country, with Vietnam now a leading producer of smartphones.
The anticipated increase in trade between Vietnam and other Asian countries is supported by political initiatives. Moves to harmonise regulatory standards across ASEAN could give the country easier access to a market of 500 million consumers in neighbouring nations. A proposed Trans-Pacific Trade Partnership to facilitate trade and investment between a number of North American, Latin American and Asian countries, including Singapore and Japan, also has the potential to benefit Vietnam, not least as increased competition may encourage reforms in state-owned businesses.
Trade and investment relationships with the US and Europe will remain important, but Vietnam’s neighbours increasingly offer opportunities close to home.
Download the infographic