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Vietnam's Economy and FDI

I had been saying for some time, before the new outbreak of Covid cases, that we were fortunate to be living in a bubble but that maybe we were also living with a false sense of security and optimism. Now we know we are not immune for further outbreaks of the pandemic even though the borders remain officially closed.

The economy has shown strong resilience and the H1 2020 performance with GDP growth at 1.81%, whilst most countries have been experiencing negative growth. Forecasts for 2020 still generally remain in a range of 3-4%, although there may be some downward revision.

One slightly worrying statistic is the rise in inflation to 4.19%, in H1 2020, although the Government seems confident that they can keep inflation control at under 4% for the full year.

Industrial production, which contracted sharply in April showed a strong recovery in May and June. The Manufacturing Purchasing Managers’ Index™ [1](PMI®) posted 51.1 in June, up from 42.7 in May and above the 50.0 no-change mark for the first time in five months. The reading represented a continuation of the recovery seen since the PMI hit a record low in April.

The domestic sector however remains weak with 30,000 companies ceasing operations in H1 (up 38%) and 22,000 enterprises not operating from their registered address[2]. The worst hit sectors are hospitality and tourism, transportation and logistics. International visitor arrivals being the worst hit down 55% yoy at 3.7 million, with little hope of recovery this year. The Government is also reported to be considering the establishment of a National Committee to fight the economic slowdown.

So far many of the export sectors, with the exception of traditional sectors like garments and footwear, have generally held up reasonably well, particularly smart phones and electronics, which have benefited from the new world “Work from Home’ order. The export sector is of course dependent on the impact of Covid 19, on our major export markets and how long it will take them to recover. A lot of uncertainty therefore remains.

Vietnam recorded a trade surplus $5.46 billion, in the first half of this year, widening from a surplus of $1.72 billion in the same period last year, whilst Exports in the January-June period rose 0.2% from a year earlier to $122.79 billion, imports were down 2.9% to $117.33 billion. [3]

FDI also remains a relatively bright spot, although down 15% on last year H1 Vietnam attracted US$ 15.7 billion of new FDI. Singapore was the largest investor, with US$5.44 billion, accounting for 34.7% of the total with Thailand in second place with a total investment capital of US$1.58 billion, accounting for 10.1% of total investment capital. New licenses accounted for US$ 8.4 billion, whilst increases in capital for licensed projects accounted for US$ 3.7 billion (an increase of 26% yoy) and share purchases in existing companies accounted for US$ 3.5 billion (up 2.6% yoy).

The second half is expected to see a continuation of the current FDI trend, although there appears to be a pipeline of companies moving manufacturing from China to Vietnam, which could give a significant boost to the second half figures and we should see renewed interest from Europe, with the ratification and effectiveness of the EU Vietnam FTA.

The domestic sector will be dependent on the timely disbursement of the committed US$ 30 billion4 in public investment, as this will have a multiplier effect on growth. In fact July saw a positive move in this regard with disbursed public investment of US$ 1.97 billion up 51.8% from July 2019.5

All in all, as well as being a leader in the containment of Covid 19, Vietnam is also showing itself a leader in resilience and should end 2020 with one of the highest GDP growth figures, if not the highest, globally. In H1 2020 Vietnam ranked no 5 in terms of % GDP growth.

Kenneth M Atkinson

Founder and Senior Board Adviser

[1] Cimigo Vietnam PMI

[2] VIR July 6th 2020

[3] Vietnam Customs department 

Founder and Senior Board Adviser
Kenneth Atkinson Contact

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