Founder's insights

Vietnam’s economic outlook

Kenneth Atkinson
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The Vietnam economy grew at 2.58% in 2021, well below the Government’s target, due largely to the huge disruptions to manufacturing and other economic activities, due to the rampant Covid outbreak and the lockdown restrictions imposed by the Government, some of which continue at the start of 2022.

However, there were many bright spots for the economy, which should not be overlooked.

  • Foreign trade grew 22.6% to US$ 668 billion and exports grew 19.5% to US$ 336.25 bn;
  • total registered foreign capital grew 9% to US$ 31 billion, however implemented capital fell 1.2% to US$ 19.7 billion[1];
  • Overseas remittances reached US$ 18 billion with Vietnam retaining its top 10 status worldwide.[2]
  • Foreign exchange reserves grew to more than US$ 105 billion at the end of September 2021 equal to 3.9 months imports;
  • the stock market reached a record high with market cap reaching 97% of GDP almost double that in 2020;
  • The currency remained relatively stable and the US has withdrawn their investigations into Vietnam being a “currency manipulator”.

Vietnam has also continued to play an increasing role in regional and global politics and policies under the new leadership of President Nguyen Xuan Phuc and Prime Minister Pham Manh Chinh.  Building on the successful outcomes of its leadership of ASEAN in 2020, Vietnam is considered to have done a good job in accomplishing the role as non-permanent member of the Un Security Council[3].

Against these positive indicators what can we realistically expect in 2022?

We can certainly expect continued and increased government support to the private sector both through direct measures (tax cuts and reductions in other government prices) and also through increased and expedited infrastructure investment, which will boost employment and economic activity.

The multitude of FTA’s,  the coming into force of the Regional Comprehensive Economic Partnership on January 1st 2022, and the addition of members to the CPTPP  will all help stimulate growth in Vietnam’s foreign trade. For example in the first full year of implementation of the EU Vietnam FTA trade increased by more than 14% and in the first year of the UK Vietnam FTA trade increased by more than 15%.

The Government’s target of 6 to 6.5% GDP growth in 2022, is considered to be realistic, if not conservative, assuming there are no further lockdowns locally and that global growth targets are not severely affected by the continuing impact of the Covid epidemic. To ensure this target is met, which is heavily dependent on continuity of production, companies need to cooperate with the Government to ensure to implement safety measures, containment of infections amongst workers and the continued acceleration of vaccine rollouts.

New FDI, expansion of existing FDI and increased M & A, are all expected to grow in 2022 particularly with the expected opening of the borders by mid 2022 and easier entry and commercial flights from Q1. In addition, after 2 years of zero inbound foreign tourists and much reduced domestic travel, we will hopefully see a modest improvement in revenues to the tourism and hospitality sector, which fell by 70% from pre-covid levels in 2021. Prior to Covid the tourism and hospitality contributed more than 10% to GDP so the impact of the above has been significant bot the business and GDP.

Foreign remittances will continue to add a significant contribution to the economy and FX reserves and the stock market will continue to maintain record levels on the back of improved corporate results of listed companies and the rapid growth in trading accounts encouraged by the rise in the index in 2021.

With Vietnam’s commitment to Carbon Neutral by 2050, stated at the COP 26 meeting, we can expect to see an increased focus on Green and Sustainable growth with further changes to the Power Development Plan.

Vietnam’s young and growing middle class will continue to be a key growth driver, although clearly there was a negative impact caused by Covid in 2021, but the major impact was on industrial and manufacturing workers and family business.

Personally I still have great admiration for the resilience shown by Vietnam and its people and also the speed at which changes can be implemented. A good example of this was the speed of vaccine roll out from almost zero to 90% of the adult population in the last 7 months of 2021. This alone puts Vietnam in a great position to achieve its economic targets, with such a high percentage of double vaccinated people and now the roll out of booster jabs and for those aged 12 and over. As an anecdote I always remember an early mentor of mine saying “it is easy to get consensus in the face of a disaster”.

One key issue that I would like to see addressed is the need for more central leadership and coordination of the various rules and protocols, introduced because of Covid and in particular those governing travel and exit and entry to Vietnam. Currently there are too many provincial variances, lack of clear guidance and lack of a repository where people can actually find out what the regulations and protocols are. This is particularly important when we talk about reopening international borders.

May I wish everyone a healthy and safe 2022.

 

Kenneth M Atkinson

Founder and Senior Board Adviser

Grant Thornton Vietnam

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[1] Government Statistics Office

[2] World Bank

[3] Ministry of Foreign Affairs – Bui Thanh Son January 2022