Founder's insights

Sustaining Vietnams Economic Growth in the face of building head winds

Kenneth Atkinson OBE
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Whilst there are rightfully questions over Vietnam’s projected growth targets for 2022, in the light of the headwinds caused by rising inflation and the unfortunate Russia Ukraine situation, I personally remain confident in a GDP growth circa 6%.

There are 2 main reasons for my confidence which I outline below.

The first is a change in the productivity of both foreign invested and local companies as they switch to advanced and modern technology. This has long been a point of discussion between the Vietnamese Government and the FIE sector as the process of FIE’s working with and transferring modern technology has been very slow to materialize. This is also in part due to the low ratio of foreign invested high tech projects in the country.

The number of projects with advanced and modern technology emanating from the EU is still considered low at 5%. Most projects use medium technologies half of which comes from China [1]. However, the EU Vietnam FTA is starting to change that with major investments this year having been announced by Leggo (US$ 1 billion) and Pandora (US$ 100 million) both Danish Companies building state of the art factories, plus more in the high tech space from other countries. Another existing FIE also from Denmark, ECCO, has invested in a new Lead Gold facility targeting to be net Zero carbon emissions on or before 2028.

Covid has also focused the attention of Vietnamese companies on the need to modernize and to introduce better technology. Grant Thornton’s International Business survey for the 2nd half of 2021 showed that over 30% of the Vietnamese companies interviewed had or planned to upgrade their technology to improve efficiency and productivity.

The second reason is my belief that there will continue to be a steady flow of foreign companies moving manufacturing into Vietnam from other markets. This in my opinion will not be adversely impacted by a decline in global trade as these companies already have established overseas markets for their products but are moving existing production here to lower manufacturing costs and or to take advantage of tariff reductions under FTA’s. As ESG comes higher into focus this will also help drive supply chain companies to invest in modern technology.

However, one word of caution and that is that the Government really has to focus on ensuring that improvements in transparency and a reduction in the regulatory requirements actually become a reality not authorities paying lip service and this is especially true at a local level rather than a central level.

 

Kenneth M Atkinson

Founder and Senior Board Adviser

Grant Thornton Vietnam

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[1] Vietnam Investment Review May 30th 2022.

 

 

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