At the start of the New Year it is both time to reflect and look to see what we can expect in the year ahead.

We are all well aware of the Government’s excellent response to unexpected Covid-19 pandemic, having one of the lowest number of cases, as a percentage of population, and one of the lowest fatalities per number of cases. I believe Vietnamese and foreigners alike are grateful to the authorities for the contact tracing and quarantine requirements, which have been instrumental in containing community spread.  

In spite of the number 1 goal of securing the safety of the population, Vietnam also managed a very respectable economic performance for 2020. Vietnam was one of the few countries globally to show positive GDP growth of 2.9%, in 2020, and the highest GDP growth rate in Asia, with China the only other country showing positive growth (over 2%). Other significant numbers were exports at US$ 281 billion (+6.5%) imports US$ 262.4bn (+3.6%) and a record trade surplus of US$ 19.1 billion, almost double that of 2019. Foreign Direct Investment has been estimated at US$ 28.5 billion, a reduction of 25% on 2019 levels, however considering the closed borders and new investors not being able to enter Vietnam this is still an impressive performance. The last quarter of 2020 saw a significant rise in credit growth pushing the total annual growth to just over 10%, which could be hiding some corporate issues as overall non-performing loans are reported to be rising.

So what can we expect in 2021?  First and foremost there should be a significant increase in FDI to levels higher than in 2019, as we continue to see companies rationalizing supply chains and repositioning manufacturing bases outside of China because of trade tensions with the USA and the higher labour costs. There will also be growing benefits from the EU Vietnam FTA and the RCEP. Vietnam at the same time will steadily implement a policy of quality over quantity and looking for higher value added investment with higher quality technology.

The Government of Vietnam has just issued Resolution 1 containing the major socio economic targets for 2021. The Government has set a target for GDP growth of 6.5% which is lower than the forecasts of IMF (7%) World Bank (6.8%) and significantly lower than the forecasts of HSBC and Goldman Sachs both at 8.1%.

We should see further growth in exports as new FDI projects come on stream and as economies globally hopefully start to establish a new normal post Covid-19 vaccine. Added to this are the tariff reductions under the EU Vietnam FTA. We could also see a fairly significant reduction in the trade surplus, as we see increases in capital goods imports required for newly registered FDI and also projects under construction.

Other targets under Resolution 1 include a per capita GDP of US$ 3,700 and CPI increase of less than 4%. The Resolution also calls for close coordination between fiscal and monetary policies to help unlock difficulties in business and production and fast development.[1] The country also aims to diversify export markets and to work with partners to effectively implement free trade deals signed last year.

Foreign exchange reserves should also continue to grow unless the State Bank adopts new policies to try to deflect the “currency manipulator” accusations by the USA.

One of the big casualties of the pandemic has been the tourism and hospitality sector, with international arrivals down over 78% and domestic tourism also down by around 50%, revenues from the sector have fallen by US$ 23 billion or approx. 60%. Unfortunately, we are unlikely to see a major recovery, at least in international visitors and spending by domestic travelers is much lower than that of international visitors. In 2019 international visitors of 18 million generated more revenue than the 85 million domestic travelers.

Whilst there is no doubt that 2021 will have its challenges and unexpected twists and turns, it is clear that Vietnam is set to be another outstanding performer both regionally and globally and a favorite destination for FDI.

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[1] VN News January 5th 2021

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