Recent report from Golden Gate Ventures and Boston Consulting Group Vietnam takes a closer look into Vietnam’s greater global profile in recent times.
Vietnam has emerged as a global growth engine buoyed by its macro-economic environment and focus on higher quality FDI, according to the “Vietnam: A Global Engine of Growth” report released by Golden Gate Ventures and Boston Consulting Group.
There is an expected increase in trade for ASEAN of $1 trillion by 2031, the report noted, with China, Japan, South Korea, the EU, and the US being among the largest contributors. Within ASEAN, Vietnam will take center stage in less than a decade, as the country is already leading the pack in GDP growth.
Vietnam’s FDI disbursement rose at a steady compound annual growth rate (CAGR) of 6.4 per cent from 2015 to 2022 and growth is set to continue on the back of the Vietnamese Government’s administrative reform and legal and tax incentives. Since 2020, Apple, Foxconn, Google, Hyundai, Intel, LG Electronics, and Samsung have been among the global behemoths to have set up new manufacturing facilities in the country, presumably to lessen their reliance on China.
Strategic Pivot to “Higher Quality” FDI Pushes Vietnam into Next Phase of Growth
For the past five years, the world has watched Vietnam’s growth closely, comparing its trajectory to other ASEAN markets like Indonesia. In a strategic move, the Vietnamese Government has pivoted its economic engine from “high speed” to “high quality”: de-emphasizing low-cost, labor-intensive industries to focus on innovation and building its talent pipeline as it lays the groundwork for growing its digital, green tech, and high-tech industries. If this momentum keeps up, Vietnam is well on its way to becoming a global tech powerhouse, following in China’s footsteps from over a decade ago.
The Vietnamese Government has highlighted several key factors that define “high-quality FDI”, such as value-added investments for its people, including education, R&D, and supply chain links; encouraging advanced, new high-tech and clean-tech enterprises; and supporting businesses that drive environmental impact by improving standards and technical regulations in line with regional and global standards.
“The move from drawing ‘any and all FDI’ to being a magnet for ‘high quality FDI’ is perhaps the country’s most strategic move to date, helping break it out of ‘emerging market’ status to a global growth engine,” said Mr. Vinnie Lauria, Founding Partner of Golden Gate Ventures. “This move is yet another key inflection point in Vietnam’s story as a growing economic powerhouse, and sets the tone for its next golden decade of growth.”
Vietnam and Singapore have also announced strategic partnerships to boost innovation and tech cooperation amid stronger economic ties in recent weeks, further accelerating Vietnam’s growth. In 2022, Vietnam was Singapore’s eleventh-largest trading partner. As of end-2022, Singapore was also Vietnam’s second-largest foreign investor, with total investment of $70.8 billion.
The strong political and longstanding diplomatic relations between Vietnam and Singapore provide a great environment for startups to scale across both markets. Initiatives like the Bilateral Innovation Center will also foster greater cross-border innovation, funding, and mentorship that will benefit startups in both markets.
Ease of Doing Business: Policies, Geographical Positioning and Strong Workforce With Synergy
A third contributing factor to the “perfect confluence” of events driving Vietnam’s growth is the series of recent regulatory reforms that have created a more conducive environment for businesses in the country. Globally, Vietnam is ranked 70th out of 190 countries and territories in Ease of Doing Business, and seventh out of 78 countries and territories as the best country to start a business in, ahead of the likes of the Philippines and the US.
Vietnam enjoys a strategic geographic location where important maritime and air routes converge, serving as an indispensable link in global supply chains. This positioning is helped by the country’s economic, trade and investment relationships with 224 countries and territories as well as its sizeable and talented workforce.
“While Vietnam’s growth story may share a few similarities with other fast-growing economies like Indonesia and China, Vietnam is highly unique and interesting because its socio-economic environment is vastly different, the market has its unique risks and opportunities, and the country’s growth strategy is much more sophisticated and orchestrated than before,” said Mr. II-Dong Kwon, Managing Director and Partner, and Head of Boston Consulting Group Vietnam.
Healthtech, Edtech, and Fintech in the Spotlight
Fintech opportunities abound in Vietnam thanks to its young, tech-savvy population. A significant proportion of the unbanked population remains untapped, representing 70 per cent of Vietnam’s GDP. The government’s favorable policies and initiatives to promote digital payments, innovation, and financial inclusion will help accelerate fintech adoption.
Healthtech is another huge opportunity area fueled by a rising middle class, an ageing population, and an expanding expat population. The country is well on its way towards its goal of becoming an upper-middle-class country by 2035 and a high-income country by 2045, given that it has the seventh-fastest growing middle class globally and will add 36 million to its middle class by 2030.
It also entered the ageing phase in 2017, and is among the most-rapidly ageing countries in the world. In terms of expats, the country boasted approximately 101,550 in 2021, up from an estimated 83,500 in 2019, according to figures from the Ministry of Labour - Invalids and Social Affairs. This number is set to further increase with more foreign companies leveraging Vietnam.
The edtech opportunity in Vietnam, meanwhile, is born from the large, growing, and young population that has a strong focus on quality education. In fact, the higher spending on education is due to a deep-rooted belief in the importance of having educational advantages, coupled with rising disposable income and buoyant economic growth.
Vietnam’s tremendous growth, however, is still outpacing the country’s development in some key areas like IT infrastructure, local expertise, and heavy regulation on certain industries like oil and gas, telecommunications, and banking.