Vietnam's economic moment has arrived

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After decades of showing promise, Vietnam's economic moment may finally have arrived. It was the fastest growing economy in Asia last year (8 percent growth) and one of the few globally to achieve two consecutive years of growth since the Covid-19 pandemic. The Southeast Asian nation has become a major beneficiary of manufacturers' efforts to "de-risk" their exposure to China as geopolitical tensions between Beijing and the West rise. Foreign direct investment soared to a decade high in 2022. Big names such as Dell, Google, Microsoft and Apple have moved parts of their supply chain to the country in recent years, and are looking to do more as part of a "China plus one. " strategy. The charm is obvious. Since the late 1980s, its communist government has overseen the transition from a controlled economy to a more open, capitalist model. In turn, its proximity to China and its vast young, cheap and well-educated workforce has attracted manufacturers.

More than  in FDI flowed last year mainly from Japan, Singapore and China. The U.S. share of Vietnam's imports has also increased by nearly 2 percentage points since trade tensions between the U.S. and China began Job Function Email Database to flare in 2018. Rapid export-led growth has lifted millions of people out of poverty in recent decades, but Vietnam's economy is now at a crossroads. In the short term, to continue riding the wave of investor attention, it needs to strengthen its business environment. Ultimately, to meet the government's ambitious goal of becoming a high-income economy by 2045, it must also harness the momentum of manufacturing growth to diversify its economy. Over the next decade, Vietnam must increase its production capacity to meet the growing demands of manufacturers' investment plans. The young demographic provides a large pool of workers to choose from, but competition for technical skills is growing. Vietnam's schools outperform globally, but vocational training and universities need a boost.



A decentralized political structure means that numerous signatures are needed to obtain investment approvals. We must reduce bureaucracy. Above all, the country's infrastructure needs improvement: its power grid is straining under the weight of growing industrial demand. However, the country's forward march towards high-income country status is not predetermined. Malaysia and Thailand were on a similar trajectory to Vietnam now in the late 1990s. But they succumbed to the so-called “middle-income trap, when countries cannot make the transition from a low-cost economy to one of high value, making it difficult to compete with low- and high-income countries. As Vietnam's economy grows, salaries will also increase. You can't rely on your low-cost model forever. Reliance on export-led growth would leave it vulnerable to the volatile global trade environment.