Perched along one of the world’s most crucial shipping routes, and with a young and growing population, Vietnam is — once again — being tipped for economic lift-off, after years of disappointment.
Money pouring into the Southeast Asian economy from the likes of manufacturers Samsung Electronics Co and Intel Corp is giving Vietnam a second run at becoming Asia’s next tiger economy.
The nation’s doi moi market opening in the 1980s ushered in spurts of growth in excess of 7 percent that waned in recent years after a pile-up of bad debt at state-owned enterprises.
According to Pricewaterhouse-Coopers LLP (PwC), the nation has the potential to become one of the world’s fastest-growing economies over the period to 2050. Not only is the Southeast Asian nation gaining ground as a cheaper manufacturing alternative to neighboring China, Vietnam is also a politically palatable destination for Japanese firms boosting investment in the region amid recurring Sino-Japan spats.
“It is quite possible that Vietnam could become the fastest-growing economy in Asia,” said Vikram Nehru, a senior associate in the Asia program and Bakrie chair in Southeast Asian Studies at the Carnegie Endowment for International Peace in Washington. “It has all the ingredients for rapid growth if it can address the challenges in the state sector.”
Signs of Vietnam’s growing clout are gathering: Last year, the country overtook regional counterparts to become the biggest exporter to the US from ASEAN, muscling ahead of its more established manufacturing rivals Thailand and Malaysia.
Disbursed foreign investment in Vietnam soared in the past 14 years to reach US$12.35 billion last year, up 7.4 percent from 2013 and compared with US$2.4 billion in 2000, figures from the Ministry of Planning and Investment’s Foreign Investment Agency show.
Samsung’s operations in the nation are becoming so big that it received government approval to operate its own terminal at Hanoi’s Noi Bai International Airport.
Manufacturers are also shifting from China. Japanese printer maker Kyocera Document Solutions Inc, a unit of Kyocera Corp, plans to quadruple its annual printer production in Vietnam to 2 million units by March 2018, the company said this month.
Part of its operation in China is set to be moved to Hai Phong, making Vietnam the company’s biggest manufacturing base for printers, with another plant planned by August, it said.
“Vietnam is really the big winner from China losing its competitiveness because of rising wages [and a strong currency],” HSBC Holdings PLC Hong Kong-based Asian economics research cohead Frederic Neumann said. “By moving very early into the space vacated by China, Vietnam has first-mover advantage and it is now starting to show.”
Before weakening last year, the yuan in Shanghai had a four-year advance of 13 percent that was the best performance among 24 emerging-market currencies tracked by Bloomberg.
Vietnam’s annual real GDP growth could average 5.3 percent in the period from last year to 2050, a pace only bettered by Nigeria, according to PwC’s The World in 2050 report. Growth in China might fall below 4 percent.
Demographics are a big help. About 13 percent of China’s population in 2012 was already 60 or older, compared with 9 percent in Vietnam, according to the UN. More than 40 percent of Vietnam’s population of about 90 million in 2013 was in the labor force aged 15 to 49, government data show.
The average monthly wage in Vietnam was US$197 in 2013 compared with US$391 for Thailand and US$613 for China, according to International Labour Organization calculations. That disparity is widening. The Economist Intelligence Unit predicts that in 2019, manufacturing labor costs per hour in China will be 177 percent of those in Vietnam, up from 147 percent in 2012.
Much of the work being transferred to Vietnam is in low-end manufacturing as China moves up the value chain — labor-intensive work in textiles, garments, furniture and electronics.
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