What makes Vietnam a standout economy in Emerging Asia?

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5th March 2019

At Atradius, we believe that Vietnam will be one of the best performing economies in Emerging Asia this year, with GDP growth forecast to reach 6.7%, driven by the country’s export-orientated economy, young workforce and a growing middle class that is fuelling domestic demand.

Of course, as a highly open economy, Vietnam is heavily exposed to the US-China trade tensions, but we believe the country also stands to benefit from rising tariffs between the world’s two biggest economies. We are already seeing companies choosing to relocate away from China to secure their supply chains, while the United Nations Conference on Trade and Development (UNCTAD) estimates Vietnam will experience a 5% gain in total exports due to US tariffs on Chinese goods.

 

Material growth

One sector that looks certain to benefit from the trend of trade substitution away from China is Vietnam’s textile industry. We forecast that textile exports will generate USD40 billion this year, a 15% increase on 2018. And in addition to increasing its market share against China, the industry will have greater access to global markets when the European Union-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) come into effect later this year.

However, the industry does have some challenges to overcome. At the top of the list is the need to improve technology and infrastructure. This is a must for the industry to successfully meet the increased demand and the enhanced quality requirements brought about by these new markets, as well as fend off the competition from other countries including China.

Hungry for imports

If we switch the focus to imports, the food and beverage sector offers one of the most promising opportunities. The country’s young population, which enjoys growing spending power, tends to eat outside, making Vietnam one of the best markets for F&B. And this potential is supported by the data: F&B accounts for 15% of GDP, and the highest proportion of consumers’ monthly spending at 35% - figures that are set to grow. 

Another strong area for imports is the pharmaceutical industry. Vietnam is unlikely to reverse its negative trade balance in pharmaceuticals over the next few years as domestic companies have limited capacity to create new medicines. Moreover, concerns about quality and counterfeits means patients often prefer imported products. In addition, in common with many emerging markets, rising wealth is leading to increased demand for chronic disease treatments in Vietnam as lifestyles becomes more sedentary and the diets include more processed foods. Imports tend to focus on the sale of drugs in hospitals, although foreign companies also supply the market through clinics and pharmacies, and on a wholesale basis.

Strong foundations

Finally, it’s worth considering the outlook for Vietnam’s construction industry following last year’s announcement by the government that it plans to spend about USD920 million on infrastructure by 2020. The investment will focus on special economic zones and industrial parks, with the government setting a target to build up to 250km of main roads, as well as drainage works and waste water treatment facilities. More generally, residential construction will account for the biggest share of the industry’s total in 2019 (44.3%), while other key areas of construction output include energy and utilities as well as infrastructure.

But the challenges should not stop companies from taking advantage of the opportunities that Vietnam offers and that’s where we can help. Our services allow you to trade with confidence in new markets by protecting you from credit risks such as a customer refusing to pay or becoming insolvent. And our local presence  means we will be on the ground to provide the insights and support you need to grow your business in Vietnam’s dynamic and open economy.

Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.