Is Vietnam the next Singapore?
Vietnam hopes to achieve high-income status by 2045. The country’s vibrancy is evident by investments in innovation and technology adoption that spur an innovation-driven private sector to build resilient businesses. Vietnam had a GDP per capita of $500 (today’s dollars) in 1985 which was one of the lowest in the world, and by 2021 it had already created a couple billionaire entrepreneurs.[1]
Vietnam’s performance is impressive as it was one of the poorest countries globally that achieved lower middle-income status in under a generation and became a dynamic East Asian economy. Its’ success can be credited to connecting to global value chains and offering favorable conditions to investors—much as it continues to do today according to the Prime Minister of Vietnam.[2] GDP per capita rose three-fold to about $2,800 and poverty drastically declined to less than 2 percent between 2002-2020. The Economist points out “it has been one of the five fastest-growing countries in the world over the past 30 years” ahead of Malaysia, Thailand, the Philippines.[3]
Achieving high-income status is an ambitious goal for a frontier market that already knows much about steady growth and global supply chains. Yet it will require 7% growth per year to achieve. Vietnam knows how to sell its goods abroad; trade exceeds 200% of GDP. Additionally, foreign direct investment (FDI) has been much higher than in China or South Korea for the past thirty years. Global companies were attracted by Vietnam’s cheap wages and stable exchange rate fueling a boom economy. But this export trade is mostly driven by foreign companies and not domestic ones.
With COVID-19, Vietnam had early success limiting the virus and GDP growth remained positive, albeit the lowest in three decades at 2.9%.[4] Yet the Delta variant upended the Vietnamese economy with factories shutting down disrupting supply chains for global companies like Nike, LG Electronics, and Samsung. In the end, the country’s growth outlook performed lower than the world average of 6% between 2% and 2.5%. Nevertheless, it was deep linkages to global manufacturing that sustained Vietnam’s economy in the pandemic.
How does Vietnam achieve high-income status? Answer: Better jobs.
As global uncertainty looms, Vietnam is thinking ahead about its’ future jobs landscape. The country knows it’s overly dependent on FDI and domestic firms underperform. Meanwhile, it’s difficult to remain competitive with increasing wages and ever-changing value chains. So, what can Vietnam do?
For a start, there are limits to what foreign firms can do to drive Vietnam’s development.
Vietnam’s economic success is attributed to its’ 50+ million jobs in recent decades. A big push in services and manufacturing reduced poverty in a country where 3 in 4 Vietnamese work in either family farming, household enterprises (unincorporated, non-farm businesses), or uncontracted labor. Economic growth happened because labor productivity increased alongside wages.[5] Yet Vietnam needs to further develop its services sector improving the quality of jobs if it is to achieve high-income status.
There is a strong government push to foster a Vietnamese chaebol system comparable to South Korea’s. Chaebols are the large conglomerates that helped develop South Korea’s new industries, markets, and export production making it one of the Four Asian Tigers. Vietnam already has the Vingroup with operations across education, health, real estate, and tourism. Developing a system of “national champions” may be the way to offset the widening gap between foreign owned firms and domestic ones, which have more barriers to access capital.
Vietnamese firms can also benefit from the growing Asian consumer class. There is a large consumer market waiting to be untapped in the region, especially if Vietnam expands its knowledge intensive services and modernizes its agro-business sector. Perhaps by creating jobs away from more traditional sectors, it can play a role in developing small and medium enterprises that better integrate into the larger economy and enhances supply chain connectivity.
Of course, this is not to say that Vietnam should forget traditional sectors completely. They represent most jobs in the country, about 30 million. Jobs in farming should diversify agricultural output into higher value-added crops and local value chains. And household enterprises must increase the quality of goods and services to remain competitive regionally and globally.
Human capital investments will be key in fostering an agile workforce ready to embrace tomorrow’s jobs. The Vietnamese labor force should build 21st century skills with adequate education and training. Future industries in Vietnam will require new skills sets, ways of working, and business models to export and expand. Automation may also displace jobs and enable others to become more efficient and productive.
It is evident that trade and consumption is already changing and impacting Vietnam. Much like Singapore, it can remain business friendly and competitive by focusing on public-private collaboration, innovation and digital transformation, and connecting qualified workers to the right jobs.
Here at JANZZ.technology we are ready to assist Vietnam towards its 2045 development goals.
[1] The Economist. November 27th, 2021 Edition. Vietnam has produced a new class of billionaire entrepreneurs. https://www.economist.com/business/2021/11/27/vietnam-has-produced-a-new-class-of-billionaire-entrepreneurs
[2] World Economic Forum. October 29th, 2021. Prime Minister of Viet Nam Speaks with Global CEOs on Strategic Priorities in Post-Pandemic Era. https://www.weforum.org/press/2021/10/prime-minister-of-viet-nam-speaks-with-global-ceos-on-strategic-priorities-in-post-pandemic-era/
[3] The Economist. September 4th, 2021 Edition. The economy that COVID-19 could not stop. https://www.economist.com/finance-and-economics/2021/08/30/the-economy-that-covid-19-could-not-stop
[4] International Monetary Fund. March 2021. IMF Country Focus: Vietnam: Successfully Navigating the Pandemic. Washington, DC. https://www.imf.org/en/News/Articles/2021/03/09/na031021-vietnam-successfully-navigating-the-pandemic
[5] The World Bank. Vietnam’s Future Jobs: Leveraging Mega-Trends for Greater Prosperity (Vol. 2): Overview (English). Washington, D.C.: World Bank Group. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/670201533917679996/overview