A glimpse into the Vietnam investment
Recently, I travelled to Vietnam twice over the last two months to deliver a topic on the Belt-Road Initiatives (BRI) and Commodity forecast for 2019. As one of the last few emerging economies beside Myanmar, Laos and Cambodia, Vietnam is by far, the third largest population in the Asean region behind Indonesia and Philippines.
In many economic reports, market analysts have predicted that Vietnam will become one of the fastest growing economy as we move into 2030. The derivation comes mainly from the low labour cost versus the vast production of commodity output in this country. By rank and file, Vietnam is currently the largest grower of black peppercorn and cashew nuts in the world. Other cumulative productions in agriculture output include the coffee which it has been ranked as the second largest producer after Brazil, and rubber, which it is the third largest producer after Thailand and Indonesia. Other cash crops include paddy rice, which Vietnam has been ranked as the fifth largest in the world, then followed by coconut and tea, which it is the sixth largest producer.
Prior to the sub-prime crisis in 2008, Vietnam suffered from a hyper-inflation and over-grown economic bubble burst when the bank interest rate was then brought down from 15 per cent to the current 6.25 per cent. Now, the national inflation stayed very healthy at 3.46 per cent while unemployment steadied at 2.2 per cent among the 95 million population.
As of December 2017, the GDP was reported at US$224 billion while income per capita was about US$2,000 per annum. On an annual basis, the average growth rate in GDP hovered at 6.8 per cent. This is exactly what makes the country attractive for Foreign Direct Investment (FDI) due to the high annual growth but sufficed by extensive labour at a low cost. On the side note, the debt ratio of government to GDP is about 61 per cent and is poised for a healthy and steady growth.
My first visit to Vietnam was in 2001, and the country has undergone vast development and changes. The capital city Ho Chi Minh is now littered with many huge shopping malls and a spectrum of selective foreign restaurants, which is a positive sign of the high volume of tourists in the country. Many new buildings of commercial blocks and apartments imply the growing interest of investments by foreigners and expatriates in this country. New districts have been developed with broad highways, well-drained sewage system and high speed bandwidth to protect the business infrastructure from weather damages. Walking down the street, you could see a bank within every 300 footsteps while the presence of many foreign banks is an indication of a vibrant financial landscape.
Over the last seven years, many commodity prices have been dented due to the flight into the strong dollar. Since the crude prices slumped in 2014 and followed by the US rate hike in 2015, demand in commodities have slackened even more, while Asia and Pan-Pacific regions slide into an economic slowdown. The additional pressure on looming debts in European countries amid the Brexit complications have added to the sell-off in commodity prices as manufacturing wanes.
No surprise, Vietnam is one of the few countries in the Asean region that still clocks above a five per cent annual growth in GDP mainly due to its vast agriculture output. In our opinion, the next bullish cycle in Asian economies that trade inversely to the lower dollar will definitely push the commodity demand higher. This will be further empowered by the massive building of infrastructure layout being led by China and India. Since Vietnam is producing so many commodities and ranks on a high profile worldwide, the export margin of traders and the government’s revenue will surely increase by many folds!
Hence, many foreigners and European multi- national companies have entered Vietnam earlier to set their foot in the country’s future growth. When the time comes for such economic maturity, we might see more wealthy companies and individuals emerging from Vietnam, especially when land prices might just escalate from overflowing business profits.
As the US-China trade war may not reach a full settlement in the months to come, Vietnam is another neighbouring country that has the extensive skillful labours to replace the shipment of manufactured goods from China. If you do more in-depth research into this miraculous economy for the potential growth in future years, I’m sure you will be glad to be one of its pioneering investors!