The struggle of Vietnam, attempting to navigate the path of economic prosperity, mirrors the complexities of a country striving to emerge from the shadows of Asian giants. Despite attempts to emulate successful strategies of its neighbors, Vietnam's growth has been marred by a lack of innovation, reliance on low-wage labor, and difficulties in moving up the value chain. The situation necessitates a closer look at Vietnam's economic policies, its growth trajectory compared to neighboring countries, and the vital steps it needs to undertake to realize its growth potential.
The German Interest in Vietnam's Economy
The Delegation of German Industry and Commerce in Vietnam (AHK Vietnam) recently published the AHK World Business Outlook Fall 2023, which underscores Vietnam's growing appeal as a prospective investment destination for German corporations. During the first 10 months of 2023, Germany initiated 26 foreign direct investment (FDI) projects in Vietnam, amounting to nearly US$221.5 million. Despite this, the survey revealed that 49% of German companies in Vietnam face significant challenges, primarily due to low global demand. Other problems include skills shortages (41%), potential disruptions in the supply chain (37%), economic policy issues (24%), high energy prices (24%), and financing challenges (22%).
Vietnam's Logistics Sector: Key to Growth?
Vietnam's logistics sector, a beneficiary of heightened trading tensions between China and the US, has seen an accelerated growth. The government aims for an annual logistics growth rate of 20% over the next two years, with the sector's import-export volumes already reaching nearly USD 390 billion post-pandemic. To support this growth, Vietnam spends around 6% of its GDP on infrastructure, significantly more than other countries in the region. The government also aims to boost the sea freight industry's contribution to 10% of the country’s GDP by 2030.
Economic Revival: A Balancing Act
Exports, along with consumption and investment, play a crucial role in propelling Vietnam’s economy beyond challenges. The latest report from the World Bank noted that exports and imports continue to recover, meeting increasing demand from abroad. However, S&P Global Ratings projects that most emerging markets, including Vietnam, will grow below trend in 2024 due to weak growth in major trading partners such as the U.S, Europe, and China. Fiscal policies and interest rate cuts by central banks also pose a risk to near-term GDP growth forecasts. The path to economic revival, therefore, remains a delicate balancing act for Vietnam.