The COVID-19 situation has considerably sped up the transition of manufacturing work into Vietnam and the country is uniquely positioned to take advantage of this move, said an article recently published on SeekingAlpha content service.
Vietnam has welcomed many companies that have looked to shift manufacturing in the recent years, the service for financial markets noted.
Although not very big, the Vietnamese economy is growing rapidly at around 6-7 percent. The country is the fourth largest economy in the region and posting faster growth compared to its neighbours, according to the article.
Vietnam has a slightly more persified economy that does manufacturing of textiles, footwear (Nike, Adidas), some electronic components (Lenovo), and also automotive manufacturing (Ford Motor Company and VinFast).
Meanwhile, other Southeast Asian nations like Malaysia is over reliant on oil and gas, which account for nearly 16 percent of exports; Brunei with almost 90 percent of exports linked to oil; and Indonesia with more than 25 percent exports linked to oil and coal.
The International Monetary Fund (IMF) reports there will be a significant reduction in economic activity for 2020 and in 2021, they see a steep bounce back. It also illustrates the macro stability that Vietnam has in terms of growth, current account deficit, or the employment numbers.
The economy is persified enough to manage the COVID-19-induced economic slowdown and still stay positive in forecasts published by IMF, it added.
This economy will continue to be resilient as indicated by another independent analysis done by the World Bank assessment, which states that the macro-economic and fiscal framework remains resilient with an estimated GDP growth rate of 1.8 percent in the first half of 2020, projected to reach 2.8 percent for the year.
Vietnam is one of the few countries in the world not to expect a recession, though its growth rate for this year is far less than the typical 6-7 percent pre-crisis projections.
The article went on to note that automotive industry is just taking off in Vietnam, and local auto manufacturers are now starting to become bigger players with VinFast automotive. It is a very big development as automotive industry generally adds a lot of jobs and growth in a country.
“The advantage of fledging auto industry is the development of many sub-suppliers which leads to related job/economic impacts. This sector, although from a small base, is growing at more than 100 percent and demand is robust.”
The Vietnamese Government is also trying to encourage this growth by reducing taxes for companies that engage in manufacturing automobiles and its parts in Vietnam rather than import the parts.
Furthermore, wages in Vietnam are still lower than most regional areas around it, hovering around 5.5 USD per hour.
“The Vietnamese Government has increased its spending on infrastructure and plans to focus on growing this further. Currently, Vietnam is spending 5.7 percent of its GDP on infrastructure improvements, the highest in the region.”
The investment is going into trying to connect more villages through roads, a massive railway infrastructure including a north-south railway line connecting the two ends of the country.
Vietnam is also planning to build 39 ports as part of a seaport expansion plan. The total spend is going to be around 80-100 billion USD over the next 10 years or more.
In addition, the article said, Vietnam is going into demographic pidend era where more than 70 percent of its population will be below 35 years of age.
With a population of about 100 million as of 2019, there are only about 13 percent who come under the middle class/income category. This is slated to double by 2025-26 to 26 percent and projected to give a big boost to the country’s consumption story and push growth rates higher from the current 6 percent average.
Many companies will want to take advantage of this consumption boom and take a leap to invest further in this economy.
Lastly, the ease of doing business ranking has improved significantly over the last 10 years going to 70 this year from 98 in 2011.
With the Government more focused on infrastructure, the country has 99 percent of villages lit up with electricity coupled with a high Human Capital Index, it is well placed to challenge this score further and make a move towards the top 50 in the next few years.
With all these positives, the article said, Vietnam will be the next manufacturing factory of the world.