Vietnam – a story of rapid growth and a rise in the global supply chain

Vietnam has emerged as an attractive investment destination thanks to its economic resilience, its move up the value chain, strong foreign investment and its potential for strategic materials.

Image of the Vietnamese flag on the electronic circuit board of an important smartphone component. (Source: Getty Images)

Unlocking Vietnam's economic potential

Seeking Alpha , a site specializing in posting news about financial markets, has an article titled “Unlocking Vietnam’s Economic Potential” stating that Vietnam is becoming an increasingly attractive investment destination thanks to its strong GDP growth rate, advances in high-tech manufacturing capacity, and strong relationship with the United States.

This information page has “discovered” what makes Vietnam an attractive investment destination: the resilience of the economy, the rise in the value chain, strong foreign investment and great potential in strategic materials and semiconductors.

The Southeast Asian country's economy is resilient despite headwinds from rising commodity prices due to the Russia-Ukraine conflict and a slowdown in China, one of Vietnam's largest trading partners, the news site said. Vietnam's GDP grew 8.0% in 2022 as the economy benefited from commodity exports during the Covid-19 pandemic. The economy remained stable at 5.3% GDP growth in the third quarter of 2023 compared to the same period last year. Vietnam's trade faced some headwinds this year due to lower demand from major trading partners. Exports fell 10% in the first eight months of 2023 compared to the same period last year but finally turned positive in September.

Seeking Alpha commented that the Vietnamese government is deeply aware of the above challenges and is actively trying to attract foreign investment in high-tech manufacturing, especially in the semiconductor sector. The country has signed many Free Trade Agreements (FTAs) and introduced support measures such as tax incentives, preferential loan interest rates, import tax exemptions and land use fee incentives for high-tech factories.

The government’s strong support appears to have paid off in some early results. Vietnam has seen impressive growth in electronics exports, especially to the United States. From virtually zero, Vietnam now accounts for about 10 percent of total US electronics imports.

Besides, despite facing a challenging environment due to slowing growth and declining export performance, Vietnam has still attracted 15.9 billion USD in foreign direct investment (FDI) since the beginning of the year.

The manufacturing sector remains the main FDI attraction, with year-to-date investment exceeding $14 billion, up 15.5% year-on-year. This achievement is significant given the current uncertainties, inflationary pressures, and declining confidence in the global economic outlook. Key Apple suppliers Foxconn Technology Group (OTCPK:FXCOF), GoerTek Inc., Luxshare Precision Industry Co., and Pegatron Corp. have established factories in Vietnam; bringing the electronics sector’s share of total exports to 32% by 2022.

In addition, Vietnam has the world's second-largest reserves of rare earths, estimated at 22 million tons, second only to China. The country's rare earth industry is booming, with 2022 output of 4,300 tons, up about 11 times from 2021's output of just 400 tons. The country aims to increase rare earth output to 2.02 million tons per year by 2030.

Foreign companies including South Korean and Chinese magnet companies, including Apple supplier AAPL, are preparing to open factories in Vietnam to diversify their supply chains beyond China.

The United States recently signed the United States-Vietnam Comprehensive Economic Partnership Agreement to deepen cooperation between the two countries on a wide scale. Notably, the United States pledged an initial $2 million in funding to launch initiatives to develop the semiconductor workforce in Vietnam. Semiconductors are a key component in many different technologies, and this partnership aims to enhance Vietnam’s position in the global semiconductor supply chain, demonstrating the important role Vietnam is willing to play in the growth of the industry.

Vietnam is on the cusp of a vibrant economic transformation, demonstrating impressive resilience, attracting foreign investment, and driving growth in high-value sectors. With significant rare earth reserves and a growing semiconductor sector, Vietnam is poised to become a key player in the global supply chain. The strong partnership between the United States and Vietnam further strengthens the country’s position in the global economic landscape.

Investors looking for growth opportunities should keep an eye on Vietnam as it moves up the value chain and expands its presence in strategic sectors, making it an attractive investment destination.

The story of rapid growth

Previously, MoneyWeek, one of the famous financial magazines in the UK, also had an analysis article about Vietnam's growth story.

The magazine said that the milestones: implementing the “Doi Moi” policy in December 1986, joining the Association of Southeast Asian Nations (ASEAN) in 1995, normalizing Vietnam-US relations in 2000 and Vietnam joining the WTO in 2007, along with the policy of promoting participation in signing a series of trade agreements, have transformed Vietnam from one of the poorest countries in the world into a middle-income country, with GDP per capita increasing 3.6 times in the two decades after 2002. In 1986, exports of goods and services accounted for less than 7% of Vietnam's GDP, which increased to 93% in 2021.

General Secretary Nguyen Phu Trong welcomes President Joe Biden to visit Vietnam, September 2023. (Photo: Nguyen Hong)

Vietnam has experienced three distinct booms in foreign investment. The first was in the mid-1990s, when Japan’s Honda Motor began “locally producing two-wheelers” and global sportswear brands set up factories in Vietnam. Then the early 2000s saw technology companies from elsewhere in Asia set up production lines for simple electronics. And the third, in the mid-2010s, as local incomes rose, it began to attract foreign retail businesses, such as Japanese giant Aeon.

The effect of these booms is to make Vietnam an “export powerhouse”. Author Jeff Prestridge reported in the Mail on Sunday that: “More than half of Nike’s shoes and 60% of Samsung’s phones are made in Vietnam”.

Also according to MoneyWeek , Vietnam is currently planning to shift from the "labor-intensive" textile and electronics assembly industries to more profitable sectors, such as semiconductors.

Foreign investment will continue to be a major driver of market transformation amid growing pressure to diversify supply chains beyond China, the magazine said. US investment has historically been more limited than that from Japan and South Korea, but President Joe Biden’s visit to Hanoi in September and the two countries’ upgrading of relations to a “Comprehensive Strategic Partnership” will give the “green light” for increased US investment in Vietnam.

Vietnam’s competitive advantage is “plain to see,” Andy Ho, managing director and chief investment officer at VinaCapital, told The Sunday Times. Factory wages are “less than half that of China, while the quality of labour is comparable in many areas.” The country is also geographically close to key technology supply chains in southern China. About 75% of the cost of materials in a typical smartphone is made up of the combined cost of the printed circuit board, camera module, touchscreen and glass cover. Vietnamese manufacturers can source most of these components from elsewhere in Asia at zero tariffs, thanks to the country’s network of free trade agreements. Their Indian rivals, meanwhile, face customs duties of up to 22%.

MoneyWeek said that Vietnam has been dubbed the new Asian tiger, recalling the rapid development of South Korea, Taiwan (China), Hong Kong (China) and Singapore in the second half of the 20th century. Vietnamese investors have the right to expect that the country can follow the example of previous "tigers" to enter the group of high-income countries - defined by the World Bank as countries with a gross national income per capita of over 13,845 USD.

Source: https://baoquocte.vn/viet-nam-cau-chuyen-tang-truong-than-toc-va-su-tang-bac-trong-chuoi-cung-ung-toan-cau-250094.html