Attractive market

Vietnam is an attractive destination for foreign direct investment (FDI) amid global economic fluctuations and increasing political instability, Paulo Medas, head of the International Monetary Fund (IMF) team to Vietnam, said in an interview with the Vietnam News Agency (VNA)'s resident correspondents in Washington D.C within the framework of the Annual Meetings of the IMF and the World Bank Group (WB) held in the U.S.

A production line at Toyota Motor Vietnam Co., Ltd.,  a Japanese-invested company in Vinh Phuc province

He said that thanks to a stable investment environment, high economic growth, large domestic market, and young labor force, the country remains an enticing market for foreign investors, receiving a large volume of FDI amidst the shifting of supply chains to Asia.

Earlier, the IMF forecast that Vietnam's GDP based on purchasing power parity (PPP) will reach nearly USD 2,343 billion by 2029, surpassing Australia and Poland to secure the 20th position worldwide. However, to maintain its attractiveness, it is necessary for the country to continue improving the domestic business environment, streamlining administrative procedures, developing infrastructure, especially green energy, and promoting innovation.

The latest World Bank Taking Stock bi-annual economic update predicted that Vietnam’s economy can grow by 5.5% in 2024 and increase to 6% in 2025. After experiencing a slowdown in 2023, the economy is showing signs of recovery in early 2024. The country’s exports are recovering, and consumption and private domestic investment are growing more gradually. The real estate sector is forecast to recover vigorously later this year and next, boosting domestic demand as investors and consumers regain confidence.

Meanwhile, the Asian Development Bank (ADB) is more optimistic, expecting Vietnam's economy to expand by 6.0% in 2024 and 6.2% in 2025.

It said that global demand decline and high interest rates had a big impact on Vietnam's growth in 2023. However, a rapid switch to an accommodative monetary policy and sizeable public investment were among the key measures taken to sustain a growth recovery in 2023.

A relatively broad-based restoration in export-led manufacturing and services as well as stable performance of the agriculture sector are expected to support Vietnam’s recovery momentum.

Vietnam is seen a "next-generation workshop" and a growing market to become an advanced research and development (R&D) center, according to an article published by Dong-a Ilbo newspaper of the Republic of Korea.

The article said Vietnam's R&D competitiveness benefits from changes in the Government’s policies.

It noted that the Vietnamese Government aims to go beyond the previous “Made in Vietnam” model, which was limited to be a hired processing facility, to become a manufacturing center with its own technology and production capacity, and stepped up efforts to promote the information and communications technology (ICT) sector.

Strategic destination

Not only international organizations but many foreign businesses have also made positive assessments of Vietnam's economy. The U.S.-based tech giant Apple recently announced that it will increase spending for suppliers in Vietnam - a key production hub. This announcement came as CEO Tim Cook paid a two-day visit to the country, starting on April 15.

Vietnam is among the five leading mobile game producers in the world, Apple said in a statement. The group will boost its connection with local suppliers, clean water projects and education opportunities, Cook was quoted as saying on his arrival.

In March, Choi Joo Ho, General Director of Samsung Vietnam, announced that the group had poured another USD 1.2 billion into Vietnam in 2023, raising its total investment capital to USD 22.4 billion. He also said that Samsung commits to invest an additional USD 1 billion annually in Vietnam.

Samsung's R&D center currently employs 2,400 engineers, with Vietnamese engineers playing a crucial role in researching artificial intelligence (AI) features in the new Galaxy S24 phone series, which Samsung highly values their capabilities.

In its latest report, the Singapore-headquartered United Overseas Bank (UOB) maintained its growth forecast for Vietnam at 6% this year, noting that prospects for Vietnam this year remain positive despite downside risks.

Earlier, in the article entitled “Thriving spring for ASEAN's digital economy," HSBC bank experts stated that the ASEAN digital economy is entering a new bright phase, with Vietnam leading the way in the digital industry for both domestic and foreign businesses.

Amanda Murphy, Head of Commercial Banking for South and Southeast Asia at HSBC, said that Vietnam has been the fastest growing digital economy in the Association of Southeast Asian Nations (ASEAN) in 2022, 2023, and is expected to maintain this position until 2025. Vietnam is also forecast to have 67.3 million smartphone users by 2026, accounting for 96.9% of Internet users.

Fiscal policies drive economic growth

ADB Country Director for Vietnam Shantanu Chakraborty said that Vietnam’s economy is expected to grow at a solid pace this year and the next, despite a challenging global environment. However, global geopolitical uncertainties and domestic structural fragilities could impact the outlook. Therefore, policy measures in 2024 will need to combine short-term growth support measures to strengthen domestic demand with long-term structural remedies to promote sustainable growth.

To accelerate growth, stronger measures are required to address domestic structural fragilities, such as heavy reliance on FDI-led manufacturing exports, weak linkages between processing export industries and the rest of the economy, incipient capital markets, an overreliance on bank credit, and complex regulatory barriers to business, the ADB representative noted.

Echoing his view, the latest World Bank report also emphasizes the importance of fiscal policies to reinforce Vietnam's economic recovery. It recommends expediting infrastructure investment projects funded by public resources. This would help further stimulate the economy, with an additional potential 0.1 percentage point of GDP growth for every 1 percentage point increase in public investment as a share of GDP, the report added.

“Investment in public infrastructure projects goes beyond immediate economic stimulus,” said Sebastian Eckardt, World Bank East Asia and Pacific Practice Manager for Macroeconomics, Trade, and Investment.

He went on to say that efforts to enhance public investment management will also address critical infrastructure gaps in energy, transport, and logistics, which are fundamental for Vietnam's long-term economic growth.

Source: VNA