Vietnam for Business in 2017
2016 proved to be a prosperous year for Vietnamese business, as GDP growth continues to expand and has proved itself to be a leading player in the ASEAN region. In 2016 rising energy and commodity prices negatively impacted growth, failing to reach the government’s predefined target of 6.7% but still managed to achieve some of the highest levels of growth in the region.
The Vietnamese government has held firm its growth targets for 2017 at 6.7%, and is anticipated to expand via increased levels of trade from newly signed free trade agreements. Of particular importance is the EVFTA (Europe Vietnam Free Trade Agreement) which will come into effect in 2018. The new trade relationships will ultimately lead to an increase in FDI (Foreign Direct Investment) form advanced economies in Europe. As FDI into Vietnam rises it is expected that this new flow of capital will generate a growth in export activities, thus contributing to overall GDP growth targets.
Threats to Growth
Inflationary pressures in the region are still looming, and whilst in 2016 it was successfully kept below the government target of 5%, it is expected to rise for 2017. An external threat to sustained growth is the worldwide expectation that Chinese economy will continue to slow over the oncoming years. As China is still Vietnam’s largest trading partner, any anticipated retraction in demand for Vietnamese products will ultimately hamper and imped export growth.
International political uncertainties will also impact Vietnam’s ability to maintain the strong levels of growth witnessed in previous years. Donald Trump’s shock decision to pull the USA out of the TPP (Trans Pacific Partnership) was a blow to Vietnam, as it was set to be one of the biggest benefactors of the free trade agreement.
Instability in energy and commodity still persist to be a problem for the Vietnamese economy. As the price of oil remains in a constant state of flux it is hard to create a long term energy policy, and Vietnam relies heavily on foreign imports of refined petroleum products.
Solutions to Prosperity
In order to diversify its current export offering, Vietnam should continue to strengthen trading relationships with developed nations. The Middle East, North America, Europe and India all offer new opportunities to decrease dependence on China. The continued focus on expanding trade with these nations will ultimately allow Vietnam to create a diverse portfolio of export partners for a range of sectors.
Vietnam has the reputation for a base of low cost labour outsourcing, but it now must focus more on improving the quality of its domestic products. In order for FDI capital productivity to increase, focus should be shifted to improving education for the evolving tertiary industries. Investment is required for tech and high skilled labour in order to prepare Vietnam for the natural shift away from agriculture and industry towards a service based economy.