Vietnam's Economic Review 2021 - A Summary of Vietnam GDP Growth, FDI Inflow, Import-Export

Vietnam's Economic Review 2021 - A Summary of Vietnam GDP Growth, FDI Inflow, Import-Export

Over the last decades, Vietnam has experienced rapid industrialization, modernization, and international integration. Thanks to cheap labor costs, preferential tax & investment policies, and its geographically strategic location, Vietnam has become one of the go-to destinations for multinational companies’ manufacturing and assembly needs. The trend has gained momentum with the adoption of a China-plus-one strategy by FDI-backed enterprises and the US-China trade war. Stable socio-economic and business environment, along with strong international economic integration through free trade agreements, are also key factors for attracting foreign businesses to invest and to do business in Vietnam.

GDP Growth

In the last decade, Vietnam’s economy has shown fundamental strength and resilience. Vietnam has succeeded in maintaining a GDP growth rate of around 7% in 2018 and 2019, among the fastest growth rates in the ASEAN bloc.

Source: World Bank and Asian Development Bank

Given its deep global integration, the Vietnamese economy has been hit by the ongoing COVID-19 pandemic but has shown remarkable resilience. GDP grew by 2.91% in 2020, and in the first nine months of 2021, as the country endured through its worst COVID-19 outbreak, GDP growth remained at 1.42%. The Asian Development Bank (ADB) has announced its growth forecast for Vietnam as 3.87% for 2021. All things considered, Vietnam’s economy is expected to bounce back as COVID-19 has been largely brought under control. Going forward, Vietnam’s economy is set to recover and grow by 6.5% in 2022 stemming from successful control of COVID-19, strong performance by export-oriented manufacturing, and robust recovery in domestic demand.

FDI Inflow

Fueled by continuous growth, cheap labor, and a young working population, Vietnam continues to attract record foreign direct investment (FDI). Up to September 2021, more than 34 thousand projects were valid with a total registered capital of US$403.19 billion.

As a result of the COVID-19 pandemic, Vietnam’s FDI in 2020 reached US$28.53 billion, which was a decrease of 25.3% compared to 2019. Realized FDI for the first nine months of 2021 was US$13.28 billion, down by 3.5% compared to what was disbursed over the same period in 2020.

Source: General Statistics Office of Vietnam (GSO)

Out of 19 sectors receiving FDI capital: manufacturing & processing, real estate, electricity production & distribution, and hospitality are the top four sectors for 2020. Other notable FDI sectors include construction, wholesale, transport, mining, education, and information technology. Asian countries, including Singapore, South Korea, China, Japan, Taiwan, and Hong Kong, represent the most significant share of FDI into Vietnam.

As the market matures, the government has begun prioritizing ‘high-value’ FDI, such as in high-tech & manufacturing, high-tech farming, as well as tourism. In addition, the government is also prioritizing adequate training for the working population to meet the skill requirements for important sectors.

Import - Export

Vietnam is a country open to foreign trade, which represents over 200% of its GDP in 2020. In 2020, Vietnam’s trade turnover is estimated to hit US$540 billion, marking a year-on-year increase of US$23 billion.

Source: UNComtrade

Foreign-invested companies recorded a trade value of US$371.9 billion in 2020, up 14.9% year-on-year. This included US$202.9 billion in exports, up 13.2% year-on-year, accounting for 71.8% of Vietnam’s export turnover; and US$169 billion in imports, up 16.9% and making up 64.5% of total imports. As such, they posted a trade surplus of US$33.9 billion in 2020.

Meanwhile, the domestic-invested sector recorded a trade value of US$173.5 billion with a trade deficit of US$13.9 billion.

Despite the pandemic as well as the shutdown of Vietnam’s key manufacturing hubs, export turnover continued to increase in the first six months of 2021 reaching US$158.3 billion, up 29% compared to the same period last year. In addition, imports recorded US$159.3 billion, up 36.3% over the same period last year.

Export

In 2020, Vietnam exported a total of US$281.4 billion worth of goods, making it the 18th largest exporter globally. During the last decades, merchandise export value has increased stably at a CAGR of over 11.25%. Recent exports are dominantly electrical and electronic machinery & equipment, mechanical machinery, footwear, and apparel & clothing. Major destinations for the exports of Vietnam are the USA, China, Japan, the Republic of Korea, and Hong Kong.

Source: UNComtrade

Source: UNComtrade

Import

In 2020, Vietnam imported US$261.3 billion worth of goods, making it the 19th trade destination in the world. During the last 10 years, Vietnam’s imports have grown by a CAGR of 11.6%. Recent imports of Vietnam are led by electrical/electronic machinery & equipment, mechanical machinery, plastics, mineral fuels & oils, and iron & steel. The most prominent import partners for Vietnam are China, the Republic of Korea, Japan, the USA, and Thailand.

Source: UNComtrade

Source: UNComtrade

Forecast

Despite the 4th wave of COVID-19 with complicated developments, Vietnam is still regarded as an appealing investment destination with numerous effective business opportunities. While localized outbreaks and COVID-19 variants are possible threats in the foreseeable future, the government is likely to take a more nuanced approach and implement small specific lockdowns to ensure business recovery and economic resilience.

In the years ahead, Vietnam is expected to recover to pre-COVID growth. Vietnam’s reputation as a low-cost manufacturing hub is expected to continue to grow, helped by the further expansion of existing major industry sectors, such as textiles and electronics. A sustained global economic recovery will ensure strong demand for Vietnamese exports in key markets such as the USA, EU, and China.

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