Vietnam: The New Land of Opportunity

(divemasterking2000)

Describing Vietnam as a land of opportunity would have been preposterous not long ago. But times have changed, and so has Vietnam’s economy.

In a recent article, The Herald Sun quotes a visitor to the country (which joined the World Trade Organization in 2007) saying that “the natural entrepreneurship of the people is rapidly flourishing.” Less than 6% of its 86 million people are over the age of 65: a unique advantage for Vietnam in the global marketplace.

In September 2009, The Economist reported that credit in Vietnam is “cheap and flowing, and the stock market has more than doubled in value in the past six months.” As a result, Vietnam’s economy is expected to “grow robustly over the next couple of years.”

IndexMundi.com shows that Vietnam’s real (inflation-adjusted) GDP rose every year from 2003 to 2008,, with the exception of an anomalous 3% dip in 2007. And while GDP naturally went south in 2009 – as it did in most countries – the recession has done little to worsen Vietnam’s long-term economic prospects, which remain strong. In fact, investment bank Credit Suisse predicts 8.5% real GDP growth for Vietnam in 2010.

We continue our series on emerging markets by analyzing Vietnam’s economic landscape: the opportunities, incentives to producers and fastest-growing industries.

The Opportunities

(Eustaquio Santimano)

As noted earlier, Vietnam benefits from having a young and ambitious population. In fact, the Herald Sun says that Vietnam is “enjoying some of the most favorable demographics in the world” at a time when other nations are not nearly as fortunate. This translates into a population ripe for targeting by new businesses, eager and willing to consume.

The biggest opportunity for entrepreneurs and businesspeople in Vietnam, however, is exports. Exports of manufactured goods, textiles, shoes, oil and IT services are said to be high and rising. In 2008, they hit a record of nearly $63 Billion, a 29.5% increase compared with the previous year, according to the Vietnam Customs office. And while The Economist reported that exports fell by 14% year-on-year in the first eight months of 2009, this has generally been attributed to the worldwide financial crisis and most analysts anticipate continued export growth in the future. (A special section of Business-in-Asia.com offers information about the Vietnamese workforce and opening a factory there.)

Tourism is another source of opportunity in Vietnam, a country endowed with natural beauty and attractive scenery. While tourism declined in 2009, the national government has upped its own promotion of the country’s tourism sector, VOVNews reports. For example, many tourism businesses are offering discounts for tours and tourism services as  part of a program called “Impressive Vietnam.” Even as it dropped 10% in 2009, tourism revenue grew 10% over the previous year, to VND 70,000.

Incentives to Producers

(Eustaquio Santimano)

Various incentives have been established for producers and entrepreneurs doing business in Vietnam. Those include tax incentives between Vietnam and neighboring nations. For example, Vietnam pledged to impose a 0% tax rate on 16 items imported from Laos, including automobiles, motorbikes, engines and components, according to Vietnam’s Customs office. In exchange, Laos agreed to give the same tax rate to 87 Vietnamese groups of commodities, including floral materials, processed fruits, cigarettes, garments, motorbikes, and interior furniture.

Incentives to exporters were also established in 2009 to help re-ignite growth in that sector. Last year, a tax reduction and exemption was enacted to assist businesses involved in exports and trade promotion programs to exploit potential markets in Africa, Latin America and the European Union.  The Ho Chi Minh City website breaks down the tax rates that apply to different types of investments in Vietnam – 10%, 15%, or 20% – depending on the nature of the investment.

The Obstacles

Unlike many of the emerging markets we have explored, Vietnam has not been aggressive about expanding personal freedoms. The 2009 Legatum Prosperity Index, for example, finds that “Vietnamese citizens do not have freedom to exercise and practice their religious beliefs, speak freely without fear of government censorship, and travel freely within and out of their own country.”

The Index lists eleven procedures that stand in the way of starting a new business in Vietnam, suggesting that businesspeople should not relocate to Vietnam on the fuzzy hope of benefiting from a nationwide economic boom. Rather, consider relocating if you work in an industry which Vietnam’s autocratic government has decided to allow or encourage. Those working in tourism and exporting, for instance, will likely benefit from the Vietnamese government’s incentives. For businesses in any other industry, the political culture may not be advantageous.

The Future

Despite Vietnam’s autocratic government and some recent recession-induced sags in growth, the overall economic prospects are quite good. Vietnam’s unemployment rate, at just over 2%, is one of the lowest worldwide, according to the Legatum Prosperity Index. The country ranks 27th in the world in terms of trade, which measures the relative prices of a country’s exports to the prices of its imports.

Inflation, which peaked at 28% in August 2008, remains a concern, but has been tamed for the time being. Arguably, the best scenario for Vietnam’s continued growth will occur if the country follows the advice of World Bank country director Victoria Kwakwa, who exhorted Vietnam’s leaders to remain focused on eliminating “the fundamental constraints to the economy’s competitiveness.”