Arindam Goswami
The economic growth of Vietnam in recent years is an inspiring story for all developing economies around the world. It is currently one of the fastest developing economies in South East Asia which showed 8% GDP growth in 2022, higher than its official growth target of 6%-6.5%, exceeding its average rate of 7.1% growth in between 2016 and 2019.The IMF projected that public debt of Vietnam is estimated to decrease to 31.3% of its GDP by 2028, the lowest among all members of the ASEAN economies.In the last few years, Vietnam has become one of the favoured destinations for global investorsacquiring FDI inflow of USD 22.4 billion in 2022, up from USD 8 billion in 2010. In 2023, Vietnam received further FDI inflow worth USD 8.8 billion in the first four months of the year.FDI apart, Vietnam has also increased its foreign trade of goods and services over the years. In 2022, Vietnam exported goods and services worth USD 371.85 billion compared to import of USD 360.65 billion of which eight product groups achieved export revenue of over USD 10 billion while another thirty-six crossing the USD 1 billion mark. Of the total export, USD 276.76 billion came from foreign invested sector. The services sector, which accounted for USD 12.9 billion of this total, showed a year-on-year increase of 145.2%.
These are major achievements considering the fact that Vietnam was a war-torn country less than 50 years agowith an annual GDP growth of 2.8% and inflation rate of 378%along with severeeconomic sanctions laid out by US, some of which continued till early 2000s.The Đổi Mới (or “restoration”) reforms initiated in 1986brought in major changes in the economic and political landscape of Vietnam including liberalisation of the domestic market,recognition of private land holding and business ownership, encouragement of FDI,reduction in subsidies to state-owned enterprises, and open overseas trade channels by cultivating diplomatic and friendly ties with different countries.Vietnam is also a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting, and the Government is a party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax. Furthermore, since the mid-2000s, the Government of Vietnam has offered extremely competitive financial incentives to businesses seeking to set up operations in the country, in addition to a zero percent withholding tax on dividends remitted overseas and a low rate of corporate income tax at 20%.To enable better financing, Vietnam is developing a vibrant financial market with the Government encouraging foreign portfolios in the market and though presently classified as a frontier market, it is expected to be an emerging market by 2025.The State Bank of Vietnam has consistently cut regulatory interest rates, which has resulted in credit institutions lowering their lending interest rates, ultimately leading to a boost in economic growth. For ease of doing business, the Government of Vietnam has initiated several administrative reforms including building a single window clearance programme and launching a e-Government platform.
The Provincial Competitiveness Index (PCI) 2020 Report, first released in 2021, by USAID and the Vietnam Chamber of Commerce and Industry, examining trends in economic governance through surveys indicated that the overall median PCI score for Vietnam has improved, which shows the Government’s effort to improve economic governance, quality of infrastructure and fall in rate of corruption. In the wake of the US-China power tussle and tightened regulatory norms replacing the erstwhile business friendly attitude of China, several businesses have relocated their operations from China to Vietnam. The relaxed regulatory environment for business combined with an inexpensive, skilled and a young workforce has provided the necessary impetus for setting up a manufacturing hub which can serve as the nodal point for export supplies to ASEAN economies.Interestingly, Vietnam is well on its way to becoming a key location for high-technology manufacturing, with companies like Samsung, LG Electronics, Nokia, and Intel making multi-billion-dollar investments into the country. Other business areas include information and communications technology, automotive, and medical devices.
To avail better overseas trade and commerce, Vietnam initiated45 bilateral investment treaties and became part of 26 treaties with investment provisions in the last decade. Vietnam became member of 16 FTAs, including the EU-Vietnam FTA and the related EU-Vietnam Investment Protection Agreement which replaced 21 standaloneearlier bilateral investment treaties between Vietnam and European countries. In 2020, Vietnam became a signatory to the Regional Comprehensive Economic Partnership (RCEP), which includes the 10 ASEAN member countries plus Australia, China, Japan, South Korea, and New Zealand which enables it to import and export goods at a lower cost, improves market access and offers streamlined customs procedures.
Continuing the trends set by the Đổi Mới reforms, the political leadership of Vietnam set the overarching goal of transforming Vietnam to a socialist-oriented developed nation by the mid of 21st century, at the 13th National Congress of the under the Communist Party of Vietnam (CPV) held in January 2021. It is to be done in three phases. First, Vietnam is to become a developing country with a modern-oriented industry base and graduate from lower-middle income status by 2025. Second, Vietnam to be developing economy with upper middle-income status and modern industry base by 2030, a landmark coinciding with the centenary of CPV. Third, Vietnam shall be a high-income developed economy by 2045 when the Socialist Republic of Vietnam (erstwhile Democratic Republic of Vietnam) celebrates its centenary.To achieve these goals the CPV has decided to put highly educated and trained individuals as leaders at the core power of balance. Moreover, it recognised the global economic and political challenges in a post pandemic world and decided to take adequate measures to counter such challenges.
The CPV further charted out a ten-year economic strategy (2021-30)that involves improving institutions for sustainable development of economy, politics, culture, society and environment; perfect regulations in institutions, maintain economic stability and promote market competitiveness; fuel industrialisation and growth through technological advancement; attract foreign investments in high tech industries; development of high quality human resources through education and scientific knowledge; promote Vietnamese culture, traditions, national pride; create ethical labour condition by implementing good labour policies; create effective response strategy to fight climate change, better manage natural disaster, and prevent outbreak of disease to cause a pandemic; engage in better international cooperation and foreign affairsto improve overseas trade and commerce among others.
Due to many shared similarities in terms of history, culture and geo-politics; India and Vietnam share an exceptionally friendly relationship. In fact, India and Vietnam diplomatic relationship goes fifty years back and the two countries have been trading partners for the longest time. India is one ofonly four countries (others being Russia, China, and recently South Korea) with which Vietnam has a Comprehensive Strategic Partnership, the highest level of bilateral relationship in Vietnam. On the other hand,India granted Vietnam the “most favoured nation” status way back in 1975, signed the first bilateral trade agreement in 1978 and the Bilateral Investment Promotion and Protection Agreement in 1997. Vietnam is a key pillar to India’s Act East Policy and Indo-Pacific Strategy.Hence,
it is natural that India has been an active trade partner andkeen investorin development of Vietnam. The Indo-Vietnam bilateral trade accounted for USD 14703.89 in between April 2022 and March 2023 as reported by the Ministry of Commerce and Industry in India, where India exported goods and services worth USD 5909.16 to Vietnam and imported goods worth USD 8794.73 from Vietnam. To deepen trade further, the Vietnam Trade Office in India, in collaboration with the National Investment Promotion and Facilitation Agency of India (Invest India), and the Federation of Indian Export Organisations (FIEO), discussed a plan to boost trade in agriculture and processed food in February 2023.
Trade apart, India has investedan estimated amount of USD 1.9 billion including investments routed through third countries, in more than 300 projects in the areas of energy,agro-processing, mineral exploration, agriculture, manufacturing, agrochemicals, IT and auto components in Vietnam. On the other hand, India hasreceived a cumulative FDIamountingto USD 5.35 million in between April 2000 and September 2022 from Vietnam.India is a key partner of Vietnam for defence cooperation and has provided a USD 500 million defence line of credit to Vietnam to bolster its military in 2016. In June 2022, the Indian Defence Minister handed over twelve high speed guard boats to the Government of Vietnam, manufactured under the defence line of credit offered to Vietnam.In the past, under the Mekong Ganga Cooperation (MCG) framework,
India has been undertaking Quick Impact Projects (QIPs) for development of community infrastructure in different provinces of Vietnam, each costing USD 50,000.In July 2022, a shipping route linking Central Vietnam and India was started to remove bottlenecks in sea route logistics between the two countries. India and Vietnam also work very closely on maritime, counter terrorism and terror financing, trafficking of illegal arms, smuggling and many other security related issues amid China’s aggressive stance in the Indo Pacific region. However, during a conference to explore and increase Indo-Vietnam trade and commerce in May 2023, which attended by a high-profile delegation from the India business community, the President of the Vietnam International Entrepreneur Networking Club, Mr. Dinh Vinh Cuong, informed that India accounts for only 0.2% of the total investment by foreign investors in Vietnam which is too small compared to the economic potential of India.
With the power of axis shifting from the west to the east, it is increasingly becoming evident that Asia is going to emerge as the new leader of the free world. However, this responsibility must not be left to China alone, considering its aggressive stance on trade and geo-politics with other Asian nations. Hence, it is imperative that likeminded nations such as India and Vietnam come forward to shoulder the responsibility of making Asia a super power through cooperation in trade and diplomacy. Both countries canemulate best trade and policy practices from each other, share technological advancement, increase bilateral and multilateral trade, and invest in each other’s growth to complement each other’s economy, making Asia a true liberal and a model leader of the free world.
Views are personal. Arindam is an independent economist and policy consultant.
