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Vietnam is being tagged as Asia’s next tiger economy, a term associated with the likes of South Korea, Hong Kong, Singapore and Taiwan in the late-1980s to mid-1990s, during the peak of their growth powered by FDIs and export. With Vietnam today also an export powerhouse with trade at 200% of GDP, it certainly shares the same features as the original Asian tigers.
That Vietnam is the top choice for foreign investors today is all the more impressive given the challenges the economy faced a decade ago. If there ever was an Asian epicentre of the global financial crisis in 2008, Vietnam was it. Runaway inflation, touching a high of 23% in August 2011, a weakening currency (against a backdrop of other Asian currencies strengthening) and the collapse of Vinashin (Vietnam Shipbuilding Industry Group) under the weight of US$4.4 billion in debt, are sombre reminders of the state of the country not that long ago.
As it reaps the benefits of reform of the past few years, the country is facing external headwinds that could challenge its ability to achieve new milestones. The threats are both economic and geopolitical. Although Vietnam scored by hosting the US-North Korea Summit recently, it has not been immune to the slowdown in activity globally. The risk from the South China sea territorial wrangling also weighs on its short-term outlook.
Vietnam will need to continually maintain its attraction to sustain its growth momentum. One of the key reforms the government has set its sight on is to expand the role of private enterprises. It has set an ambitious goal of one million private businesses by the end of next year, double the number at the end of 2018.
In order to achieve this goal, access to finance is vital. The government has unveiled a landmark development strategy for the banking sector to 2025 that would, among others, increase the independence of the central bank, the State Bank of Vietnam; restructure credit institutions to manage bad debt (to stay below 3%); move banks to comply with Basel II norms, and to accelerate the digitization of finance to encourage inclusive and green growth. More work also is needed to strengthen domestic credits to allow them to access both domestic and international capital markets.
How Vietnam fares to sustain its next stage of growth will depend on the ability of its policy makers to continually refine its strategy against a backdrop of a more difficult, slower global operating environment. What measures are key to Vietnam’s economic success in the coming years? What reforms are necessary to maintain the country’s competitive advantage? What pressing issues need to be resolved in the short-term to ensure it does not fall back from the country’s positive sovereign credit outlook? What needs to happen to move Vietnam from a frontier to an emerging market economy?
