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Vietnam has become one of the fastest growing economies of East Asia. Will it emerge as a major force in the region?

By Muhammad Omar Iftikhar | March 2021

Next Wonder

It is expected that very soon, Vietnam could become one of the world’s fastest-growing economies. Vietnam's economic activity has been increasing at a 3% growth rate annually. The trade surplus is a key indicator and is said to be behind the country's economic rise. From January to August 2020, Vietnam’s trade surplus touched $11.9 billion. However, imports declined when business operations were hampered due to the Covid lockdown. According to the General Statistics Office (GSO), imports fell by 2.2% to $162.2 billion year-on-year while exports rose by 1.6% to $174.1 billion. It was reported that the exports of a few items exceeded $10 billion. These items included smartphones, computers, textiles, machinery, and footwear. The USA was Vietnam’s largest market. It supplied nearly $46.7 billion worth of exports. China and the European Union were in the second and third places.

In the years following the Second World War, several Asian miracles emerged that built themselves by focusing on their growth rate, trade surplus and indigenous production of goods. These included Japan, Taiwan, South Korea and China. Vietnam is now aspiring to become a part of this elite group. Vietnam’s exports, in this regard, will play a pivotal role. It is scheduled to propose a five-year economic plan targeting growth of 6.5% to 7% for 2021-25. It aims to boost per-capita GDP to $4,700 from this year’s estimate of $2,750.

The plan will be finalized when the Communist Party of Vietnam holds a convention in January 2021. The party members will approve a new leadership and an economic growth strategy for the next five years.

The Ministry of Planning and Investment proposed average gross domestic product growth of 6.5% to 7% for the next five years when it held a session on September 29. The session also cited a target of per capita GDP of $4,700 to $5,000 by 2025. The proposal was brought to the table after Vietnam was unable to reach the targets as proposed in the 2016-20 plan.

“The average growth rate of the five years from 2016 to 2020 is estimated at about 5.8%,” falling short of the 6.5%-7% target, according to Dautu, a state media source working under the planning ministry.

Vietnam’s GDP is estimated at $269 billion this year, up roughly 40% from $193 billion five years ago. Per-capita GDP is estimated at $2,750, growing 30% over five years from $2,109.

Tran Quoc Phuong, Vietnam’s deputy minister of planning and investment, said during a meeting that Vietnam has achieved many socio-economic goals. But he acknowledged that four targets have not been met: GDP growth, GDP per capita, the rate of trained labour in the workforce and the unemployment rate in urban areas.

In the coming years, Vietnam seeks to become a new hub of the regional supply chain, benefiting from trade and tech tensions between the U.S. and China.

GDP growth covering 2016-19 averaged 6.8%, Phuong said. But Vietnam’s economy was devastated by the coronavirus pandemic. While many neighbouring countries have negative growth forecasts, reports suggest that Vietnam is expected to remain in positive territory with a rate of about 2%. The slowdown in 2020 reduced average GDP growth over five years to 5.8%.

“In the first four years, the economy performed quite smoothly, but the final year [2020] was unpredictable and unimaginable,” Phung Quoc Hien, vice chairman of the National Assembly, Vietnam’s parliament, said during a meeting. “COVID-19 upended the environment.”

“[The slowdown in] 2020 is due to the influence of COVID-19, so it is force majeure,” said Nguyen Chi Dung, the minister of planning and investment. He further added that because of the pandemic, the Vietnamese government could not forecast economic growth for the next five years and make a plan accordingly.

The growth target proposed for the 2021-25 socio-economic plan is a rough sketch according to state officials. In the coming years, Vietnam seeks to become a new hub of the regional supply chain, benefiting from trade and tech tensions between the U.S. and China.

“The overall goal is to achieve a higher economic growth rate than the five-year average of 2016-2020 and, by 2025, cementing a position as a developing country with modern industrialization, surpassing its low middle-income economy,” the planning ministry said in the meeting.

Vietnam has failed to reach GDP growth targets for three consecutive five-year periods. The economy missed the targets of 7.5% to 8.0% for 2006-10 and 7.0% to 7.5% for 2011-15, delivering 7% and 5.9% growth during these periods. The country achieved 7.51% growth for 2001-05, hitting its target of 7.5% to 8.0%.

Government officials in Vietnam are concerned about 2021. As trade and business activities remained suspended in 2020, much needs to be done to make up for the economic loss in 2021. This includes deliberate planning and creating strategies to uplift the economy that works in alignment with Vietnam’s five-year plans.

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