One of the fastest-growing economies
Vietnam is a country in Southeast Asia, located on the Indochina Peninsula, with a population of 97.5 million. After the Vietnam War (1955-1975) and the establishment of the Socialist Republic of Vietnam, the authorities introduced a centrally planned economy. As a result of the economic transition initiated in 1986 (known as Doi Moi), Vietnam moved toward a free market model, becoming one of the fastest-growing countries in the world. Despite the challenges, Vietnam is recognized as a country with considerable economic potential.
The economy is now driven mainly by exports and foreign investment. The remarkable economic progress in recent years is illustrated by the decline in the poverty rate from about 75% at the beginning of the reforms to 3.8% in 2020. Despite its rapid development, Vietnam is still considered a non-wealthy country. In 2021, the value of gross domestic product was $366 billion ($3756 per capita). In the GDP structure, industry accounts for 37.5%, services for 41.2%, and agriculture for 12.6%. As for the business environment, 97% of companies (776,000) are small or medium-sized enterprises (SMEs).
According to government plans, Vietnam aims to become a high-income economy by 2045. The government has also declared a desire for greener development and pledged to halt deforestation by 2030 to achieve zero net carbon emissions by 2050. According to the World Bank, to meet these goals the Vietnamese government needs to make progress in finance, environmental protection, and infrastructure in the coming years.
Population of Vietnam
Vietnam’s population is 97.5 million. The majority are ethnic Vietnamese (85.3%), and the sizable minorities include Thais, Muong, Hmong, Khmer, Nung, Dao, and Hoa. Vietnam is officially an atheist state. Most of the population adheres to folk religions or is non-religious. Religious denominations make up 14% of the population. The largest religious groups are Catholics (6%), Buddhists (5%), and Protestants (1%).
Vietnam’s urbanization accelerated significantly in the 1990s. Currently, 38% of Vietnamese live in cities, but according to government plans, this percentage will rise to 50% by 2030. The largest city is Ho Chi Minh, home to 9.3 million people. Other major Vietnamese cities include the capital, Hanoi (5.2 million), Can Tho (1.8 million), Haifong (1.2 million), and Da Nang (1.2 million). Despite economic progress, there is still quite a disparity between the incomes of urban and rural residents.
Vietnamese are a rapidly aging population. In 2021, 8.3% of the population in Vietnam was at least 65 years old. According to projections, in 2036, people aged 65 and over will exceed 15.5 million (14% of the total population). On the other hand, about one-fifth of the population is less than 15 years old. It implies that the government will have to increase investments in both healthcare and education in the coming years. Investments in the latter area are linked to the government’s plans for economic development through 2045.
The economy of Vietnam
Vietnam’s currency is the dong (VND), whose exchange rate has been pegged to the dollar since 2011. The agricultural sector is based primarily on rice, coffee, vegetables, fruits, and aquaculture. The growth engine of the Vietnamese economy is industry, with a significant share of state-owned enterprises. Its most important sectors are textiles, food, furniture, plastics, and paper. Vietnam also invests in developing the automotive, shipbuilding, electronics, and energy industries. In turn, tourism and telecommunications are the drivers of the service sector.
Between 2000 and 2012, Vietnam’s energy consumption increased more than fivefold, with growth estimated at 12-15% between 2015 and 2030. Offshore exploration has increased proven oil reserves to 4.4 billion barrels. Vietnam also has 24.7 trillion cubic feet of proven natural gas reserves. Energy resources are crucial for continued infrastructure and transportation development. The medical and pharmaceutical sectors also offer promising prospects. However, increased exports will be needed to sustain the growth dynamics.
Economic freedom is constrained by institutional factors, regulatory burdens, and a judiciary prone to political influence and corruption. Despite reforms (partial privatization of state-owned enterprises, liberalization of trade, and foreign investment), these factors hinder sustainable, long-term economic development. The state-owned enterprises (SOEs) sector remains one of the most crucial pillars of Vietnam’s economy, accounting for about 28% of GDP and 30% of state budget revenues. Thus, the pace of further reform and development of private enterprise will be essential in the coming years.
International trade
Vietnam is the world’s 36th economy by GDP, the 21st-largest exporter, and the 19th-largest importer. The value of Vietnamese exports is $335.8 billion, and imports are $330.7 billion. Vietnam’s main trading partners are China, South Korea, Japan, the United States, Thailand, Malaysia, Australia, Indonesia, India, and Kuwait.
Among the most imported goods are electrical machinery (35.7%), industrial machinery (7.29%), plastics (6.04%), oil and mineral fuels (4.96%), iron and steel (4.46%), precision instruments (2.41%), motor vehicles and parts (2.25%), clothing (2%), organic chemicals (1.68%), and iron and steel articles (1.59%). In addition, Vietnam imports cereals, cotton, chemical products, rubber, aluminum, copper, medicines, and paper.
The group of most exported goods is electrical machinery (39.1%), clothing (8.76%), industrial machinery (7.18%), footwear (5.43%), furniture (4.12%), iron and steel (3.55%), plastics (2.17%), seafood (1.88%), rubber (1.83%), and fruits and nuts (1.64%). Other goods include wood, motor vehicles and parts, precision instruments, iron and steel articles, cotton, coffee, spices, cereals, and oil and mineral fuels.
Trade agreements
Vietnam has signed many trade agreements. These have been concluded with both countries and associations of countries.
Vietnam has signed free trade agreements with the following countries:
Chile
Japan
South Korea
In April 2023, Vietnam completed negotiations for a free trade agreement with Israel. In contrast, with the United States, Vietnam has a bilateral trade agreement.
Agreements with associations of countries:
Association of Southeast Asian Nations (ASEAN)
Asia-Pacific Economic Cooperation (APEC)
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP)
Regional Comprehensive Economic Partnership (RCEP)
Eurasian Economic Union (EAEU)
European Union (EU)
Agreements concluded by ASEAN:
Australia and New Zealand (Free Trade Area between ASEAN, Australia and New Zealand, AANZFTA)
China
Hong Kong
India
Japan
South Korea
Vietnam-European Union relations
Vietnam and the European Union established diplomatic relations in 1990. Subsequent bilateral agreements concluded in 1996, 2012, 2016, and 2019 strengthened the cooperation. They cover the economy, trade, social development, human rights, energy, tourism, culture, environmental protection, combating corruption and organized crime, and security and defense.
In June 2019, the European Union and Vietnam concluded the Trade Agreement and Investment Protection Agreement. The Free Trade Agreement entered into force in August 2020. Vietnam is the European Union’s 15th largest goods trading partner and the EU’s largest trading partner in ASEAN. The trade value between the two sides was €64.3 billion in 2022.
The EU mainly exports industrial machinery, electrical equipment, aircraft, vehicles, and medicines. Vietnamese companies export cell phones, electronic items, footwear, textiles, clothing, coffee, rice, seafood, and furniture. The EU is one of the largest foreign investors in Vietnam. In 2019, the investment amounted to 6.1 billion euros, mostly in manufacturing.
Opportunities and challenges
Vietnam’s customs tariff has two components: import duty and value-added tax (VAT). Vietnam imposes duties on most imported products. These vary depending on the type of product. Duties are high on consumer products and luxury goods. Machinery, equipment, and raw materials, on the other hand, enjoy lower duties or tax exemptions. International companies exporting their products to Vietnam are subject to import taxes, VAT (5% or 10%), and special consumption tax (7-75%).
Risks for exporters include underdeveloped infrastructure, the judicial system, regulatory and administrative burdens, bureaucracy, and corruption (in 2022, Vietnam was ranked 77th out of 180 in Transparency International’s index). Other challenges include a language barrier, a shortage of skilled labor, and poor credit opportunities. A considerable impediment to doing business in Vietnam is the lack of transparent regulations and procedures that change quickly. The World Bank also highlights the need to reform the financial sector and fiscal policy.
Despite the challenges, the pace of economic growth has made Vietnam considered a promising market. Opportunities for foreign entrepreneurs include projects related to developing transportation and urban infrastructure, which require appropriate equipment and materials. It also involves projects for energy sector development, including renewable energy. Low labor costs also offer opportunities for expansion in the electronics and ICT industries. The same is true for education and healthcare due to plans for economic and social transformation by 2045.