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Samson:  Việt Nam shines amid global economic volatilities

18th October, 2022

Despite global volatilities, Việt Nam’s economy has rebounded strongly this year beyond the forecasts of many international organisations, making the country one of the rare bright spots in the global gloomy picture and has the potential to become a new ‘tiger’ in Asia.

The latest report from the General Statistics Office (GSO) showed Việt Nam's GDP growth rate in the first nine months of 2022 hit a 12-year high to reach 8.83 per cent. Notably, the economy expanded 13.76 per cent in Q3 2022 compared to 7.72 per cent and 5.05 per cent in Q2 and Q1 2022, respectively. The 13.7 per cent GDP expansion in Q3 2022 was a record quarterly growth rate in Việt Nam and surpassed the rate of 13.5 per cent of India to become the highest in Asia this year.

The World Bank attributed Việt Nam’s rebound to a recovery of exports and the release of pent-up demand following the removal of COVID-19-related mobility restrictions and, more recently, the gradual return of foreign tourists.

Việt Nam’s economic growth was reported in all three key sectors, of which services increased by 10.57 per cent, industry-construction up 9.63 per cent, and agriculture-forestry-fishery up 2.99 per cent.

The country’s import-export turnover during the period increased by 15.1 per cent to US$558.5 billion with a trade surplus of $6.52 billion while total retail sales of consumer goods and services surged by 21 per cent. Besides, the business situation has been continually improving, with the number of newly established enterprises surging by 38.6 per cent to more than 163,000.

Disbursement of foreign direct investment (FDI) in the first nine months of this year also surged 16.2 per cent year-on-year to $15.4 billion, marking a five-year record high, the Ministry of Planning and Investment's Foreign Investment Agency (FIA) reported.

These positive figures showed foreign-invested enterprises have been constantly recovering and expanding their production and business activities in Việt Nam, which has reflected business confidence in the country’s success in maintaining macroeconomic stability, FIA said in its September report.

According to Prime Minister Phạm Minh Chính, the economy has recovered very positively, with many cities and provinces nationwide reporting impressive Gross Regional Domestic Product (GRDP) growth in the first three quarters, including HCM City with 9.97 per cent, Hà Nội with 9.69 per cent, Bắc Ninh with 9.7 per cent, Hải Dương with 10.14 per cent, Quảng Ninh with 10.12 per cent, Hải Phòng with 12.06 per cent, Cần Thơ with 17.57 per cent, Đà Nẵng with 16.76 per cent, Khánh Hòa with 20.48 per cent and Bắc Giang with 23.98 per cent.

Notably, Minister of Planning and Investment Nguyễn Chí Dũng said the country’s high economic growth has been accompanied by stabilising the macro-economy, successfully controlling inflation, ensuring major balances of the economy and improving people's living standards.

The GSO reported the country’s average consumer price index in the first nine months was only 2.73 per cent while State budget revenue and total investment capital of the whole society surged by 22 per cent and 12.5 per cent over the same period in 2021, respectively.

Many international organisations have been so far surprised by the very high growth rate of above 13 per cent of Việt Nam in the third quarter of this year. The impressive surge has resulted in their upgrade of the country’s economic growth forecast, of which Moody’s, Fitch Ratings, World Bank (WB) and International Monetary Fund (IMF) predict Việt Nam's GDP growth in 2022 at 8.5 per cent, 7.9 per cent, 7.2 per cent and 7 per cent, respectively.

The upgrade is very notable when the organisations have lowered their 2022 global economic growth outlook. For example, in last month’s report, while having raised its GDP growth forecast for Việt Nam this year to 7.5 per cent from 5.3 per cent in April, the World Bank projected the overall rate of the East Asia and Pacific region to slow to 3.2 per cent this year from 7.2 per cent in 2021.

Moody's Investors Service last month also upgraded the Vietnamese Government's long-term issuer and senior unsecured ratings to Ba2 from Ba3. Việt Nam is the only country in the Asia-Pacific region and one of four countries in the world that have had their credit rating upgraded by Moody's since the beginning of the year.

Moody’s noted in the report: “The upgrade to Ba2 reflects Việt Nam's growing economic strengths relative to peers and greater resilience to external macroeconomic shocks that are indicative of improved policy effectiveness, and which Moody's expects to continue as the economy benefits from supply chain reconfiguration, export diversification and continued inbound investment in manufacturing.

“The rating also reflects a sounder fiscal footing backed by contained borrowing costs, a conservative approach to fiscal policy and improved government liquidity, driven by the ongoing transition from external concessional borrowing toward longer-dated, low-cost domestic market financing.”

According to Trần Văn Sơn, Minister of the Government Office, international organisations have positive assessments of Việt Nam's socio-economic situation. They forecast the country's economic growth rates in 2022 and 2023 will be among the highest in Southeast Asia.

Economist Brian Lee Shun Rong at Malaysia's largest financial services group Maybank believed as a rising star in the global supply chain, Việt Nam has the potential to become a new ‘tiger’ in Asia after the Republic of Korea (RoK), Singapore, and China's Taiwan and Hong Kong.

Exceeding targets

The strong GDP recovery in the first nine months of the year, especially in Q3, has created a prerequisite for Việt Nam’s vigorous growth in 2022 and the country is so far estimated to meet nearly all 15 targets set for this year. According to the National Assembly's (NA) Committee for Economic Affairs, 15 social-economic development targets, except the social labour productivity growth rate, are expected to be met or exceeded this year.

Right after the nine-month socio-economic statistics were published, the Ministry of Planning and Investment also decided to adjust up the 2022 economic growth scenario. Accordingly, the ministry proposes to strive for a full-year growth of 8 per cent, about 1.5-2 percentage points higher than the 6-6.5 per cent target assigned by the National Assembly and set by the Government.

According to experts, production and service activities in Việt Nam have returned to normal and the country will continually benefit from the global supply chain shift, which will contribute to strongly boosting up the country’s exports. However, in the context that the world economy will continue to face many difficulties in the last months of the year and the demand for imported goods from countries that are the main trading partners of Việt Nam such as the US and the EU will decrease, members of the NA’s Committee for Economic Affairs said it is necessary to have policies to support credit for exports in the remaining months of the year and in 2023. Besides, Minister Dũng noted the country needs to promote the disbursement of public investment capital to achieve a high growth rate in the rest months of the year.

According to the Ministry of Finance, the total public investment capital will be some $24.3 billion in 2022, about $4.2 billion larger than in 2021. By the end of September, the disbursement of public investment increased to more than $10.6 billion, but the new rate reached merely 46.7 per cent of the plan assigned by the Prime Minister, 0.7 per cent lower than in the same period 2021.

Besides, Dũng said, to promote economic growth in Q4, it is also necessary to better implement the Government’s socio-economic development and recovery programme, which includes a VNĐ40 trillion interest subsidy package for pandemic-affected customers, as the capital disbursement of the package remains limited.  Higher economic growth rates in Q4 and the whole of 2022 will be a driver for the country next year when many potential risks emerge, Dũng said.  LINK

Samson:  FDI inflow from Korea helps Vietnam move up global value chain ladder

18th October, 2022

The strong foreign direct investment (FDI) inflow from the Republic of Korea (RoK) has been giving a significant push to Việt Nam in the battle to move up the global value chain ladder and promote sustainable development.

RoK has been by far the most important source of FDI to Việt Nam and contributed greatly to accelerating the socio-economic development of the Southeast Asian country.

The latest figures of the Ministry of Planning and Investment (MPI) showed that the cumulative registered FDI from the RoK in the period from 1988 – when the first Law on Foreign Investment of Việt Nam was put in force - to September 2022 amounted to more than US$80.5 billion with more than 9,400 valid projects, making RoK the biggest investor in Việt Nam so far.

Starting to invest in Việt Nam in 1990s, the RoK quickly became a major investor in the Southeast Asia country, especially after the two countries established the strategic cooperative partnership in 2009. Since the Việt Nam – Korea Free Trade Agreement (VKFTA) officially came into effect in 2015, the RoK’s registed FDI into Việt Nam almost doubled.

The milestone was marked in 2014 when the RoK became the largest investor in Việt Nam with a total registered capital of $7.32 billion. Statistics of the Ministry of Planning and Investment showed that the registered FDI from the RoK hit a record of $8.49 billion in 2017 but slowed down to $7.2 billion in 2018 and $7.57 billion in 2019.

Due to the impacts of the COVID-19 pandemic, the FDI from the RoK dropped to $3.95 billion in 2020 but bounced back to $4.95 billion in 2021.

From January to September this year, the RoK registed to pour $3.8 billion worth of FDI in Việt Nam, a slight drop of 2.38 per cent against the same period last year. Although ranking second in terms of registered FDI value in the January-September period after Singapore, the RoK was the partner with the highest number of investors who showed interest and made new investment decisions in Việt Nam in the period, the ministry’s report revealed.

The RoK was increasingly becoming an important investor in Việt Nam, not only because of its huge capital value but also because of the compatibility of the investment to Việt Nam’s FDI attraction policies. The presence of Korean enterprises in most economic sectors in Việt Nam was contributing significantly to the country’s economic restructuring, export growth and job creation.

According to the MPI's Foreign Investment Agency, Korean investment was mainly poured into the processing and manufacturing industry (74 per cent as of November 20, 2021) thanks to the heavy investment of high-profile investors such as Samsung, LG, Hyundai, and Posco, followed by the real estate business (13.1 per cent) and construction (3.8 per cent).

Research by Bùi Thị Hồng Ngọc and Đoàn Thị Thu Hương from the Việt Nam Institute of Economics pointed out that the strong FDI inflow from the RoK helped Việt Nam upgrade its participation in the global value chain as well as change the export structure. Việt Nam’s export structure was shifting from large percentage of low added value products like agro-foresty-fishery and raw materials to products with high technology content and high added value such as electronics.

The presence of Korean investors such as Samsung, LG, Hyosung, Hanwha, Hyundai, CJ, Lotte and Posco promoted the development of the part-supply industry in Việt Nam.

Notably, the network of local vendors to Samsung increased to 254 as of the end of 2021, 51 of which were tier-1 vendors, from just four in 2014.

Samsung, now the most high-profile Korean investor in Việt Nam with an estimated investment of more than $20 billion, said that the group would continue to provide support to enable domestic enterprises to participate more in the global value chain.

It was estimated that there were more than 8,000 Korean enterprises operating in Việt Nam which provided 1 million jobs domestically and contributed around 25-30 per cent of Việt Nam’s export revenue every year.

How to remain a FDI sweet spot to RoK

Việt Nam has been arising as an attractive destination for FDI in the global production shift, thanks to its stable macro-economy and the Government’s drastic efforts to improve the investment climate.

The Vietnamese economy scale reached $370 billion in 2021, making it the fourth largest economy in Southeast Asia with income per capita of more than $3,700. Việt Nam signed 15 FTAs with more than 60 countries and territories, including the largest markets in the world, which helped diversify the markets, products and supply chains.

The General Statistics Office expected the Vietnamese economy to beat the target to reach a growth rate of around 7.5-8 per cent this year, after strong post-pandemic growth of 8.83 per cent recorded in the first nine months of this year.

The International Monetary Fund (IMF) on October 11 forecast the Vietnamese economy to expand at 7 per cent this year, compared to 2.6 per cent in 2021, as the country was benefiting from its growing importance in global supply chains.

The Vietnamese economy was a highlight in the region when the IMF’s growth forecasts for Asia and the Pacific were lowered to 4 per cent this year, well below the 5.5 per cent average over the last two decades, as inflation exceeded central bank targets in most countries.

The ASEAN+3 Macroeconomic Research Office (AMRO) in its 2022 Annual Consultation Report on Việt Nam published on October 12 also predicted 7 per cent growth for Việt Nam in 2022 on the back of strong external demand, a recovery in domestic demand and strong FDI inflows.

AMRO’s previous studies suggested that strong FDI inflows were one of the key factors behind Việt Nam’s economic transition to manufacturing, leading to stronger participation in global value chains over the years. However, the annual export growth of Việt Nam was driven by FDI companies and their import-export activities, which unfortunately implied that local companies did not participate in the global value chains as much. One of the reasons was that many local companies did not yet possess the skills and capabilities to produce the quality inputs required by multinational companies. AMRO urged Việt Nam to make further efforts to develop domestic supporting industries in the manufacturing value chains.

Phạm Thanh Tùng from the Ministry of Industry and Trade’s Department of Industry said that it was important to enable more and more local companies to participate in the global value chains to maximise the benefits of the FDI inflows. He pointed out that there were currently about 5,000 enterprises operating in the part-supply industry, 88 per cent of which were of small and medium scale with limitations in production and technology capabilities.

A recent MPI's report to the Government revealed that the loose linkage between the FDI and local companies remained the biggest limitation in FDI attraction and use. The average local procurement remained low, at around 20-25 per cent.

It’s a tough road for Vietnamese enterprises to participate and move up the global value chain ladder, Trần Thị Lan Anh, General Secretary of the Việt Nam Chamber of Commerce and Industry said, stressing the important roles of the FDI inflows and the support in improving capacity for domestic partners from FDI companies.

Just support from FDI companies could not push the supporting industry, Đỗ Thị Thuý Hương from the Việt Nam Electronic Industry Association said, adding that the Government should raise policies to promote the development of the supporting industry. Local companies must also make efforts to improve their competitiveness, she said.

Yoon Chang Woo, President of Posco – Vietnam, said that Việt Nam needed to develop an ecosystem for the part-supply industry in which local companies could produce high-quality and reasonably-priced spare parts and could upgrade their participation in the supply chains of FDI companies. Only through this, could Việt Nam attract more FDI into industries with high added value. In addition, it was important for Việt Nam to enhance the quality of the labour force with a focus on well-trained technical talents in order to attract quality FDI, including from the RoK, he stressed.

With a young population, Việt Nam held great potential to become a powerhouse of skilled workers which would help attract more sophisticated FDI. He said that a number of Korean firms were looking to promote investment into Việt Nam, urging more efforts from the Vietnamese Government to continue to push on with its economic reforms and improve the investment climate.

The global trends such as zero emission and digitalisation which were promoted strongly in Việt Nam would also help attract quality FDI into the country, Yoon stressed.

At the dialogue with the RoK’s Ambassador Park Noh-wan and representatives of Korean associations and enterprises in Hà Nội in late July, Prime Minister Phạm Minh Chính pledged to create more favourable conditions for foreign investors in general and the Korean business community in particular, to invest efficiently, successfully and sustainably in Việt Nam, with a focus on administrative reforms.

Việt Nam expected to receive more investment from the RoK in the fields of high technology, innovation, research and development, digital technology, renewable energy, electronics and infrastructure development, Chính said.

The Prime Minister expressed hope that the FDI inflow from the RoK would help integrate local firms into the global supply chain network while promoting the development of a digital economy, green economy, circular economy and sustainable development of Việt Nam. 

VIDEO IN ENGLISH - Promoting investment flow from South Korea into Vietnam   LINK