Since 2007 when Vietnam joined the World Trade Organisation (WTO), this Southeast Asian nation has produced seven-fold straight growth up to 2022 in imports and exports combined. There was a drop of 6.6% in 2023 due to lower demand in exports from the US and EU, but that demand quickly recovered by 2024. That Vietnam has managed to achieve this success so fast and quietly has perhaps been the country’s greatest achievement; sneaking past the likes of Thailand, Malaysia and Indonesia, almost without notice until 2024.
Officially an Asian Tiger now
Perhaps unbelievably, Vietnam’s export market has outstripped that of South Korea by far and, when size is taken into consideration, even China; placing it consistently the fourth largest economy within the Asian Tigers. Vietnam’s journey is even more remarkable given that it has had to deal with challenging times through many previous decades at odds (and occasionally war) with both China and the US. It has had far less time to enjoy political stability than its regional neighbours yet moved more aggressively as a result.
Much of its growth has come about largely by putting aside lack of trust issues with the US and China, while opening no less than 15 Free Trade Agreements that span 58 countries. It offers tax breaks for Foreign Direct Investment (FDI), access to land and an extremely cheap (but highly educated) labour force quite capable of handling complex/semi-complex assembly for finishing factories, especially in the electronics market.
For context, Vietnam’s labour force is just a fourth of the cost of China’s. Based on the government’s acceptance and willingness to open to international investment, economists had fully expected the country to become a new industrial nation since 2019. But it is highly unlikely those economists imagined just how stellar that success would be.
Old, creaking government structures
This does not mean that Hanoi can sit back and enjoy the spoils coming in. The local, provincial community and district levels of government departments were created a long time ago, designed for a very different world and need.
Although a sizeable chunk of the Vietnamese public still believes there are old guard ministers who want much of the domestic red-tape department structures to remain, it would appear their multiple district departments (think ‘tools’ for corrupt practices to redirect money their way) have met the chopping block this month. Now, local government is two-tiered, comprising provincial and commune level only. The district levels are to go very quickly.
Of course, there remains a general feeling that the announcement of a massive centralisation designed to improve waiting times for business approvals and licencing processes is just ‘lip service’. However, while the new law will not clear the problem in its entirety, it did pass with 100% of votes in the National Assembly and is a good indicator that the government knows it has to ‘streamline’. There have been growing complaints from international investors and multinational corporations at both the length of time for approvals to projects and additional unnecessary ‘fees’ involved in getting things done.
The government has therefore built in special provisions within the new law referring to “special administrative-economic units” as areas of strategic importance that are to be placed under a unique model providing exceptional policies and governance innovations to enhance investment and national competitiveness.
Corruption has long permeated most aspects of business life in the country, but this does appear now to be the central focus of government. If it is not seen as being addressed soon, it will seriously begin to impact on that much needed foreign investment. Even if this were not a systemic problem across government, the multitude of unnecessary departments had created what can only be described as ‘chain-linked roadblocks’, which pile inefficiency on top of the cost of corruption, especially in real estate.
It is interesting to note that when the government announced its anti-corruption drive, all the real estate departments responsible for land sales application approvals grounded to a complete halt. This was not the result of a protest but of fear that someone somewhere within the many departments ‘might’ have engaged in corruption (it is fairly certain several would have) and the approval officers did not want to be implicated.
Much of the country’s infrastructure project bottlenecks are located here and if the government is truly serious about reducing ‘cost’ and ‘inefficiency’, it will need to work fast to put the new law into discernible action.
Sectors of interest
Despite the problems with said government departments regarding infrastructure projects, they are certainly on the move. For example, the country is pumping investment into the Ho Chi Minh City’s Long Thanh International airport revitalisation and Hanoi’s Ring Road No. 4. These and other projects aim to increase connectivity between urban and rural areas, while improving trade and logistics routes.
Rapid urbanisation is beginning to drive the country’s somewhat fledgling domestic economy. It is believed that some 60% of Vietnam’s GDP is consumer spending, which means that retail, real estate and digital services are all growing apace. This success, however, will present another problem over the next few years. Agriculture, another booming sector for the country’s export market, is experiencing the loss of farmers who are moving to Hanoi in search of higher paid jobs and better living conditions. This sector is known for paying low salaries (even for Vietnam) yet, it is going to have to raise salaries in order to stem the losses.
Geopolitical volatilities
No matter the difficulties in fixing the above problems, they are of minor concern for now. US tariffs will skew much of Vietnam’s economic figures by the end of the year, given that it represents 87.2% of Vietnam’s GDP. The government is well-aware of the impact an unchecked US tariff regime would have, and it is one of a hand-full of countries in Southeast Asia facing such high additional tariffs; Indonesia is negotiating down from 37%, Thailand from 36%. However, Vietnam is negotiating from 46%.
Although denying the allegation of being a transhipment hub for China, Hanoi has already offered to remove all of its tariffs on US agriculture industry, medical devices and Boeing aircraft, and its negotiating team has made it clear it is happy to be flexible working with the Trump administration to help things operate more smoothly.
Indeed, the minister of industry and trade, Nguyen Hong Dien, has already visited Washington and come away with a US$4.5 billion energy deal with US firms, which includes imports of liquefied natural gas and offshore wind technology.
Nevertheless, it does seem clear Vietnam is going to have to provide a well-developed transparency system overlooking its supply chains that is good enough to satisfy Trump’s concerns.
Vietnam, like Indonesia, is being extremely proactive in this regard. Its high-ranking leaders had already sent their congratulations to President Trump on his election victory, stating that they view the US as a strategic partner of importance.
Conclusion
Vietnam does have to tread a fine line between the US and China trade and is, of course, deeply concerned how any tariff agreement might affect relations with China, but also over the potential loss of multinational corporations and their planned investment into Vietnam if they do not get the balance right.
Vietnam observers should see that even without the additional US tariffs, Vietnam was really going to struggle to hit its 8% GDP growth target. No country could maintain that continued level growth. With growth comes increases in labour costs (something the agriculture sector is facing now). Even with the welcome changes being made to its antiquated government structures, each change will bring about more cost.
That said, especially in the current geopolitical environment, Vietnam looks set to continue growth. The country has managed to hit a sweet spot in its negotiations with the US, as has Indonesia. This does not necessarily mean the removal of all the additional tariffs, but it does seem that the Trump administration appreciates those countries that are ready to negotiate rather than complain that they should receive special treatment.
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