Vietnam a rising Asian powerhouse: DBS report

Vietnam's wages, which are among the lowest in Asean, have helped to draw companies and factories.
Vietnam's wages, which are among the lowest in Asean, have helped to draw companies and factories.PHOTO: AGENCE FRANCE-PRESSE

Competitive wages, growth in manufacturing and private investments fuelling its expansion

Vietnam is a growing heavyweight in Asia, and companies and investors could focus on this bright spot as uncertainties cloud the global economic outlook, a DBS Bank report said on Tuesday.

The South-east Asian country's economy grew by 7.1 per cent last year, making it the fastest growing in Asean.

By comparison, Singapore's economy grew by 3.1 per cent last year, according to the Ministry of Trade and Industry.

Robust growth in private investments and its manufacturing industry, particularly the electronics cluster, and competitive wages have propelled Vietnam's economic rise, the report noted.

DBS senior economist Irvin Seah said: "Policymakers are now focusing on longer-term economic stability and sustainability, rather than the pace of growth per se."

Vietnam is the second largest electronics exporter in Asean, the report stated.

"In less than a decade, Vietnam has leapfrogged ahead of some of the more established electronics manufacturing hubs to become the second largest... within Asean, just marginally behind Malaysia."

Its surge in popularity was partly due to a structural shift in the regional electronics supply chain, the report pointed out, adding that Vietnam has captured market share from many of its peers.

Investment in electronics is growing quickly, and high-tech electronics players such as Samsung, LG and Microsoft have set up shop in Vietnam, marking a shift away from China, it noted.

Vietnam is also a beneficiary of the ongoing trade war between the United States and China as its economy is "strategically plugged into the regional manufacturing supply chain".

Vietnam's wages, which are among the lowest in Asean, have helped to draw companies and factories too.

The report also noted that efforts to spur investments have paid off, growing by 12 per cent a year over the past 10 years.

The report also predicted that Vietnam's economy will be bigger than Singapore's in 10 years, but economists told The Straits Times that it is no cause for worry.

Vietnam's economy is now worth US$224 billion (S$310 billion), about 70 per cent of Singapore's.

Economists noted that Singapore's gross domestic product (GDP) per capita, which measures the economic output per person, is among the world's highest, and it will be difficult for Vietnam to reach that within 10 years.

CIMB Private Bank economist Song Seng Wun said that it is not as difficult for Vietnam, which is a much bigger country than Singapore, to have a higher GDP output.

He said: "Singapore stands to benefit from a stronger Vietnam because it is another market to sell our goods and services... We should never worry about other countries' economies being larger. Singapore remains an important centre."

He pointed to a recent ranking by Swiss business school IMD which found the Republic had the world's most competitive economy.

Maybank Kim Eng economist Chua Hak Bin said: "A fast-growing and vibrant Asean neighbourhood is a big positive for Singapore."

He added that Singapore should be capitalising on Vietnam's stronger growth and strengthen bilateral trade and financial linkages.

World Bank figures showed that Singapore's GDP per capita was US$57,714 in 2017 while Vietnam's was US$2,342. Malaysia's was US$9,952, followed by Thailand with US$6,595, Indonesia with US$3,846 and the Philippines with US$2,989.

A version of this article appeared in the print edition of The Straits Times on May 30, 2019, with the headline 'Vietnam a rising Asian powerhouse: DBS report'. Print Edition | Subscribe