A seminar at the Iseas-Yusof Ishak Institute last week on "Vietnam: 30 years of Doi Moi and beyond" comprehensively looked at Vietnam's development some three decades after its Communist Party adopted a policy of renovation that opened a new chapter in the country's modern history.
Vietnam is now a lower middle-income country, and the macroeconomic figures look strong. From 2010 to last year, its economy grew by between 6.7 per cent and 9.8 per cent a year, growth rates that are not far behind China's. Inflation is well under control, and low. Income per capita is now US$2,300 (S$3,078) a year, but purchasing power is US$6,000.
The ageing population syndrome will come but is still years away. The country is urbanising and its middle class is growing.
Vietnam's economy is open to trade and investments. External trade has grown steadily, reaching 169 per cent of GDP last year. It benefits from Asean's internal and external free trade agreements (FTAs) with successful trading nations like China, Japan, South Korea, Australia, New Zealand and India. It is a member of the World Trade Organisation and has its own FTAs with the European Union and Eurasian Economic Union, and a Bilateral Trade Agreement with the United States. Vietnam is a member of both the Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) and its trade will grow very quickly once these two multilateral trade pacts are ratified and implemented. At present, the top five export markets of Vietnam are the US, the EU, Asean, Japan and China.
Foreign investments are flocking to Vietnam. Registered foreign direct investment (FDI) last year was US$25 billion, with US$14 billion disbursed. Total foreign investment stock in Vietnam is estimated to be US$100 billion. This attractiveness to FDI is backed by Vietnam's political stability.
Early this month saw the ascendance of new government leaders in Vietnam, who pledged to continue with current economic policies. However, doubts linger over how fast they will move on some stubbornly difficult areas of reforms. Various parts of the state machinery are in need of overhaul: cumbersome regulations, bureaucratic overlaps, huge state deficits going to waste due to non-priority spending by bureaucrats, and the albatross of huge state firms funded by state coffers and losing money, and which are also predatory on the private sector.
A second reform badly needed is eradication of rampant corruption connected to the state, which has contributed to the well-known fact that hidden business transaction costs in Vietnam are high.
Still, Singaporean businesses can benefit further from growth in Vietnam if they catch the wind and enter sectors that need their expertise, especially in the outer provinces. Compared to the developed cities in China, Vietnam has the advantage of lower costs. China is not in the TPP, but Vietnam is in the RCEP that includes China. Infrastructure building is slower than in China but is now extending outwards to smaller and outer provinces, making outer provinces much more attractive to investments.
A few sectors could merit a closer look. For tourism and travel, Vietnam still has many unspoiled and potentially popular destinations. Singaporean firms should work closely with reputable Vietnamese tour operators for inbound tours in Singapore+Vietnam packages, and the two governments could consider more connectivity options. Singaporean hospitality businesses can act as a catalyst to raise Vietnamese service standards, a subject of perpetual complaint.
Another sector worth exploring is agriculture and food products, which are aplenty. Vietnamese storage, logistics and packaging are not up to international standards. Through Vietnam, Singaporean importers can further diversify sources of supply of fresh food, and help improve packaging and add value for re-export from Singapore with technology and productivity measures.
With the trend of urbanisation, high-rise residential properties are likely to become even more popular, given expected higher disposable incomes. Second-line Vietnamese cities, especially those with high tourism potential, promise good value, while there is still much space left for high-value projects in the biggest cities.
In services, there is great demand for a whole range, from media to marketing, hospitality, retirement homes, and language and skills training. The Singapore brand is associated with good quality and many Vietnamese are more than happy to pay for higher-quality services. Singaporean businesses need and can work in three languages - English, Chinese and Vietnamese - to provide services in Vietnam, and work with the Vietnamese government to raise standards to meet global requirements.
The bottom line is that Vietnam's economy could see a high-growth spurt in the next decade and Singapore's businesses have an edge in not just product and service quality, but also technology and languages to interface with consumers and other players in this dynamic society and economy.
- The writer is founder and director of consultant firm David Koh & Associates and is a long-time analyst of Vietnam and South-east Asia.
- SEA View is a weekly column on South-east Asian affairs.
