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- 22 / 05 / 2018 -
Vietnam will become a “New Tiger” in Asia

According to the Bloomberg news, the large corporations as Samsung, Intel have poured money into the factories in Vietnam leading Southeast Asian countries to emerge as new tiger in Asia. After renovation in the 1980s, Vietnam’s economy has grown rapidly, exceeding 7% before leveling off in recent years due to the increase in bad debt from the state sector.

Not only is the Southeast Asian nation gaining ground as a cheaper manufacturing alternative to neighboring China, Vietnam is also a politically palatable destination for Japanese firms boosting investment in the region amid recurring China-Japan spats.

“It is quite possible that Vietnam could become the fastest-growing economy in Asia,” said Vikram Nehru, a senior associate in the Asia Program and Bakrie Chair in Southeast Asian Studies at the Carnegie Endowment for International Peace in Washington. “It has all the ingredients for rapid growth if it can address the challenges in the state sector.”

Mekong Star

Signs of Vietnam’s growing clout are gathering: In 2014 the country overtook regional counterparts to become the biggest exporter to the US from the Association of Southeast Asian Nations, or ASEAN, muscling ahead of its more established manufacturing rivals of Thailand and Malaysia.

Disbursed foreign investment in Vietnam has soared in the past 14 years to reach US$12.35 billion in 2014, up 7.4 % from 2013 and compared with US$2.4 billion in 2000, figures from the Foreign Investment Agency show. Samsung’s operations in the country are growing so big that it got government approval to operate its own terminal at Hanoi’s Noi Bai International Airport.

And manufacturers are shifting from China. Japanese printer maker Kyocera Document Solutions Inc., a unit of Kyocera Corp., plans to quadruple its annual printer production in Vietnam to 2 million units by March 2018, the company said this month. Part of its operation in China will be moved to Hai Phong, making Vietnam the company’s biggest manufacturing base for printers, with another plant planned by August, it said.

“Vietnam will displace Thailand as the greater Mekong star,” said Tim Condon, head of Asia research at ING Groep NV, referring to the Mekong River basin region that includes the nations of Cambodia, Laos, Myanmar, Thailand and Vietnam, along with China’s Yunnan province.

Exports from Thailand, one of the nations dubbed by analysts and the media as a rapidly developing tiger economy before the 1997-98 Asian financial crisis, have contracted in the last two years. By contrast, Vietnam in 2014 saw its shipments overseas jump almost 14 %.

Australia & New Zealand Banking Group Ltd. this month upgraded Vietnam’s GDP forecast to 6.5 % for this year and next, citing strengthening retail sales, accelerating industrial production and improving construction. “The economy’s structure is shifting, it is moving from agriculture to manufacturing,” said Victoria Kwakwa, the World Bank’s country director for Vietnam. “You can see there is a progression happening.”

‘Big Winner’

“Vietnam is really the big winner from China losing its competitiveness because of rising wages” and a strong currency, said Frederic Neumann, co-head of Asian economics research in Hong Kong at HSBC Holdings Plc. “By moving very early into the space vacated by China, Vietnam has first-mover advantage and it is now starting to show.”

Vietnam’s annual real gross domestic product growth could average 5.3 % in the 2014-50 period, a pace only bettered by Nigeria, according to PwC’s “The World in 2050” report. Growth in China may fall below 4 %. Vietnam’s benchmark stock index has climbed 5.5 % this year, compared with Indonesia’s 4.1 % increase, Malaysia’s 2.4 % and Thailand’s 2.2 %.

Demographics are a big help. Some 13 % of China’s population in 2012 was already 60 or older, compared with 9 % in Vietnam, according to the United Nations. More than 40 % of Vietnam’s population of about 90 million in 2013 was in the labor force aged 15 to 49, government data show.

The average monthly wage in Vietnam was US$197 in 2013 compared with US$391 for Thailand and US$613 for China, according to International Labour Organization calculations. That disparity is widening. The Economist Intelligence Unit predicts that in 2019, manufacturing labor costs per hour in China will be 177 % of those in Vietnam, up from 147 % in 2012.

Bad Loans

John Hawksworth, one of the authors of the PwC report, said that lenders in Vietnam are creaking under bad loans, and the government has struggled to overhaul inefficient state-owned companies. Inadequate infrastructure, skills gaps and corruption remain risks. Vietnam ranked 119 out of 175 countries and territories in the 2014 Corruption Perceptions Index. China came in at 100th place. Meanwhile, other Southeast Asian countries such as the Philippines and Malaysia are also competing to win manufacturing jobs.

“It’s not guaranteed that Vietnam will fulfil its potential,” said Hawksworth. “Part of it is that Vietnam is simply in a good geographic location and part of it is that it does have some catching up to do in terms of GDP per capita.”

Much of the work being transferred to Vietnam is in low-end manufacturing as China moves up the value chain: labor-intensive work in textiles, garments, furniture and electronics. Meanwhile, China is gradually improving value. “The productivity of Vietnam’s manufacturing sector is very low,” Karel Eloot, Shanghai-based director at McKinsey & Co.’s Asia Operations Practice, said in November. “That’s the biggest blowback for further expansion in Vietnam.”

However, the government is working on some of the economy’s biggest millstones. Vietnam will attempt to sell a record amount of shares in state-owned companies this year, a deputy general director of the finance ministry’s corporate finance department, said in an interview March 13. The plan to sell stakes in about 280 entities this year is “credit positive” for banks, Moody’s Investors Service said.

There are other positives. Vietnam is in talks on a free trade deal with the European Union and is part of the Trans-Pacific Partnership.

Source: Dan Tri newspaper