We view that Vietnam will enjoy higher economic growth rate around its potential of 6.5% -7.0% p.a. in the medium to long term.
The high growth trajectory will be driven by favorable macro-socioeconomic underlying trends. We classify those changes into four main themes, and we think that these would maintain Vietnam’s attractiveness as a potential market for foreign investment in the medium to long term:
Theme 2: Growing middle-class consumers are expected to fuel consumption booms
…as pools of young labor force are earning higher income
Theme 3: Rising integration to the global economy could support Vietnam to become the next manufacturing hub
…and this would be buttressed by industrial zones located across the country
Theme 4: High openness to trade and cross-border capital flows will continue
Export-led growth exposes Vietnam to the global economy
China has become the largest trading partner
Vietnam is one of the key trading partner in ASEAN for Thailand
External sector stability is rather resilient
Public debt is relatively high which could limit roles of the fiscal policy to support the economy
Sovereign debt ratings for Vietnam is below investment grade
Price stability is managed through the stabilized exchange rate management
VND/USD exchange rate is allowed to move within the band of +/-3%
Banking sector plays crucial roles in supporting business
The SBV sets a credit growth annually for the entire financial system and different credit expansion targets for each credit institution in the country. Vietnam’s banking system is dominated by the four-largest state-owned banks comprising (1) BIDV, (2) Vietinbank, (3) Vietcombank, and (4) Agribank. These banks account for around 45% of the total assets, 48% of loans, and 50% of deposit.
Low-banking penetration against a backdrop of mobile usage provide opportunities for fintech and mobile-led financial services to flourish
Potential industries for Thai investment in Vietnam
Against the backdrop of rapid economic expansion compared to regional peers over the long term, we view that there are business opportunities for Thai investors to ride the wave of Vietnam’s high growth potential. Potential industries in our mind that should offer market opportunities are:
Modern agriculture and food: Sizeable domestic demand is expected to bolster growth
We are optimistic that the modern agriculture and food in Vietnam will grow relatively strong supported by sizeable domestic demand. It is expected agribusiness market value in Vietnam will reach USD48.9bn which is comparable to that of Thailand at USD49.7bn in 2023. In addition, we further expect FDI inflows to the sector over the medium term as result of free trade agreements.
Consumer goods: Sales will rise along with higher consumer income
Market opportunities for consumer goods are expected to be driven not only by growing domestic demand as Vietnamese are becoming more affluent, but also by an increase in a number of inbound tourist arrivals.
Manufacturing sector: FTAs will be a key driver
In the medium term, we expect FDI-driven manufacturing activities to continuously expand as a result of FTAs including the EVFTA and CPTTP attracting more foreign firms to invest more in the country coupled with the relocation of labor-intensive industries out of China. Hence, in our view, this would increase Vietnam’s attractiveness as a new manufacturing hub turning the country to be mini China on the horizon.
Tourism: Vietnam is emerging as a new destination
Vietnam has recently experienced booms in tourism as there is a surge in the number of inbound tourists, especially Chinese and Korean. Compared to regional peers, the tourism sector has sizeable room to grow in the long term as tourism revenue (% of GDP) remains much lower to that of peers, especially Thailand and Cambodia. Therefore, looking ahead, Vietnam tourism sector offers market opportunities for Thai investors as Thailand has a relatively strong competitiveness in the tourism and hospitality industry.
E-commerce: potential growth lies behind rising digitally connected consumers
The e-commerce sector in Vietnam should offer market opportunities for Thai investors as the country is enjoying the boom of online business and Vietnamese consumers have become more digitally connected. E-commerce sees 18% current value growth in 2019 and will reach VND121.5 trillion in 2024. In addition, the government is seeking to create more favorable conditions for the development of e-commerce and the promotion of cashless society. The e-commerce market size is expected to see a 16% current value CAGR (11% at constant 2019 prices) over 2019-2024.
Pharma sector: growth is to be driven by macro-socioeconomic trends
Vietnam is the second largest pharma market in ASEAN after Indonesia, with the market size (measured by pharma sales) of USD6.6bn (data as of 2019). Looking ahead, market opportunities are expected to be driven by higher consumer income, aging population, rising private health insurance, and a government policy to promote universal health coverage (UHC).
