Country Profile — Vietnam

One of south-east Asia’s most dynamic and fastest-growing economies, Vietnam holds tremendous appeal for British exporters.

Vibrant Vietnam

A country of 92 million people, over half below the age of 30, Vietnam is today one of south-east Asia’s most vibrant, fastest-growing emerging economies. That has made it an enticing market for UK and other international businesses in recent years. British business interests in Vietnam now range from finance to oil and gas and real estate.

With a large stretch of coastline facing out to the South China Sea, and bordering Cambodia and Laos to the west, and China in the north, this exotic land is positioned in what is now the world’s most lucrative growth zone. The country has come a long way since the dark days of a protracted war that tore it apart for three decades in the aftermath of the World War II years.

This series of conflicts effectively split north and south along socialist and free democratic lines, drawing in the might of the US military, after former colonial power France failed to maintain its grip on the country amid the so-called Indochina wars of the 1940s and 1950s. It was only in 1976 that Vietnam was fully reunified as the Socialist Republic of Vietnam — but only after an estimated 2.5 million people, including both civilians and combatants, had perished in the jungle warfare.

Politically, Vietnam remains a one-party Communist state, but has now embraced a market-based economy that has stimulated rapid growth and enticed vast amounts of foreign investment from all over the world — including Britain. In April, its parliament elected Pham Minh Chinh, head of the Communist Party’s Central Organisation Committee, as its prime minister for the next five years, replacing Nguyen Xuan Phuc who takes on the largely ceremonial post of president.

Primary objectives include maintaining stability in order to sustain and accelerate economic growth — though this has come at cost to individual liberty, with limits on press freedoms, while a 10,000-strong army cyber unit monitors political comments on social media. The government, based in the capital Hanoi, is also prioritising a crackdown on corruption. Other major cities include Ho Chi Minh, formerly Saigon, renamed after the war.

Reform and growth

For the most part, though, Vietnam’s recent history has been one of solid and sustainable growth, built on a socialist-oriented market economy spurred by the so-called Doi Moi reforms that encourage privately-owned enterprises. This also includes the Communist Party overturning its policies on collective farming and recognising private land use rights.

In 2021, the Vietnamese economy is projected to grow by 6.7%, according to the International Monetary Fund (IMF), a strong recovery in the wake of the Covid-19 crisis. Last year, the local economy still managed to expand by 2.9%, one of the highest growth rates in the world, the IMF noted.

It outperformed all regional peers, including China, to become the top performing economy in Asia during 2020, a year the world is unlikely to forget anytime soon. This was backed by the early rebound of domestic activities and robust export performance, especially in the export of high-tech electronics with more people around the world working from home.

During the first quarter of this year, Vietnam also netted some US$4.1 billion in foreign direct investment (FDI), up 6.5% from a year earlier, according to government data. More has been pledged too, led by the likes of Singapore, Japan and South Korea, in areas ranging from manufacturing and processing to electricity distribution. This has been a key engine of growth — about 70% of Vietnam’s exports are now from companies with investment from foreign firms — and indicates further resilience to the recovery.

Free trade pact with UK

While the UK is a distant market — 11 hours flight time away and seven hours ahead of GMT — it has been quick to seal a free trade pact in the wake of Brexit and there are high hopes for more two-way business in the years to come. The first 60 tonnes of Jasmin rice shipped to the UK under the UK-Vietnam Free Trade Agreement (UKVFTA) hit the shelves in London on 26 January this year, an indication of things to come.

In 2019, total trade in goods and services between the two sides was worth £5.9 billion (US$8.1 billion) — three times its value compared to 2020. This has been steered by the presence of major UK banks and financial firms in the market, such as HSBC, Standard Chartered and Prudential. The balance of trade remains hugely in Vietnam’s favour: in 2019, the UK’s imports from Vietnam were valued at £4.8 billion (US$6.6 billion), compared to just £862 million (US$1.2 billion) in exports.

The primary UK imports from Vietnam included electrical machinery and equipment, footwear and clothing; while in the other direction, British exports comprised mostly machinery and mechanical appliances, pharmaceutical products and electric machinery and equipment.

In the services field, banking and finance represents another key UK export sector, but others include education and vocational training, support services in Vietnam’s renewable and hydrocarbon sectors, transportation and healthcare provision services. That includes sophisticated digital healthcare provision, according to Professor Guy Thwaites, director of Oxford University Clinical Research Unit (OUCRU), an area of growing importance.

Speaking at a digital healthcare event earlier this year in Ho Chi Minh City, he said Vietnam was at an important stage in the development of its healthcare system, with increasing demand for affordable and high-quality healthcare.

“New technology — including digital health — will inevitably be a major way of meeting that demand and we are in a very exciting phase as we consider which technology might have the greatest impact and how it might be implemented,” said Thwaites.

Indeed, the scope for increased exports is significant, especially given that Vietnam is also a member of the 10-nation ASEAN community (Association of South-East Asian Nations) — a combined market of some 639 million people.

The total number of UK businesses exporting physical goods alone to Vietnam is estimated to be around 3100, so there is plenty of potential for increased sales.

Dezan Shira & Associates, a pan-Asian multi-disciplinary professional services firm which produces a regular Vietnam business bulletin, notes that by 2020, the UK also had about 400 investment projects scattered throughout the country.

These were were worth a collective US$3.7 billion in registered capital, making the UK a major foreign investment source. Other large UK companies include the likes of AstraZeneca, Dragon Capital, Diageo and Jardines. All have played a role in developing strategic sectors of the economy, from finance and medicine, to culture and education.

Potential elsewhere – the energy sector

There is potential elsewhere too, with the UK and Vietnam agreeing a further strategic partnership in 2020 that places greater emphasis on sustainable development. This includes renewable energy, an area of strong expertise for British firms.

Vietnam is looking to boost the share of renewables in its energy mix to around a third by 2030, which will mean attracting substantial new investment from overseas. The UK has interests in traditional the energy sector too, with Vietnam’s oil and gas industry pulling in investment from across the world. London-listed Pharos Energy is gearing up to drill four development wells later this year on its TGT Field, in the shallow water Cuu Long Basin — a multi-million-dollar programme.

Preparation is also underway for a 3-D seismic survey over various leads in the northern part of Block 125, in the Phu Khanh Basin, north east of the Cuu Long Basin. The company has issued production guidance for 2021 of between 5200 and 6200 barrels of oil equivalent per day.

Export finance and business support

There is plenty of business support too for UK firms keen to explore the emerging Vietnamese market. According to UK Export Finance, it stands ready to provide up to £4 billion (US$5.5 billion) of largely unutilised credit support for the country.

The Department of International Trade has already identified Vietnam as among its 20 high- growth markets. Other support comes from industry bodies such as the British Chamber of Commerce Vietnam and the Vietnam UK Network.

All will take encouragement from strong evidence that Vietnam is bouncing back rapidly from the pandemic, which dented economic growth last year. Demand for industrial real estate can be a barometer of a healthy economy, with increasing prices and occupancy levels now being seen in key business zones across Vietnam.

The sudden increase in lease enquires for land, ready-built factories and warehousing has been accompanied by price escalations in and around major cities, experts have noted.

“Escalating demand in some provinces can also be explained by new developments, new infrastructure, new roads, ports, and airports,” said Matthew Powell, director of Savills Hanoi. “We have seen this phenomenon around the world — people are thinking there is light at the end of the pandemic tunnel.”

When that light shines more fully, Vietnam also has a tourism industry waiting to be explored, with some of Asia’s finest beaches, cuisine, history, Buddhist temples, colonial architecture and bustling cities.

For now, it has a fraction of the tourists that nearby Thailand welcomes each year, but its exotic intrigue and natural splendour offers every bit as much to foreign arrivals.