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Positioned as a burgeoning economic powerhouse in Southeast Asia, Vietnam now attracts major tech giants and solidified its status as a global manufacturing hub in 2023. Significant investments in digital infrastructure fueled the nation’s ambition to become a leading digital economy in the region. As we step into 2024, the sense of optimism surrounding Vietnam’s economic prospects reflects its remarkable performance in the previous year. 

I. Key Free Trade Agreements boost the nation’s economic growth  

In 2023, Vietnam made significant strides in international trade and investment through impactful agreements and partnerships, which have played a pivotal role in the nation’s economic growth and expansion. 

Vietnam's FTAs
Figure 1: The impactful free trade agreements in Vietnam’s economic growth in 2023

1. UK’s Accession to CPTPP  

Since 30 December 2018, Vietnam became a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the nation has joined the global value chain more deeply, expanding exports and access to markets across the Pacific rim, including Canada, Mexico, and Peru. In July of 2023, the UK officially signed an agreement to join the CPTPP, giving Vietnam’s agriculture sector more opportunity to diversify its markets and gain a competitive advantage. 

2. Vietnam – EU Investment Protection Agreement (EVIPA) is undergoing 

While the EU-Vietnam Free Trade Agreement (EVFTA) came into effect in 2020, the EVIPA, which deals with investment protection, has not yet been ratified by all EU member states. As of October 2023, 16 out of the 27 member states of the European Union had completed the ratification process for the EVIPA. 

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Figure 2: The EU - Vietnam Free Trade Agreement

3. Regional Comprehensive Economic Partnership (RCEP) took effect  

A report by the World Bank suggests that Vietnam will enjoy the greatest gains among RCEP member countries in terms of both income and trade. The report predicts a 4.9% increase in income levels in Vietnam compared to a 2.5% increase for other member countries. Additionally, Vietnam’s trade is expected to grow by 11.4% for exports and 9.2% for imports. This growth is attributed to deeper regional trade integration, standardized rules of origin, and increased market access, particularly in China. 

4. Vietnam – Israel Free Trade Agreement (VIFTA) officially signed 

Signed on July 25th, 2023, this agreement aims to eliminate or reduce tariffs on various goods and services traded between the two countries. It is expected to come into effect sometime in 2024. 

5. Negotiations Still Ongoing 

  • Vietnam – EFTA FTA: Negotiations with the European Free Trade Association (EFTA), consisting of Switzerland, Norway, Iceland, and Liechtenstein, began in 2012 and continued throughout 2023. The aim is to reach an agreement soon. 
  • Vietnam – UAE FTA: The process of initiating negotiations with the United Arab Emirates (UAE) started in 2023, but no agreement has been signed yet. 
  • Vietnam – India FTA: Talks for a comprehensive FTA began in 2007, with multiple rounds held in 2023. Both sides aim to finalize the agreement in 2024. 
  • Vietnam – Canada FTA: Negotiations progressed in 2023, focusing on market access for goods, services, and investments. Though a specific timeline isn’t set, progress suggests a potential conclusion in the near future. 
  • Vietnam – MERCOSUR FTA: Preliminary discussions regarding an FTA with the South American trade bloc, MERCOSUR, started in 2023. Formal negotiations may commence in the future. 

II. Sectoral Development in 2023 and Outlook for 2024 

In 2023, Vietnam’s economic landscape was significantly shaped by major investments and growth in diverse sectors, each contributing uniquely to the nation’s development trajectory. 

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Figure 3: Leading sectors for Foreign Direct Investment (FDI) in Vietnam for 2023

1. The remarkable growth of the manufacturing sector 

The processing and manufacturing industry remains the dominant sector for FDI in Vietnam, attracting over 72% of the total investment in 2023. This aligns with the long-standing trend of Vietnam being a significant destination for manufacturing due to its competitive labor costs and growing infrastructure. 

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Figure 4: Main pillars of the Vietnamese manufacturing advantage

2. The downturn of the real estate market  

In contrast with the manufacturing industry, 2023 was a gloomy year for the real estate sector with some 1,300 property firms withdrawing from the domestic market in 2023, up nearly 8% year on year, according to the General Statistics Office. However, amid market difficulties, it was a positive sign as FDI in real estate still accounted for more than 9.6% of total registered investment capital, gaining the 2nd position in FDI attraction. Experts predict industry recovery by Q2 2024, potentially thriving until 2025. 

 3. Vietnam’s Economy Overview: Steady Growth Despite Bumps in 2023 

In 2023, Vietnam’s economy grew by 5.05%, falling short of the 6.5% target due to global economic turbulence. External factors, such as increased interest rates and international conflicts, impacted the economy. However, experts forecast a positive growth of 6.3% in 2024, supported by domestic fiscal and monetary policies. 

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Figure 5: Vietnam: Annual Real GDP Growth (from 2016-2023)

Despite a modest 3.25% increase in the Consumer Price Index in 2023, Vietnam remains vigilant against potential inflationary pressures. Optimistic predictions suggest a slowdown in inflation to 4% in 2024. 

In 2023, Vietnam experienced a surge in Foreign Direct Investment (FDI) with approximately $28.85 billion in newly registered capital.  

Newly-invested projects are still focused on cities and provinces that have more advantages such as infrastructure, stable human resources, efforts to reform administrative procedures, and active investment promotion, like Ho Chi Minh City, Hanoi, Bac Ninh and Binh Duong. These four localities accounted for 67.4% of the country’s newly-registered projects in the first eleven months. 

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Figure 6: Vietnam Foreign Direct Investment 2023 (recorded until November 2023)

Major investments came from Asian countries, with Singapore, Hong Kong, South Korea, China, Japan, and Taiwan leading. Notable deals include Japan’s $1.5 billion investment in VP Bank and Chinese firm Luxshare-ICT’s $330 million investment in Bac Giang province. 

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Figure 7: Investment structure by Countries/Territories

Vietnam achieved a record trade surplus of $26 billion in 2023, sustaining an eight-year surplus streak. The Ministry of Industry and Trade aims for over 6% growth in total export turnover in 2024, attributing the recovery to effective trade promotion strategies and free trade agreements. 

In summary, Vietnam’s economy shows resilience despite global challenges, with positive growth forecasts for 2024, increased FDI, and a record trade surplus contributing to economic stability. 

4. A positive growth of workforce and skilled workers 

Vietnam’s job market saw positive developments in 2023, with unemployment dropping to 2.28% and nearly 15,000 fewer people unemployed compared to 2022. The workforce also expanded to 52.4 million, indicating a continued abundance of low-cost labor attractive to foreign investors. However, progress wasn’t uniform. While the percentage of skilled workers rose slightly to 27%, there’s a concerning trend of stagnant movement from low-paying to higher-paying sectors. This, coupled with lingering youth unemployment (7.63%) and a looming shortage of qualified personnel in specific fields like chip design engineering, highlights the need for targeted programs to bridge these skill gaps and ensure equitable growth in the job market. 

III. Challenges and Lessons Learned

In 2023, Vietnam faced significant challenges, both from external and internal factors, affecting its direction and development. Extracting valuable lessons from these experiences will inform the enhancement of future economic strategies. 

1. External and Internal Challenges Overview 

Globally, a decrease in demand, especially from major trading partners like China, impacted key sectors such as textiles, footwear, and electronics. Concurrently, factors like rising global inflation, exacerbated by the Ukraine conflict and supply chain disruptions, added to production costs and constrained consumer spending. Persistent supply chain disruptions further affected businesses in terms of raw material acquisition and product delivery, resulting in delays and increased operational costs. 

Vietnam’s rapid economic growth has outpaced its workforce development, leading to a domestic shortage of skilled labor in key sectors. This hinders productivity and restricts the potential for expansion. Despite significant investments in infrastructure, gaps remain in areas like transportation, logistics, and energy. This creates bottlenecks and hinders smooth economic activity, particularly in rural areas. Complex and bureaucratic regulations pose challenges for both domestic and foreign businesses, increasing the cost of doing business and discouraging investment. 

2. Lessons Learned and Future Strategies: 

While 2023 presented Vietnam with economic hurdles, it also offered valuable lessons for future growth. Here are key areas where further progress is crucial: 

  • Develop and Enhance Relationship with Trade Partners: Vietnam’s impressive export performance masked dependence on a few key markets, particularly China and the US. Diversifying trade partnerships across regions with enhancement of FTAs will promote trade demand and provide resilience against external economic factors. 
  • Fostering Sustainable Development to increase FDI: Balancing economic growth with environmental protection is key. Vietnam needs to prioritize renewable energy, promote resource efficiency, and implement climate-resilient infrastructure projects for long-term sustainable development.  
  • Prioritizing further development of transportation, logistics, energy, and digital infrastructure will improve connectivity, enhance competitiveness, and unlock economic potential.  
  • Incentives for foreign and domestic investment: Simplifying and easing regulations, promoting transparency, and reducing bureaucratic hurdles can attract more investment and stimulate domestic entrepreneurship. In the future,  Party General Secretary Nguyen Phu Trong has signed Politburo Resolution No. 41/NQ-TW on building and developing local entrepreneurs in the new era in a spirit of support and assistance. 

IV. Looking Ahead: 2024 Forecasts & Opportunities

Predicting Vietnam’s economic future in 2024 gets interesting. Standard Chartered paints a rosy picture with a projected GDP growth of 6.7%, gradually accelerating throughout the year. Their forecast hinges on a strong second half, with growth reaching 6.9%.  

However, the Asian Development Bank (ADB) takes a more cautious approach, predicting a growth rate of around 6%. While this is positive, it falls short of pre-pandemic levels. Both institutions agree that global forces, especially inflation in the US and EU, will play a crucial role.  

One key driver will be the ongoing influx of Foreign Direct Investment (FDI). Vietnam witnessed a record $28.85 billion in FDI in 2023, and this trend is expected to continue. Major investments from Asian countries, particularly in electronics and manufacturing, create opportunities for job creation, technology transfer, and infrastructure development. These investments, coupled with existing Free Trade Agreements (FTAs), present exciting export prospects. Vietnam boasts FTAs with major economies like the EU and ASEAN, granting preferential access to vast markets and further boosting export-oriented industries. 

 

Of course, challenges remain. Global headwinds like inflation and rising interest rates pose potential risks. Additionally, ensuring equitable distribution of economic gains and bridging the skilled labor gap are crucial for sustainable growth. Nevertheless, by harnessing the power of FDI, leveraging FTAs, and implementing targeted policies, Vietnam is well-positioned to translate these positive expectations into reality, solidifying its place as a dynamic and attractive investment destination in Southeast Asia.