How do you evaluate the role of Vietnam’s economy in ASEAN?

Lim Dyi Chang, head of commercial banking at UOB Vietnam

Vietnam’s economy holds a pivotal position in the region. Growing at an average of 6 per cent per annum over the last 20 years, the GDP of Vietnam has reached $430 billion in 2023, coming close to other major ASEAN countries like Thailand, Singapore, the Philippines, and Malaysia.

The rapid growth of Vietnam’s economy comes as no surprise, given it enjoys certain advantages over the rest of ASEAN. Vietnam boasts a strategic location neighbouring China and a long coastline with nearly 300 ports. The majority of the population is also within prime productive age.

UOB recognises Vietnam’s importance in Asia’s supply chain network, and we aim to leverage Vietnam’s rapid economic growth to tap into its extensive banking opportunities. The bank’s injection of an additional $121 million into our Vietnam subsidiary in 2023 is a testament of our commitment to Vietnam’s future.

Despite a very challenging year, Vietnam had record foreign direct investment (FDI) inflows at $23.2 billion in 2023. What are the driving forces behind this?

The record FDI inflows amidst global challenges underscores Vietnam’s resilience and attractiveness as an investment destination and trade partner. Several factors contribute to this positive trend, reflecting the favourable investment environment.

Global supply chain disruptions and geopolitical tensions have led companies to diversify production bases away from traditional manufacturing powerhouses like China. Stable political conditions, a skilled workforce, and competitive labour costs make Vietnam appealing.

In addition, the government makes efforts to streamline business regulations, enhance infrastructure, and foster an investor-friendly environment. Corporate income tax incentives for large manufacturing projects contribute to the appeal.

Emphasis on high-tech manufacturing and export diversification also attracts investment. In 2023, exports of electronics reached $57.3 billion, showcasing the sector’s strength. A thriving textile industry and growing machinery sector highlight Vietnam’s appeal across lucrative sectors.

Significant government investment in 2023, resulting in completed major infrastructure projects, including 475km of new highways, enhances connectivity and addresses business bottlenecks. Moreover, Vietnam’s positive economic outlook despite global slowdown in 2023 is a clear sign of its resilience. External trade recovery and policy support measures will further contribute to overcoming challenges.

UOB established a specialised FDI advisory centre in Vietnam in 2013. How has the centre been performing?

UOB’s FDI advisory initiative caters to the growing demand for investment opportunities in the region. It serves as a one-stop platform aiding companies in navigating foreign markets and regulatory landscapes while providing crucial local insights. With 10 centres across Asia, UOB leverages its extensive network and local knowledge to deliver integrated business solutions.

Vietnam remains a prominent investment destination within ASEAN, ranking third in FDI inflows after Singapore and Indonesia. The processing and manufacturing industry continues to draw in the most significant foreign investment, with Vietnam serving as a production base for various high-tech products.

The FDI advisory unit has facilitated over 300 companies in investing in Vietnam, contributing significantly to the country’s economic growth.

Since its inception, the advisory unit has witnessed a notable shift in investment profiles in Vietnam, transitioning from labour-intensive industries to technology, media, and service sectors. This reflects the evolving landscape of Vietnam’s economy, with a focus on high-tech chip manufacturing, digital marketplaces, and hospitality.

What is your opinion on Vietnam’s economic prospects in 2024?

The prospects appear promising, aligning with global economic trends. The government’s target of achieving economic growth between 6-6.5 per cent is within reach, supported by reputable organisations.

Vietnam’s economy faces both internal and external challenges, but the government’s proactive measures include boosting efficient public investment to stimulate demand, create employment, and drive economic activities. Structural reforms, particularly in energy and banking, are recognised as essential for long-term and sustainable growth.

The commitment to investing in a high-quality workforce is identified as a critical factor for Vietnam’s economic success. Reforms in the education system are also deemed necessary to meet the demands of a rapidly growing economy.

Vietnam continues to be an attractive destination, with a substantial number of active projects and registered capital. The country is ascending in the high-tech ladder, especially in chip manufacturing. FDI inflows are expected to remain robust, propelled by opportunities in these emerging sectors.

The UOB Business Outlook Study 2024 indicates a positive business environment perception among enterprises, with a majority expecting improved performance. Businesses in the technology, media and telecommunications, and industrial oil and gas sectors express a more favourable outlook. The expectations for a better performance in 2024 are particularly strong in China, Indonesia, and Vietnam.

While challenges such as inflation persist, businesses anticipate a reduction in inflation within the next six months to two years. The outlook for 2024 suggests an optimistic trajectory, with businesses seeking support in the form of tax rebates, collaboration opportunities, and employee training to achieve their goals.