Vietnam: A 'shooting star' beyond Southeast Asia

Vietnam has undergone a remarkable development since Doi Moi, which is second to none. The country is considered to be a safe haven for FDI flows, against the backdrop of a volatile world.
Vietnam: A 'shooting star' beyond Southeast Asia
GS.TS Andreas Stoffers, Country Director of the Friedrich Naumann Foundation (FNF) in Vietnam. (Photo: Linh Chi)

Having lived in Vietnam for several years, Prof. Dr. Andreas Stoffers has 18 years of experience working at multiple high-ranking positions in German and Southeast Asian banks. He is now the Country Director of the Friedrich Naumann Foundation (FNF) in Vietnam.

Talking about Vietnam's development, Prof. Dr. Andreas Stoffers affirmed: "I have witnessed the development of Vietnam's economy. In my opinion, the country has developed into something of a shooting star beyond Southeast Asia."

The World and Vietnam Report would like to introduce the article by Prof. Dr. Andreas Stoffer on the remarkable developments in Vietnam's economy and businesses.

Remarkable development

In 2021, the annual Index of Economic Freedom published by the US-based Heritage Foundation showed that Vietnam was featured for the first time in the "Moderately Free" economies, up 2.9 points and 15 ranks compared to 2020. The reason is the improvement of the domestic financial situation. Vietnam ranked 17th out of 40 economies in the Asia-Pacific region, and its overall score is higher than regional and world averages.

Since the survey began in 1995, no other country of comparable size has seen such rapid gains in economic freedom as Vietnam and Poland. Both countries have undergone a similar opening of the economy.

Apart from the investment-friendly economic policy, Vietnam's many free trade agreements have significantly contributed to this. Vietnam now has 15 effective free trade agreements with 60 countries. Its GDP and export-to-GDP ratio are about 200%, which makes Vietnam one of the most open economies in the world. This has helped to integrate the country into international value chains as a reliable partner.

Simultaneously, foreign investment has been one of the critical drivers of socioeconomic growth in Vietnam over the last 30 years. Both EVFTA and the investment laws promote FDI and trade by improving Vietnam's global competitiveness.

But it would be wrong not to mention the Vietnamese business community, one of the main contributors to the country's success. In the country's deep international integration, the community plays a vital role in opening new business fields. In addition to the large companies like Vingroup, it is - above all - the many small and medium-sized enterprises that make an essential contribution here through their great flexibility. These companies could be the ones who are the most suitable trade and investment partners for SMEs from abroad.

Especially, Vietnam is planning to develop HCM City to become an international financial center. It seems like a utopia initially, but in my mind, it is feasible. This is not only an inevitable trend of the modern economy but also a manifestation of a dynamic, developed, and integrated country. The plan will drive economic growth, significantly boosting the country's position on the world's map of developed financial centers.

A haven for FDI flows.

For the past nine months of 2022, Vietnam's economy recorded an impressive economic recovery (GDP up by 8.83% - GSO). Many international organizations have estimated that Vietnam's 6.8-7.2% economic growth rate this year - exceeding the Government's target.

I believe Vietnam is on the right track regarding fiscal policy, monetary policy, and a free economic environment. New-generations FTAs like EVFTA, CPTPP, and investor-friendly policies are still being applied.

If Vietnam continues on its path of economic liberalization and trusts in the economy's ability to regenerate, there will be further opportunities for Vietnamese companies. According to the Schumpeterian idea of "creative destruction," on the one hand, companies will also be able to disappear. But on the other hand, there will also be companies that have recognized the opportunities of the time for incredible growth.

It can be affirmed that Vietnam seems to have overcome two years of difficulties due to the Covid-19 pandemic. This is the reason to believe that businesses can safely choose Vietnam as a haven for FDI inflows against the backdrop of a volatile world.

Vietnam plans to develop HCM City to become an international financial center. It seems like a utopia initially, but in my mind, it is feasible. This is not only an inevitable trend of the modern economy but also a manifestation of a dynamic, developed, and integrated country.

What businesses should do for success

However, undeniably, other factors could affect the economy and the business community for the rest of the year. For example, with the rise in global inflation, central banks around the world, especially the US Federal Reserve (Fed), continuously raised interest rates to curb inflation; the Russia-Ukraine conflict led to an energy crisis in the European Union, especially in Germany, or the political situation in the world.

In the context of the volatile world and the challenges mentioned above, Vietnamese businesses must pay attention to five things:

Firstly, ensure diversity with foreign partners. If only focusing on a few key partners, businesses can be affected not only by partners but also by external influences. Therefore, portfolio diversification should be the "guideline" for firms in the new period.

Secondly, strengthen the presence of businesses in many localities in Vietnam and other countries worldwide. Companies can call for help from chambers of commerce such as the European Chamber of Commerce in Vietnam (EuroCham), the German Chamber of Commerce and Industry in Vietnam (AHK), or international business associations...

Thirdly, find out the expectations of foreign partners and customers for domestic enterprises. Foreign Consumers often have different purchasing behavior from Vietnam. For example, the size of a bag of rice sold in the German market is usually smaller than in Vietnam. The form of marketing and distribution in the markets is also different.

In addition, businesses need to pay attention to legal issues. The VCCI can assist firms in this regard.

Fourthly, seek out and explore new opportunities. Vietnamese businesses should focus on expanding their business, and the EU could be an exciting destination. For that purpose, the Friedrich Naumann Foundation for Freedom (FNF) Institute in Vietnam has jointly published two guiding documents on EVFTA, which businesses can download from the Center for WTO and Integration website.

Fifthly, it is necessary to "keep an eye" on Risk Management (RM) and Business Continuity Management (BCM). For Vietnamese banks, Credit Risk Management (CRM) is essential. Moreover, prepare a large enough account or always be ready for alternative solutions to be proactive against unexpected external influences.

If these things are done well, I believe nothing will stand in the way of business success, even in uncertain times.

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