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Vietnam’s Economy, January 2023: Snapshot

The start of the new year, as it does most years, heralded an influx of data covering Vietnam’s economy in 2023. Imports and exports were a key focus with Vietnam registering a trade turnover of US$683 billion in 2023 a fall of 6.6 percent over 2022. 

Of particular interest, however, was that almost three-quarters of Vietnam’s exports were from foreign-invested enterprises–US$259.95 billion (73.1 percent) versus US$95.55 billion (26.9 percent) for local firms. In the local press, this was framed as illustrating just how crucial foreign direct investment is to Vietnam, however, there were also some grumblings that local firms feel foreign firms are at an unfair advantage.

For example, one report in January found that many domestic firms felt their costs were higher than their foreign competitors because they had to pay ‘under the table’ fees among other things.

Similarly, it was reported that Vietnam approved foreign invested projects to the tune of US$36.6 billing, a substantial increase over the US$27.72 billion announced in 2022. Outbound investment, however, recorded a drop of 21.2 percent over 2022 with just US$421 million invested off-shore. This was likely a reflection of wider economic challenges facing the country.

Those challenges were also showing little signs of abating. A survey in January found that 73 percent of Vietnamese businesses were planning to scale down their operations in 2024.

That said, the Centre for Economics and Business Research’s World Economic League Table for 2023, ranked Vietnam 34th in terms of economic success. This was behind the Philippines at 33 but ahead of Malaysia in 35th place. 

This optimistic assessment was also reflected by the World Bank which predicted ongoing economic success for Vietnam in 2024, too. It announced a forecast for the country for the year of 5.5 percent GDP growth. The second highest of its regional developing economy peers, beaten only by the Philippines.

But then the ASEAN+3 Macroeconomic Research Office went a step further, forecasting that Vietnam’s economy could grow by as much as 6 percent in 2024, the third fastest after Cambodia and the Philippines.

But even though forecasts were positive there were signs that there could be broader problems. For example, lottery ticket revenue in 2023 was reportedly the highest ever. This could mean nothing but it could also mean that people were clutching at straws trying to improve their financial situation.

The global minimum tax also continued to trouble key decision-makers as they continued to debate how its impact might be mitigated.

That said, in January Vinacapital’s chief economist issued an ‘economists note’ which argued that Vietnam would find a workaround and that tax incentives are only minor considerations when foreign firms choose to establish themselves–essentially, the impact will be negligible.

Notably, however, the GMT was not the only external factor weighing on Vietnam’s economy that key decisions were attempting to tackle.

Vietnam’s ambassador to the US came out swinging against pushback from the US to Vietnam’s request to have its status as a non-market economy lifted, arguing it would be “very, very bad for the two countries” if the request was denied.

On the other side of the Pacific, however, that pushback was growing with a letter signed by Bernie Sanders and Elizabeth Warren opposed to Vietnam being treated as a market economy, making the rounds.

This argument was helped along with reports that 1,197 shipments of goods from Vietnam into the US had been denied entry to the USA under the Uyghur Forced Labor Prevention Act. This news feeds a broader narrative that Vietnam is being used as a means for Chinese firms to circumvent US trade restrictions on China.

International trade aside, domestically Vietnam was setting goals for the year too.

The State Bank of Vietnam, at the beginning of January, announced a 15 percent credit growth cap or target, depending on which way things go. This was slightly higher than the 14.5 percent for 2023 which was never reached. Of note, for most of 2023, credit growth averaged around 1 percent each month except in December when it jumped by 4.5 percent.

On that note, the SBV’s 15 percent target would mean Vietnamese banks would need to lend somewhere in the vicinity of US$82 billion in 2024, or about 20 percent of Vietnam’s GDP.

With this in mind, it’s also worth noting that Vietnam’s loan-deposit ratio was at 104 percent.

Finally, in January it was announced that Vietnam has fallen six places in the Transparency International Corruption Perceptions Index for 2023. This was somewhat unexpected in that Vietnam has been undergoing a widely reported ’crackdown on corruption’. In this context, it may indicate that this anti corruption drive may not be gaining traction with the wider public.

Moving forward into February, the Lunar New Year break should see things slow down considerably.

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