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Vietnam’s Economy, December 2023: Snapshot

December in Vietnam began with state media announcing the wave of lay-offs that had plagued the manufacturing sector in Ho Chi Minh City was drawing to an end. This conclusion was reached based on just 13,300 people registered to receive unemployment benefits in November, a drop of nearly 25 percent from June, but an already unusually low number to begin with.

Also in HCMC in December, business leaders were calling for government intervention to ensure local firms would benefit from booming exports, not just their foreign counterparts. Specifically, it was argued that the government should preference domestic firms in order to build their capacity–a problematic solution, the-shiv noted at the time, due to clauses in myriad free trade agreements prohibiting this practice.

It wasn’t, however, just that domestic businesses were struggling to find buyers–They were also reportedly being fleeced as they sought quick, short-term gains rather than smaller gains over the longer-term. This may, however, have been a bit out of necessity too, with many businesses experiencing cash flow problems, the prolonged economic downturn weighing heavily on industries across the board.

But whereas these impacts were broad industry-wise, in province-terms they were sometimes very acute. Quang Nam, for example, had expected to record tax revenue of US$1.3 billion, however, it became clear that this would be more like US$986 million. This was after automaker Truong Hai Group, which normally accounts for about half of Quang Nam’s provincial budget, recorded a very significant drop in car sales for the year.

Staying on tax, Vietnam’s recently passed top-up tax, a response to the Global Minimum Tax, was garnering attention from Vietnam-watchers with Raphaël Cecchi, an analyst with European credit insurer, Credendo arguing would likely only “slightly hit Vietnam’s reputation” as a low-tax jurisdiction for foreign firms.

And on that note, Vietnam’s Ministry of Planning and Investment released a draft decree outlining the establishment of a support fund to compensate foreign firms subjected to the Global Minimum Tax initiative. The Decree outlined tax breaks mostly for big firms that invest in education and training for workers, and research and development.

Furthermore, a cut to the Environment Protection Tax was extended to the middle of 2024 in order to stimulate the local economy. This was an interesting development in that concerns were raised in December about Vietnam’s commitment to reducing its carbon emissions.

In fact, British diplomatic cables seen by Politico revealed a number of concerns about how Vietnam’s Just Energy Transition Partnership Resource Mobilisation Plan had been put together, with a number of choice quotes that reveal a problematic, and somewhat dysfunctional approach.

But it wasn’t all doom and gloom.

On an upside, Education First’s English Proficiency Index found a slight improvement in English levels in Vietnam in 2023. The report found the highest levels of English in the Red River Delta around Hanoi, and that Vietnam sits around the middle among its key foreign direct investment competitors in Southeast Asia.

A minimum wage rise was also approved. Vietnam’s minimum wage workers from July 1, 2024, will receive an extra 6 percent in their paypacket. The Vietnam General Confederation of Labor had been pushing for between 6.48 percent and 7.3 percent whereas the Vietnam Chamber of Commerce and Industry, a peak business representative body, had suggested between 4.5 and 5 percent. This outcome falls smack-bang in the middle ground.

In other news, Japanese scallop producers announced they were considering shifting their processing operations from China to Vietnam. This was after China banned the import of Japanese seafood over the release of treated water from the Fukushima nuclear power plant. An estimated 30,000 to 40,000 tons of scallops from Japan were processed in China for export to the US each year before the ban was implemented. Good news for Vietnam’s food processing industry.

That said, all was not entirely well on the seafood front. The American Shrimp Processors Association (ASPA) said in December that Vietnam should maintain its non-market economy status, and made overtures to the US Department of Commerce (DOC) to that effect.

Furthermore, a handful of US senators also called for a halt to a review of Vietnam’s designation as a non-market economy . US senators JD Vance, Josh Hawley, and Tom Cotton sent an open letter to Secretary of Commerce Gina Raimondo arguing “the recently announced process defies both normal order and common sense”.

But whereas Vietnam’s push to have itself redesignated a market economy was on rocky terrain, the country on the whole did receive one small tick of international approval, with Fitch Ratings upgrading Vietnam’s rating from BB to BB+ with a stable outlook.

Vietnam’s General Statistics Office also released its fourth quarter economic report which said GDP is likely to reach 5.05 percent for 2023. This was a scrape above the minimum 5 percent the government said would be likely back in October, but well below the 6.5 percent target set at the beginning of the year.

In contrast, the Asian Development Bank (ADB) cut its growth forecast for Vietnam from 5.8 to 5.2 percent in December. It tagged falling external demand; weak budget execution, particularly at the provincial level; and a sluggish recovery in jobs and domestic consumption, as key reasons why.

And finally, predictions for the new year were plentiful. One in particular came from Singapore’s United Overseas Bank (UOB) which said it believed the State Bank of Vietnam (SBV) will keep rates on hold next year to boost growth. The UOB predicted back in September that rates would be cut before the end of 2023, but this never materialised.

Indeed, there was a lot of action in December but nothing that would substantially move the needle on Vietnam’s current economic directory. January, however, should be revealing. In the lead up to the lunar new year consumer spending usually peaks and this should be indicative of how healthy or unhealthy as the case may be, the domestic consumer market is, and by extension the economy more broadly.

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