Headline economic data for Vietnam makes for encouraging reading for those with a commercial interest in this populous nation on the eastern edge of mainland Southeast Asia.
According to the World Bank, economic growth in Vietnam is projected to reach 5.5% this year, up from 5.05% in 2023 and well ahead of both the global and regional average.
IMF projections for 2024 are even more optimistic (suggesting GDP could reach 5.8%) while UOB reckons growth in excess of 6% is achievable as a result of recovery in the semiconductor industry, stable growth in China and the region, and the likely easing of monetary policy by major central banks.
Peter Ngo has been a keen observer of the domestic market since he assumed the role of APAC Managing Director of Eurostellar (which has imported and distributed technology products specifically designed for industrial and commercial use in Vietnam and other Southeast Asian countries for more than a decade) in May 2020. He is also a Board Member of the Central and Eastern European Chamber of Commerce in Vietnam. When considering investment opportunities in Vietnam, Ngo recommends carefully evaluating cultural nuances. “It is essential to understand local business etiquette – which emphasises adaptability, flexibility and patience – with more focus on the southern region for leisure and fast-moving consumer goods and the northern region for industrial ventures,” he says.
Ngo reckons it takes more than twice as long to launch a new product in Vietnam than in Europe and refers to regional differences in customer behaviour. “Customers in the north value brand reputation, appearance and scale, whereas those in the south tend to prioritise value,” he explains.
The now-discredited World Bank Group ‘ease of doing business’ rankings for 2021 (the last year the rankings were published) showed Vietnam ranked a lowly 115 of the 190 countries covered when it came to starting a business.
Investing in Vietnam does not necessitate the creation of a joint venture structure, but the evolving regulatory landscape demands a robust legal team suggests Ngo. “Selecting the right local partner is crucial, alongside managing expectations during the early years,” he says. “Emphasising long-term investment over initial expenditure is advisable, which means deferring investments in ‘luxuries’ such as office space, events and advertising until break-even is achieved.”
Domestically, Ngo says a substantial number of small and medium enterprises – particularly in the retail, food and beverage and fashion sectors – are closing down, creating numerous vacant commercial spaces that underscore the stagnation in the real estate market. “The Vietnamese market displays distinctive traits,” he says. “Consumer preferences can be a decade behind the more progressive European market and the pervasive influence of Chinese brands and inferior products, coupled with price sensitivity, significantly influences client decisions.”
China is by far Vietnam’s largest source of imports, with more than US$110bn of Chinese goods entering the country last year accounting for more than one-third of total imports. Despite these challenges, Ngo believes Vietnam is a compelling investment location based on its strategic location in Southeast Asia, population size and demographics. “Vietnam has a robust economic growth rate and many unexplored markets,” he says. “Forecasts point to political stability with expectations resting on the new government to strengthen economic growth and resilience. Vietnamese people are lauded for their industriousness, flexibility, acumen and diligence.”
PWC’s latest guide to doing business in Vietnam suggests the country is well placed to boost its manufacturing base despite uncertainties sparked by global conflicts and supply chain disruption. The manufacturing and processing sector received almost two-thirds of total foreign direct investment in 2023.
This growth has been led by technology manufacturing explains ANZ Vietnam Country Head, Mark FitzGerald. “Global players like Samsung, Apple and Intel (and their key suppliers) have all made large investments in Vietnam and the country also has local champions like FPT, which is becoming an important player in tech support regionally,” he says.
FitzGerald agrees that managing an evolving regulatory environment can be challenging and requires patience, adding that any company looking to establish operations in Vietnam should recognise the importance of good advisors and strong partners with local knowledge.
“Vietnam has been hugely successful in negotiating both bilateral and multilateral trade agreements,” he continues. “Companies from South Korea, Japan, Taiwan and China are all very active in Vietnam and the recent upgrades of diplomatic relations with the US, Australia and Japan to comprehensive strategic partnerships will open further business opportunities between Vietnam and those countries.”
FitzGerald reckons there is plenty of interest from international banks and long-term investors to fund growth and investment, noting conglomerates such as Masan Group, Hoa Phat and MobileWorld have ready access to international syndicated loan and bond markets. “The banking sector continues to develop,” he continues. “For instance, recent regulatory changes enable supply chain financing on a limited or no recourse basis for both payables and receivables, which will help local companies to improve their working capital cycle.”
Structural reforms are underway to strengthen the banking sector and also to kickstart the real estate market – and even though there have been changes in leadership at government level the overall direction of policies is still predictable.
That is the view of Helmi Arman, Citi’s Chief Economist for Indonesia and Vietnam, who agrees Vietnam has been very proactive among ASEAN economies in terms of expanding free trade agreements. UOB is positive about the prospects for the second half of the year with foreign direct investment data suggesting businesses have looked past the political uncertainty in early 2024 and continue to view Vietnam as an important investment destination in the mid- to long-term amid the ongoing reconfiguration of global supply chains.
“The increase in both realised and registered foreign direct investment inflows will further boost domestic activities in the quarters ahead – including construction and employment – and there has been an affirmation of foreign enterprises’ confidence and commitment to the country in the current wave of deglobalisation, derisking and supply chains shifts,” says Suan Teck Kin, the bank’s Head of Research, Global Economics and Markets Research.
But any positivity must be tempered by an acknowledgement that businesses still face significant obstacles. According to Dung Nguyen Hoang, Partner at Kreston VN, these challenges include corruption, bureaucracy, legal grey areas, lack of enforcement of intellectual property rights, inadequate infrastructure and skill shortages.
It was reported last year that Pandora had delayed the opening of its new factory in Vietnam’s southern province of Binh Duong from 2025 to 2026 due to issues with its construction licence. The original plan was to commence construction early last year and for production to start by the end of 2024.
Pandora broke ground on its first manufacturing site outside Thailand in May with the Danish Minister for Food, Agriculture and Fisheries describing Vietnam as an increasingly important market for Danish investors due to both the country’s conducive business environment and its commitment on net-zero emissions by 2050. “The new site will allow us to grow our total crafting capacity by around 50% and support our long-term growth ambitions,” says Michael Zinck Jensen, Program Lead, Pandora Vietnam. “By diversifying its geographical footprint, Pandora will also become more resilient to potential supply disruptions.”
Before deciding on a location for the new site, the company reviewed the leading locations for jewellery manufacturing worldwide. “One of the reasons we chose Binh Duong province was its positive climate for foreign investors and support from local authorities,” says Jensen. “It is extremely important to engage with local authorities when planning major investment projects.”
Fellow Danish company Lego expects its new facility in Vietnam to be operational by the end of the year. Vietnam’s trade relations with countries in the Asia Pacific region was a key factor in the decision to locate the factory according to Lego Group CEO, Niels Christiansen. From an export perspective, Grant Thornton’s 2024 international business report noted that mid-market businesses were less optimistic about their prospects in the first quarter of this year compared to the second half of 2023.
The percentage of Vietnamese firms expecting to increase export activities over the next 12 months fell from 65% to 63%, while only 53% anticipated an expansion in the number of countries they sell to – down from 66% in the second half of last year. There was also a sizeable reduction in the percentage of companies projecting an increase in revenue from non-domestic markets. “Administrative procedures are still not transparent and limited infrastructure and an incomplete legal system are further challenges,” says Nguyen Anh Van, Deputy CEO and Head of Treasury at LPBank, which earlier this year signed a deal with Finastra to modernise its treasury capabilities.
The banking loan market is the primary source of credit for Vietnamese companies, explains Dung. “However, most businesses face difficulties in accessing funding due to not meeting the credit requirements of commercial banks and lacking long-term credit relationships,” he adds.
In June, the Asian Development Bank and LPBank signed a financing package of up to US$80m to expand access to finance for women-owned small and medium-sized enterprise projects in Vietnam, which face constraints such as lack of collateral, low financial literacy and higher risk perception by banks. “Not many Vietnamese companies have adequate access to growth finance,” says Nguyen. “It is really only multinational companies and industry leaders that have adequate access.”
Khoi Vu, a member of J.P. Morgan’s Southeast Asia equity strategist team, says a number of processes – including business registration, tax declaration and import/exports customs – have been streamlined and simplified over the last few years. “Areas of opportunity that the authorities are now focused on include information and technical barriers, where some Vietnamese exporters can face challenges in complying with international or destination regulations,” he says.
Khoi also observes that the still-developing in-country supply chain means some manufacturers have to import intermediary goods rather than procuring them locally. In addition, competition from other exporters (notably China, India and the ASEAN countries) is set to increase and domestic companies face issues around quality control and scaling up production. “However, there is definitely an opportunity for further private equity or venture capital investment in Vietnam, which will compliment asset-based bank lending and improve companies’ access to capital, particularly in their growth phase,” he says.
Suan says that after the soft GDP growth and significant declines in international trade in 2023, it is not surprising businesses may be reluctant to take out loans for investment. “As data improved significantly in the first half of 2024 and with expectations of further gains, confidence is likely to return,” he says. “The government has been implementing measures to encourage borrowing for investment and expansion, although the State Bank of Vietnam and local banks need to ensure that quality of credit is not compromised.”
Suan also called on the government to increase the deployment of fiscal tools to help lift business and consumer confidence by investing in infrastructure and other long-term projects such as education and healthcare.
