Vietnam’s economic miracle unabated – new “tiger” is born, report says

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A latest commentary by Qatar National Bank (QNB) on Asian economies stated that Vietnam has become one of Asia’s, as well as the world’s fastest growing economies and can been seen as Asia’s latest “tiger” nation in the tradition of Hong Kong, Singapore, Taiwan and South Korea in the 1970s and 1980s and the so-called “tiger cub” economies of the following generation, Thailand, Indonesia, Malaysia and, more recently, India.

QNB names a range of indicators for Vietnam’s booming economy. GDP growth was 7.1 per cent in the first six months of 2018 as compared to the first half of 2017, which makes it the fastest growth since 2011. The manufacturing sector is leading with output up 13.1 per cent in the period, while construction is also playing a strong supporting role with output in that sector up 7.9 per cent.

According to QNB analysts, Vietnam’s manufacturing boom brings surging exports. Monthly trade statistics can be highly volatile but the latest data show goods exports up over 20 per cent in the first half of the year, following growth of over 17 per cent in 2017 as a whole.

Manufacturing and export success has been driven by Vietnam’s ability to attract large foreign direct investment (FDI) inflows into sectors such as clothing, footwear and, above all, electronics. It is now estimated for example that one in ten smartphones worldwide are now made in Vietnam. Latest data show FDI inflows also booming. These were worth an estimated $13 billion in the first half of 2018 with an 11-per cent year-on-year growth. To put these FDI inflows in context, Vietnam’s GDP in 2017 was worth around $220 billion, according to the latest data from the International Monetary Fund.

The foundation of Vietnam’s success is obvious: favourable demographics and low wage rates. Political stability also helps as does the country’s geographical location. Vietnam is also close to major global supply chains, particularly in electronics, which have emerged over the last decade or so.

But these factors are far from specific to Vietnam and so only explain a portion of its success. Recent research from the Brookings Institute think tank in the US highlights that it has been the ability to build on these solid foundations through good policies is what really sets Vietnam apart.

Three factors in particular have been critical. First, while many in the West are questioning the benefits of free trade, Vietnam has zealously pursued trade liberalisation on both a multilateral and bilateral basis. Vietnam, for example, has recently concluded a free trade agreement with the European Union which eliminates nearly all tariffs between the two. Trade agreements have dramatically lowered the external tariffs its exports face, helping integrate Vietnam into the global economy and further accelerating FDI investments.

Second, Vietnam’s investments in human capital, i.e. education, have been impressive, helping the country maximise its demographic potential. A stand out is that the OECD’s latest Programme for International Student Assessment (PISA), which tests high school students in mathematics, science and other subjects, ranked Vietnam an impressive 8th out of 72 participating countries; ahead of many leading OECD economies, let alone of many of its Southeast Asian peers.

Third, investments in human capital have been supported by progress in improving the country’s business climate. Vietnam has steadily moved up in both the World Economic Forum’s competitiveness index and also the World Bank’s ease of doing business survey. Investments in physical infrastructure such as power generation, roads and bridges and container port capacity have been vital in supporting Vietnam’s rich human capital.

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Reading Time: 3 minutes

A latest commentary by Qatar National Bank (QNB) on Asian economies stated that Vietnam has become one of Asia’s, as well as the world’s fastest growing economies and can been seen as Asia’s latest “tiger” nation in the tradition of Hong Kong, Singapore, Taiwan and South Korea in the 1970s and 1980s and the so-called “tiger cub” economies of the following generation, Thailand, Indonesia, Malaysia and, more recently, India.

Reading Time: 3 minutes

A latest commentary by Qatar National Bank (QNB) on Asian economies stated that Vietnam has become one of Asia’s, as well as the world’s fastest growing economies and can been seen as Asia’s latest “tiger” nation in the tradition of Hong Kong, Singapore, Taiwan and South Korea in the 1970s and 1980s and the so-called “tiger cub” economies of the following generation, Thailand, Indonesia, Malaysia and, more recently, India.

QNB names a range of indicators for Vietnam’s booming economy. GDP growth was 7.1 per cent in the first six months of 2018 as compared to the first half of 2017, which makes it the fastest growth since 2011. The manufacturing sector is leading with output up 13.1 per cent in the period, while construction is also playing a strong supporting role with output in that sector up 7.9 per cent.

According to QNB analysts, Vietnam’s manufacturing boom brings surging exports. Monthly trade statistics can be highly volatile but the latest data show goods exports up over 20 per cent in the first half of the year, following growth of over 17 per cent in 2017 as a whole.

Manufacturing and export success has been driven by Vietnam’s ability to attract large foreign direct investment (FDI) inflows into sectors such as clothing, footwear and, above all, electronics. It is now estimated for example that one in ten smartphones worldwide are now made in Vietnam. Latest data show FDI inflows also booming. These were worth an estimated $13 billion in the first half of 2018 with an 11-per cent year-on-year growth. To put these FDI inflows in context, Vietnam’s GDP in 2017 was worth around $220 billion, according to the latest data from the International Monetary Fund.

The foundation of Vietnam’s success is obvious: favourable demographics and low wage rates. Political stability also helps as does the country’s geographical location. Vietnam is also close to major global supply chains, particularly in electronics, which have emerged over the last decade or so.

But these factors are far from specific to Vietnam and so only explain a portion of its success. Recent research from the Brookings Institute think tank in the US highlights that it has been the ability to build on these solid foundations through good policies is what really sets Vietnam apart.

Three factors in particular have been critical. First, while many in the West are questioning the benefits of free trade, Vietnam has zealously pursued trade liberalisation on both a multilateral and bilateral basis. Vietnam, for example, has recently concluded a free trade agreement with the European Union which eliminates nearly all tariffs between the two. Trade agreements have dramatically lowered the external tariffs its exports face, helping integrate Vietnam into the global economy and further accelerating FDI investments.

Second, Vietnam’s investments in human capital, i.e. education, have been impressive, helping the country maximise its demographic potential. A stand out is that the OECD’s latest Programme for International Student Assessment (PISA), which tests high school students in mathematics, science and other subjects, ranked Vietnam an impressive 8th out of 72 participating countries; ahead of many leading OECD economies, let alone of many of its Southeast Asian peers.

Third, investments in human capital have been supported by progress in improving the country’s business climate. Vietnam has steadily moved up in both the World Economic Forum’s competitiveness index and also the World Bank’s ease of doing business survey. Investments in physical infrastructure such as power generation, roads and bridges and container port capacity have been vital in supporting Vietnam’s rich human capital.

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