Vietnam Business Channel

DBS Bank: Vietnam’s Economy can be bigger than Singapore in 10-years

DBS Bank in Singapore has issued a new report last week that says “Vietnam is coming of age. Strong economic fundamentals and good policies should ensure tremendous long-term prospects for the economy.”

According to the bank, there are five key factors that affect its outlook:

• Global investors have been lining up to be a part of the Vietnam narrative

• The ongoing trade war between China and the US has cast a spotlight on Vietnam’s potential

• Strong FDI from China and Hong Kong recently may mark the beginning of a new trend

• Vietnam has the potential to sustain GDP growth of about 6.0% - 6.5% in the medium term

• At this pace, the Vietnamese economy will be bigger than Singapore’s economy in ten years

The bank also says that “The experience from the economic tumult sowed the seed for Vietnam’s economic transformation. Resolution 11 was passed in early 2012 to focus on economic stability while the Socio-Economic Development Plan (SEDP, 2011-2015) that focused on reforms in the state-owned enterprises (SOEs), the financial sector and public investment, was adopted in the National Assembly in November the same year.”

“Since then, the economic performance has been encouraging. Growth has averaged 6.4% in the past three years while inflation has been stable, at about 3.2% in the same period. What is perhaps most interesting is that beyond the headline figures, Vietnam is beginning to outperform many regional peers in several other aspects.”

“More importantly, policymakers are now focusing on longer term economic stability and sustainability, rather than the pace of growth per se. Domestic reform, albeit tepid, has been ongoing. The long-term prospects of this economy are positive, and in terms of the size of the economy (i.e., real GDP), Vietnam is expected to join the ranks of some of the relatively more developed economies in the region in the coming decade.”

According to analysts from DBS Bank, “One key policy focus is to build the capacity for longer term growth. This entails a deliberate effort to encourage investment and improve infrastructure. Vietnam is one of the top recipients of FDI in the region. It received about $14.1 billion USD of FDI in 2017 (6.3% of nominal GDP), the third highest in ASEAN. Key advantages offered by Vietnam would include its highly integrated and dedicated industrial / economic zones, its strategic location in the middle of regional supply chain, close proximity to China, attractive tax concessions and low corporate tax rate, and a competitive workforce.”

The bank also noted that “The quality of human capital is just as important in determining the longer-term growth prospects of an economy. In this regard, Vietnam has outperformed many of her ASEAN neighbors. The World Bank Human Capital Index ranks Vietnam second in ASEAN and comparable to China (Chart 7). Besides having a hardworking labor force, the favorable ranking is likely a result of continued investment into education. For the past two decades, the government has consistently allocated about 20% of its total expenditure to education, which is relatively high by global standards.”

NOTE:
To read the full DBS Report, along with its attached charts ... Click here!