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Capitalizing on Momentum "Strike while the iron is hot" aptly captures Vietnam's dramatic shift from a primarily agrarian base to a forefront of high-tech investment and manufacturing excellence. In 2024, the nation drew over $38 billion in foreign direct investment, highlighting its growing influence in the global tech and manufacturing sectors.
Economic Growth and Market Integration Vietnam's economic landscape in 2024 showcases a prime example of strategic growth, with HSBC revising the GDP growth forecast to 7%. Prime Minister Pham Minh Chinh projects the GDP to reach $500 billion in 2025, marking a 1.45-fold increase from 2020 and positioning Vietnam as 33rd globally and 4th in ASEAN. The sectoral contributions to the GDP include approximately 12.07% from agriculture, forestry, and fisheries, 38.93% from industry and construction, and 41.12% from services.
The Surge in Foreign Direct Investment In the first half of 2024, Vietnam experienced a 38.6% surge in FDI. Significant investments include Samsung Electronics' $3 billion expansion and LG Electronics' $500 million R&D center in Hanoi. Japan's Rorze Corporation invested $330 million to enhance semiconductor production, with Intel also investing $1 billion to expand chip assembly operations.
Expanding the Semiconductor Industry Vietnam aims to boost its semiconductor industry revenue significantly by 2030, targeting over $25 billion, escalating to $50 billion by 2040, and with plans to exceed $100 billion by 2050. This growth involves substantial FDI to establish and expand design firms and manufacturing facilities. The government's strategy includes creating 100 design firms and at least one manufacturing facility by 2030, with these numbers growing substantially in subsequent phases. This plan is not just about expanding capacity but also about increasing value addition in the semiconductor sector, which is projected to grow between 10%-25% by 2050.
Strategic Infrastructure Development Vietnam's infrastructure, ranking 43rd in the 2023 Logistics Performance Index, which places it among the top five ASEAN countries, alongside Singapore, Malaysia, Thailand, and the Philippines, sees continuous improvement with nearly $27 billion allocated in 2024 for enhancing transport networks. The Ministry of Industry and Trade, along with the Ministry of Transport, is leading efforts to modernize the logistics sector and improve traffic coordination. This includes the construction of new roads, ports, and airports to improve the efficiency and connectivity of its transport networks. Vietnam is undertaking several major projects to enhance its transportation infrastructure:
Ports: By 2030, Vietnam plans to upgrade its port system to handle 1.25 to 1.5 billion tons of cargo annually, focusing on modernization and environmental sustainability.
Airports: The country will build 8 new airports and expand 22 existing ones by 2030, aiming for 30 airports by 2030 and 33 by 2050. This includes the Long Thanh International Airport, designed to handle 100 million passengers and 5 million tons of cargo annually by 2025.
Expressways: The goal is to expand Vietnam's expressway network to 3,000 km by 2030 and 9,000 km by 2050, improving connectivity between key economic zones.
High-Speed Rail: The North-South high-speed railway (1,545 km) will reduce travel time between Hanoi and Ho Chi Minh City from 30 hours to under 6 hours.
Overcoming Challenges Despite growth, Vietnam faces rising labor costs, environmental degradation, global economic pressures, and regional geopolitical tensions. These challenges necessitate comprehensive policies and investments in infrastructure, environmental protection, and human capital.
Vietnam's minimum wage has increased by about 32% over the past five years, with a 6% hike in 2024, impacting the competitiveness of labor-intensive sectors such as textiles and electronics. Environmental concerns are significant, with Vietnam ranking 123rd out of 180 countries in the 2023 Environmental Performance Index due to issues with industrial waste and emissions. Global economic pressures, including trade tensions, have influenced Vietnam's export-driven economy, with some sectors benefiting from trade diversions. Geopolitical risks in the East Sea and infrastructure bottlenecks, such as traffic congestion and power shortages in cities like Hanoi and Ho Chi Minh City, continue to pose challenges to business operations.
Forward-Looking Trade Policies Vietnam maintains 16 active FTAs and is involved in key agreements like the EVFTA and CPTPP, which facilitate reduced tariffs and enhanced trade facilitation. Future negotiations aim to further integrate Vietnam into global markets.
Vietnam is actively engaged in several key trade agreements. The Vietnam-EU Free Trade Agreement (EVFTA) has removed tariffs on 71% of Vietnamese exports to the EU, with plans to phase out the rest over the next seven years, while 65% of EU exports to Vietnam are now tariff-free, benefiting sectors like textiles and agriculture. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) reduces tariffs with major markets including Japan, Canada, Australia, and Mexico, boosting export capabilities. Future negotiations include the Vietnam-UK Free Trade Agreement (UKVFTA) and maximizing benefits from the Regional Comprehensive Economic Partnership (RCEP), which involves nearly a third of the global population. Additionally, the ASEAN Trade in Goods Agreement (ATIGA) has reduced tariffs within ASEAN, strengthening Vietnam's position as a key regional manufacturing hub.
CEL's Strategic Insight Vietnam's rise is not just an economic success story but a strategic blueprint for similar markets worldwide. For businesses looking to navigate this promising yet complex market, CEL provides industry research and supply chain consulting services for your Vietnam market growth and penetration. Leveraging deep local knowledge and global insights, CEL helps clients capitalize on opportunities while mitigating risks. Contact with us at media@cel-consulting.com
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