Forecasts are unanimous that the economy is on track for a strong recovery, with HSBC projecting 8.1 percent growth this year and the World Bank, 6.8 percent.
With the country being one of the few in the world to achieve positive growth last year, of 2.9 percent, Prime Minister Nguyen Xuan Phuc said earlier this week that the government targets growth of 6.5 percent this year, up half a percentage point from the earlier target, after the country succeeded in containing the novel coronavirus, clearing the decks for an economic rebound.
Exports and foreign direct investment are set to be the main drivers. World Bank analysts said in a recent note: “The strong management of the Covid-19 crisis has been Vietnam’s best promotional tool, encouraging foreign companies to reallocate their production activities to Vietnam from other countries where their factories are still closed, thus contributing to the country’s robust export performance.”
Economist Ngo Tri Long said growth of 6.5 percent or higher is achievable, but depends on how the Covid-19 situation pans out this year since Vietnam’s economy is heavily dependent on trade.
Vietnam’s exports grew at 6.5 percent in 2020, down from from 8.1 percent in 2019. Textile and garment exports, the third largest earner, declined for the first time in 25 years, falling by a substantial 10.2 percent.
But most other items making up the top five saw growth. Electronics and computer exports were up 24.4 percent and machinery was up 47.8 percent.
Long said this indicated the likelihood of robust growth this year if global demand rises.
“With the Covid-19 vaccine becoming increasingly available in many countries, the world can expect a recovery in demand which will largely benefit Vietnamese exporters of garments, agriculture produce and other products.”
Free trade agreements are expected to be another driver of growth. Despite the pandemic, the EU-Vietnam Free Trade Agreement came into effect last year while the Vietnam – U.K. Free Trade Agreement was signed.
Vietnam also inked the Regional Comprehensive Economic Partnership, the world’s largest trade deal, which covers nearly a third of global GDP.
Tim Evans, CEO of HSBC Vietnam, said: “These agreements will help Vietnam diversify export markets and trading partners, which is also one of the best ways to minimize risks from excessive dependence on a specific trading partner which Covid-19 has made apparent.”
FDI is likely to surge since experts believe the shifting of production out of China will continue.
Although foreign direct investment pledges in Vietnam has dropped by 25 percent last year to $28.5 billion due to travel restrictions and dampened investor sentiment, foreign companies still poured $6.4 billion into existing FDI projects, up 10.6 percent year-on-year, showing that they were still confident in their investment in Vietnam and expect further growth.
Major foreign companies in Vietnam are eyeing expansion this year, and FDI would flow in faster with the distribution of the Covid-19 vaccine, Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises, said.
Last year many foreign companies established production facilities in Vietnam or expanded, with Apple starting to make its wireless earbuds AirPods Pro and Taiwanese electronics manufacturer Foxconn calling the country its largest manufacturing hub in Southeast Asia.
Pegatron, an Apple manufacturing partner, plans to invest $1 billion in the northern port city of Hai Phong in the next few years.
Vietnam has been forecast to become one of the largest laptop manufacturing hubs in Southeast Asia.
“Many global companies are flocking to Vietnam, which is a boon for its exports,” Yuta Tsukada of the Japan Research Institute was quoted as saying by Nikkei.
Given the low production costs in the country, he foresaw more companies shifting operations to Vietnam from China should the trade war between Washington and Beijing continue.
Much work is needed nevertheless for Vietnam to achieve a strong recovery this year.
Long said the key to sustaining growth is keeping the Covid-19 situation under control given that authorities have caught around 14,000 people crossing the border illegally in 2020.
“There is no growth prospect if illegal entrants cause new outbreaks and destroy all the efforts of the government and people in containing the pandemic.”
Evans said improving customs and administrative procedures would be key to attracting FDI.
Mai said more reforms, especially to foster the establishment of e-governance, would push growth even further in 2021-25.