Vietnam is the third largest market in Southeast Asia and one of the fastest-growing economies in the world. Low costs and regulations that encourage foreign investment are only some of the key elements that attract foreign entrepreneurs.
indication of openness to the global economy are the numerous trade agreements Vietnam has signed to make the market more liberal.
Some of the memberships and agreements:
- Member of ASEAN and ASEAN Free Trade Area (AFTA)
- Member of World Trade Organisation (WTO)
- Bilateral Trade Agreement (BTA) with the US
- Free Trade Agreement with the European Union (comes into effect in 2018)
All these treaties show that Vietnam is eager to promote the country’s economic growth and will continue its commitment towards trading with other countries.
Read more about Vietnam trade agreements
Located in the center of ASEAN, Vietnam has a strategic location. It is close to other major markets in Asia, the most notable neighbor of them being China.
Its long coastline, direct access to the South China Sea and proximity to the world’s main shipping routes give perfect conditions for trading.
Two major cities in Vietnam are Hanoi and Ho Chi Minh City. Hanoi, the capital, is located in the north and has extremely convenient trading opportunities. Ho Chi Minh City, the largest by population, is situated in the south and is the industrial mecca of Vietnam.
With over 95 million residents, Vietnam ranks as the 14th largest population in the world. By 2030, the population will grow to 105 million, as forecasted by Worldometers.
Together with a growing population, the middle class of Vietnam is increasing faster than of any other Southeast Asian nation.
Steadily increasing economy means bigger income which, in turn, will result in growing middle class. A market research firm Nielsen estimates the middle class in Vietnam to grow to 44 million residents by 2020 and to 95 million by 2030. This will support consumerism making Vietnam a profitable target for foreign investors.
Unlike in China where the population is ageing rapidly, the demographics of Vietnam is young.
According to Worldometers, the median age in Vietnam is 30.8 years in contrast to 37.3 years in China. Nielsen has also estimated that 60% of Vietnamese are under the age of 35.
The workforce is young and large and shows no sign of decrease. In addition, the country also invests more money in education than other developing countries. Thus, besides being vigorous, the labor force in Vietnam is skilled as well.
Stable GDP growth
Over the last few decades, Vietnam’s economic growth has been one of the fastest in the world. This rapid development started due to economic reforms launched in 1986 and the rise has been continuous ever since.
According to the World Bank, the GDP rate in Vietnam has experienced a stable growth, averaging 6.46 % a year since 2000.
Open to foreign investment
Geographical advantages and growing economy are not the only attractive features for investors. Vietnam has always been welcoming to foreign direct investment (FDI) and encourages it by constantly renewing regulations and providing FDI incentives.
The government of Vietnam offers several incentives to foreign investors who invest in certain geographical areas or sectors of special interest. For example, in high-tech or healthcare businesses. These tax benefits include:
- Lower corporate income tax rate or exemption from the tax
- Exemption from import duty, e.g on raw materials
- Reduction of or exemption from land rental or land use tax
Vietnam recorded $24.4 billion as foreign direct investment in 2016, according to the government. Giant corporation like Samsung, Nestle, and LG are among the largest investors contributing to this number.
Doing business is getting easier every year
Vietnam has made numerous amendments to their regulations to make investing in Vietnam more transparent.
In terms of ease of doing business, Vietnam ranked 82 out of 190 countries in 2016. Compared to the previous year, the ranking improved by 9 positions.
This rise was the result of improvements in some processes of doing business. For example, the government made the procedures of getting electricity and paying taxes easier, according to the World Bank report.
Based on their economic models, Trading Economics predicts Vietnam to rank 60 by 2020. We foresee the future prospects of ease of doing business in Vietnam are very promising.
According to the World Bank, the economic growth of Vietnam has raised the country from one of the world’s poorest into a lower middle-income country over the past three decades. If the economic rise of nearly 7% a year will continue, Vietnam’s economic development could be compared to what Chinese economy experienced a decade ago, as predicted by economic analysts.
Rising labor costs in China increase the prices of products as well, giving Vietnam a good opportunity to become the next hub for producing labor-intensive goods. Industries that used to flourish in China are now moving to Vietnam.
For example, Vietnam is becoming the hot spot of manufacturing instead of China. In addition to top manufacturing sectors such as textile and clothing, Vietnam’s manufacturing is also taking a more high-tech direction.