How Vietnam can unleash its economic potential

Ever since the formerly communist country opened up its country in the late 1980s, Vietnam’s GDP has grown faster than that of any other Asian country, excluding China, averaging a rate of 6.2% a year. In achieving this, the government has lured foreign firms in droves, such as Nike and Adidas. While many locals produce cheap products that involve low-skilled labor, the government has also sought to attract the production of high-value goods, particularly electronics. In 2020 electronics made up 38% of Vietnam’s exports, from 14% in 2010.

The trade war between China and the U.S. has also boosted the economy of Vietnam. Many manufacturers have begun relocating production to Vietnam as tensions between the U.S. and China flare up. In 2019 Vietnam produced nearly half of the $31bn-worth of American imports that moved from China to other low-cost Asian countries.

Add to China’s zero-Covid approach, rising labor costs, and flaring geopolitical tensions, and it may not be easy to see why many big firms are attracted to Vietnam. Apple’s biggest suppliers, Foxconn and Pegatron, which make Apple Watches, MacBooks, and other gadgets, are building big factories in Vietnam. Other big names moving chunks of production from China to Vietnam include Dell and HP (laptops), Google (phones), and Microsoft (game consoles).

In turn, the government wants Vietnam to become wealthy—with GDP per person exceeding $18,000, up from just $2,800 today—by 2045. It hopes to do this partly by moving from cheap garments to complex electronics that require investment and skilled labor.

Achieving this isn’t strictly impossible. Vietnam’s workforce remains young and educated. The country has signed over a dozen free-trade agreements, allowing easier access to other markets. Its geopolitical location provides for easy maritime trade with neighboring countries. And it is right on China’s doorstep, facilitating a transaction between Chinese and Vietnamese goods.

Yet plenty is still to be done if Vietnam wants to achieve its goals. For starters, its manufacturing capacity is still much smaller than China’s. And many big firms struggle to find local suppliers who offer what they seek.

To add on, the government also has to proactively invest in its own people. While there’s an abundance of workers, talented managers, and skilled technicians are a rarity. Though Vietnam provides excellent primary and secondary education, its university and vocational training programs badly need more funding. If Vietnam grows as rich as China, Japan, South Korea, or Taiwan, it will have to invest not just in infrastructure but also in its people.