Think about Asian tigers, and countries like China, Japan, and South Korea come to mind. Vietnam is not one of them – at least not yet. But that could change soon enough, as it is expanding ties with economic partners around the world, developing relationships with others, and has implemented economic policies and reforms favorable to business. Even as we are watching, it is becoming a regional economic power to be reckoned with and flexing its muscles.
The Vietnam of today should not be confused with that of the war years. This one is friendly to foreign investors – including Americans. It is modernizing rapidly, and offers important incentives for companies to set up shop there.
With an estimated population of 100 million, the labor base is more than adequate. Of particular interest to investors is that Vietnam’s economy is expanding at one of the fastest rates in the region. And going forward this is very likely to continue because there’s a growing list of major companies that are doing business there. Among these are South Korean powerhouses including LG and Samsung, and Foxconn, one of the world’s largest contract manufacturers of electronics. Apple, the world’s largest company as measured by market cap, also is a member of that club.
From Electronics To Coffee
The trade data firm The Observatory of Economic Complexity reports that Vietnam’s top exports are broadcasting equipment, telephones, ICs, office machine parts, textiles, and footwear. In addition, it also exports a variety of seafoods, dairy, grains, rubber, and lumber. In the last 15 years, it also has become a major cocoa producer and in addition is now the world’s second largest exporter of coffee.
Its largest trading partner is the US, followed by China, South Korea, Japan, and Hong Kong. The North Face, Patagonia, H&M, and Nike are just a few of the famous brands manufactured there.
Vietnam’s steadily expanding economy, growing middle class, business-friendly reforms, and strategic location are some of the important reasons companies and investors are flocking there. But there are others, too, and one of those is the very low cost of labor.
For example, in US dollar terms, wages are as low as $2.99/hour – that’s less than half the cost in China. This provides a major competitive advantage, and helps explain why companies trying to reduce costs are both opening divisions there and relocating factories from other countries.
Like The Good Old Days
Prices of most items in Vietnam are amazingly low– not just like they were in the good old days in the US but in many cases they’re even cheaper. The exchange rate between Vietnamese Dong and US dollars recently was about 23,500:1 (the number fluctuates). However, US dollars are readily accepted and can be used to make purchases in both commercial transactions as well as when dealing with street vendors.
In the last several years, prices in Vietnam have risen very sharply. Despite those increases, they remain exceptionally low compared to prices in the US and other countries. For example, a can of Coke is just thirty-five cents, a can of Heineken beer seventy-five cents, and bottled water is twenty-five cents. For the most part, dresses, suits, shirts, and food also are a fraction of what they cost in western countries.
And so are overnight stays at motels, hotels, and meals at local restaurants. According to The Ultimate Guide To Vietnam Vacations, mid-range hotels offer affordable and comfortable lodgings in the North for between $15 - $60/night (they’re somewhat higher along the coast). And economy lodgings are available for as low as $6/night, although some travelers might prefer the greater comfort of “splurging” on a more expensive room. The average hotel price is only $29, which means it would be very difficult to find a better rate in any other country.
Strange Bedfellows
Despite the long, bitter, and bloody war, the US and Vietnam now enjoy a surprisingly good relationship. According to The Geopolitics, in the past two to three years, “Vietnam has become an ally of the United States against the Chinese threat.” And it has benefitted from the transfer of factories formerly based in China to other Asia-Pacific countries with friendlier policies and relatively lower wages. The “factory transfer” includes not only cheap plastic items, but also value-added advanced industries as well as companies like Apple, Texas Instruments, and Motorola.
The Geopolitics also pointed out “Vietnam’s impressive progress through the privatization and modernization of agriculture, extensive irrigation policies, productivity improvements, and successful marketing efforts carried out in a highly professional manner.”
Vietnam’s stock market is still small by American (and many other countries’) standards and, in the past, has sometimes been volatile. Last year, for example, the VanEck Vietnam ETF crashed, losing nearly half its value. Analysts say this was caused in part by domestic political issues and exacerbated by a global markets slump. “The government clamped down clumsily on a frothy real estate bond market and threw a number of tycoons in jail on vague corruption charges,” according to Asia Fund Managers. “Both moves spooked the key financial sector.”
Since then, the market has not only stabilized but it has also posted decent gains. According to Asia Fund, “the key Vietnam Ho Chi Minh Stock Index has surged by 10.78%. This growth stands in stark contrast to the trends seen in other regional indices.”
Asia Fund Managers cites data from Bloomberg showing that since December 2013, “The total market capitalization of Vietnam’s stock market has skyrocketed, increasing more than five times in dollar terms, and nearly doubling as a percentage of the nation’s GDP. This market has also diversified substantially, with the Top 5 stocks now accounting for just 28.3% of the VN Index, a remarkable drop from 52.9% a decade ago. Moreover…. the earnings of Vietnam stocks have maintained a consistent growth pattern, boasting a compounded average growth rate of 16.2% per annum over the period spanning from 2013-2022.”
In a somewhat related matter world leaders, including Pres. Biden and China’s Xi, have visited recently and are jockeying for a greater foothold in Vietnam. Investors and potential investors will certainly follow their moves closely.
Investing in Vietnam is off the beaten path, still overlooked in some circles, and has risks inherent to investing in emerging markets. Also, the country is located in a region where political risks have been rising recently. And there have also been frequent natural disasters including exceptionally cold weather, massive snowstorms, and earthquakes.
Still, over the longer run, Vietnam is an intriguing country. If the investment community picks up on this, investors could be well rewarded for their efforts.
Sources: asiafundmanagers.com; asia.nikkei.com; barrons.com; bloombergt.com; oec.world; kayak.com; thegeopolitics.com; tripsavvy.com; vietnam-briefing.com; The Ultimate Guide To Vietnam Vacations
Gerald Harris is a financial and feature writer. Gerald can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
