With its young, skilled workers and proximity to China, it's making all the right moves for growth.
When Jonathan Moreno's company was looking for a location for a new factory in 2009 to make its medical devices, it ruled out much of the world. Europe and the Americas were too expensive, India was too complex and intellectual-property rights in China too patchy. In the end, Vietnam was the one candidate left standing.
It still seemed risky as the country was just emerging as a destination for foreign investors. Seven years on, Moreno surveys the scene and has no doubt about where his company, Diversatek, will expand next. "To the back, there and there," he says, pointing.
It is far from alone. Foreign direct investment in Vietnam hit a record in 2015 and has surged again this year. Deals reached $11.3 billion in the first half of 2016, up by 105 percent from the same period last year, despite a sluggish global economy. Big free-trade agreements explain some of the appeal. But something deeper is happening. Like South Korea, Taiwan and China before it, Vietnam is piecing together the right mix of ingredients for rapid, sustained growth.
Vietnam already has a strong, often underappreciated, record. Since 1990 its growth has averaged nearly 6 percent a year per person, second only to China. That has lifted it from among the world's poorest countries to middle-income status. If Vietnam can deliver 7 percent growth for another decade, its trajectory would be similar to China and the Asian tigers.
Perhaps the biggest factor in Vietnam's favor is geography. Its border with China, a military flash point in the past, is now a competitive advantage. No other country is closer to the manufacturing heartland of southern China. As Chinese wages rise, that makes Vietnam the obvious substitute for firms moving to lower-cost production hubs.
A relatively young population adds to Vietnam's appeal. Whereas China's median age is 36, Vietnam's is 30.7. Soon enough, it will start aging more rapidly but its urban workforce has much scope to grow. Seven in 10 Vietnamese live in the countryside, about the same as in India — and compared with only 44 percent in China. The reservoir of rural workers should help dampen wage pressures, giving Vietnam time to build labor-intensive industries, a necessity for a nation of nearly 100 million people.
Vietnamese leaders gathered last month in Hanoi for the opening session of the 14th National Assembly. The largely rural Southeast Asian country is well positioned for industrial expansion and is investing wisely in its youth, who excel in math and science.
And Vietnam's workforce is not just young but skilled. Public spending on education is about 6.3 percent of GDP, two percentage points more than the average for low- and middle-income countries. Although some governments spend even more, Vietnam's expenditures have been well focused, aiming to boost enrollment levels and ensure minimum standards. In global rankings, 15-year-olds in Vietnam beat those in America and Britain in math and science.
Vietnam is also reaping benefits from trade deals. It is set to be the biggest beneficiary of the Trans-Pacific Partnership (TPP), a 12-country deal that includes America and Japan. With American politics turning hostile to trade, there is a risk that the TPP will fail. But even if that happens, Vietnam will do well.
After years of solid growth, Vietnam has nearly reached a milestone. Now it is classified as a middle-income country; it is about to lose access to preferential financing from development banks. In 2017 the World Bank will start phasing out concessional lending.
For Vietnam it is a moment to reflect on the tricky path ahead. It has a chance to be Asia's next great success story. It will take courage to get there.
Source: http://www.startribune.com
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