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Vietnam, is it poised to take over from China?

Analysts are looking to Vietnam for lessons. In January of 2020, as countries became aware of the virus but cautiously abated their next move, Vietnam acted quickly and decisively. It closed its borders and implemented an intrusive tracing strategy. Thereafter, the economy suffered – as would be expected.

However, fast forward to July of 2020, and the economy has bounced back quicker than most. Vietnam’s output barely changed during the second quarter and it is predicted that their GDP might even grow this year.

One of the reasons Vietnam was able to manage the virus so well, is that the country experienced SARS in 2003 and human cases of avian influenza between 2004 and 2010. Therefore, Vietnam had both the experience and infrastructure to take appropriate action.

Many years ago, Vietnam was one of the world’s poorest countries. In 1986 it launched its “doi moi” reforms, allowing for private ownership of businesses. The economy was opened up to foreign trade, thus, endowing market forces with a bigger role to cause the prices of goods and services to change. Its low wages were also very helpful.

It is now the place to go when China is too expensive. And it offers a refuge for multinational firms that want to avoid the China-US trade war.

A large amount of FDI is now coming into Vietnam. The Southeast Asian country has become an abode for a wide array of industries, ranging from clothes makers to technology service providers. But, as with most emerging economies, corruption remains a pertinent concern.

Vietnam has attributes of an emerging market, but it can be classified as a frontier market as it is by the MSCI. Vietnam imposes foreign-ownership limits on many homegrown companies.

Bottom line – it has handled the pandemic well. It is also well poised for growth as the government has strengthened its infrastructure plans. Vietnam is loved by multinationals and investors of frontier markets.


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