Recap: Vietnam’s Economy in 2023

With Christmas just 10 days away and the New Year just a week after that, we look back at the key events that shaped Vietnam’s business environment in 2023.

It’s been a big year for Vietnam in more ways than one. High profile figures visited the country, including Westlife and Blackpink, as did the President of the United States and his counterpart from the People’s Republic of China.

But whereas star power has seen this rapidly emerging Southeast Asia nation in global headlines more than once, 2023 wasn’t all pop performances and wining and dining foreign dignitaries. The year 2023, on the whole, was a challenge for Vietnam though with one crucial caveat—for foreign firms it was a markedly different experience to their Vietnamese counterparts.

In fact, possibly never before have the two-speeds (foreign-invested versus domestic) of Vietnam’s economy been as clear and apparent. In 2023, local firms in a number of sectors closed as they struggled to access capital, whereas foreign direct investment (FDI) has continued to break ground on a myriad of projects to the tune of record breaking US dollar-figures.

Overall, the year 2023 was a mixed bag for Vietnam and here’s how.

Real estate

The local real estate sector, for example, ran into some hard times this year. On the back of new bond market regulations that made it difficult to access capital, (among a few other issues), firms were forced to suspend work on a number of projects around the country. This, in turn, led to a drop in consumer confidence in a second blow to the sector. Said bond regulations were later suspended; however, the damage was already done and the sector would find itself barely inching along for the rest of the year. (See: Vietnam’s Real Estate Market Turmoil Explained).

In contrast, however, where domestic real estate firms were struggling, foreign real estate firms saw an opportunity. Big real estate names the likes of CapitalLand, Marubeni Corporation, and Gamuda, from Singapore, Japan, and Malaysia, respectively, all declared their intentions to scale up their holdings in Vietnam and/or launch new projects in the country. This gave a much-needed life line to many of Vietnam’s real estate firms, and has been a grand opportunity for foreign investors.

Moving into 2024, as the sector continues to struggle, there are likely to be more mergers and acquisitions forthcoming.

Manufacturing

Likewise, in manufacturing, local firms took a hit. Garments and textiles in particular saw a big drop in orders and subsequently revenue plunged. A number of firms were forced to lay off workers, mostly in and around Ho Chi Minh City. In one recent case, Garmex Saigon Corporation, which had 4,000 workers just three years ago, revealed it had shed its workforce to the point that it had just 37 employees left. Orders were simply not coming in, the organisation said—and this has been common throughout the sector. In fact, textile and garment exports were down a whopping 12.3 percent year-on-year at the end of November.

Conversely, exports on the whole have fared much better—still down on last year but not by quite as much (5.8 percent in the first 11 months of the year). Of note is that 73.4 percent of Vietnam’s exports were facilitated by foreign-invested enterprises, which recorded a trade surplus of US$43.49 billion. Local firms accounted for the remaining 26.6 percent and recorded a trade deficit of US$19.05 billion.

Electricity

There were a lot of big moves in Vietnam’s electricity sector this year. The long delayed Power Development Plan 8 was finally approved, which sparked a flurry of excitement in the renewable energy sector as firms finally got the framework they needed to start planning future investments.

Furthermore, just last week, the first phase of the Just Energy Transition Partnership agreement, an investment roadmap dubbed the Resource Mobilisation Plan, was announced at the Conference of Parties 28 (COP28 in UAE). Although it wasn’t everything that the partners and Vietnam had hoped for, it was still a step in the right direction, with Vietnam in dire need of more power.

In fact, power shortages gripped northern Vietnam in the height of summer in 2023 and they did not discriminate. A number of big names reported limited operations due to said power cuts, including facilities owned by Samsung, Foxconn, and Canon (see: See: Vietnam’s Electricity Sector: Challenges and Prospects for Foreign Investment).

This was problematic for obvious reasons with more than one astute observer suggesting this was likely to impact future FDI inflows. This has not yet happened, with FDI into Vietnam reaching record breaking levels.

FDI

In 2022, Vietnam recorded FDI inflows to the tune of US$27.72 billion. By November 20 this year, however, it had already reached US$28.85 billion, a 14.8 percent increase over the same period last year. This was made all the more remarkable in the context of a greater global economic downturn.

Those inflows have been into everything from real estate, to manufacturing and processing, to banking. Japan’s Sumimoto announced back in March that it would inject US$1.5 billion for a 15 percent stake in Vietnam’s VP Bank. This was one of the bigger investments but there were still many other very-big deals—Chinese firm Luxshare-ICT announced it would invest an additional US$330 million in Vietnam’s Bac Giang province and Singapore’s CapitaLand announced it would be investing US$740 million in a residential project in Hanoi.

What to expect from 2024

Moving forward, Vietnam is clearly well positioned to continue to pick up manufacturing work from its neighbour to the north as foreign firms look for supply chain security through regional diversification. It’s also highly likely that there will be more big real estate investments and projects spearheaded by foreign firms.

That said, Vietnam’s GDP growth in the latest ADB Outlook is estimated to be in the vicinity of the 6-percent-mark next year, which is not bad by any stretch, but not quite as good as it was way back before COVID.

Moreover, this will largely be contingent on events unfolding in other parts of the world. Notably, inflation in the US and EU, along with consequent monetary policy decisions, has exerted a significant impact on the Vietnamese economy throughout this year and is expected to continue into the next.

These challenges, however, appear to be only temporary. On the whole, Vietnam is in good stead to continue to produce decent growth numbers—its workforce is still young and youthful, and wages are still regionally competitive and they will be for some time to come. Firms looking to establish operations in Vietnam may find that 2024 is the perfect time to do it.

To learn more, contract the business advisory experts at Dezan Shira and Associates.

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