For sustained success, Vietnam should learn from the mistakes of others
VietNamNet would like to introduce an article by Mr. Jens Ruebbert, Managing Director and Regional Head of Asia Pacific and Dr. Moritz Kraemer, Chief Economist, Head of Research of the Landesbank Baden Wuerttemberg Bank (LBBW), which offer advices for Vietnam’s future development.
The world is in turmoil. A terrifying war is underway in Europe that could escalate to the unspeakable any day. The pandemic is still a lingering threat that keeps the world economy, and especially China’s at bay.
The old model of globalization is severely tested as erstwhile reliable supply chains are ruptured and seem to refuse to heal. Moreover, as if that was not enough, inflation appears to be getting out of hand in much of the advanced economies as commodity prices soar and labor becomes increasingly scarce.
Investors have thrown in the towel and financial markets have sold off in an unrivalled act of capitulation. The myth of a harmonious global world order based on a uniform endorsement of capitalism, free trade and democracy is well and truly debunked, as geopolitical experts, not economists, dominate the news screens. The only consolation seems to be that things cannot get much worse from here. Or so we hope.
Yet, the night is darkest just before dawn and there are reasons for cautious confidence, if not even optimism. However, one needs to look judiciously.
Globally operating companies, under margin pressure from all of the above complications, do indeed look carefully in their search of reliability and resourcefulness. International companies will progressively search out new locations in their quest to diversify sources of supply, after they have become painfully aware of the risk that came with putting most of their eggs into the Chinese basket.
A place more and more of them seem to find to fit that bill is Vietnam, a country many Western managers used to associate with Hollywood movies depicting a cruel and prolonged war. What attracts them today is easy to understand: political and monetary stability, economic openness, and an industrious workforce with an hourly wage half of that in China.
Vietnam also benefits from weaknesses and policy missteps elsewhere, especially China. Whereas China’s economy dwarfs Vietnam’s fiftyfold and GDP per capita is three to four times larger, the dynamics look quite different. Vietnam will outgrow China going forward, partly because of China’s rapidly shrinking labor force and debt-ridden companies.
But also because investment pours into Vietnam: net FDI inflows have averaged 5% of GDP annually, by far the highest ratio in the region. Accordingly, the industrialization process has been supercharged. The share of manufacturing in GDP has risen to over 17%, from about 13% a decade ago. Investment is attracted by the still plentiful and relatively cheap labor, making Vietnam an exporting powerhouse.
In many ways, HCM City resembles Shanghai twenty years ago. A place of seemingly limitless promise. Nevertheless, this similarity should also act as a reminder to Vietnam to avoid the missteps of their neighbor. For sure, the larger than life experiment of China’s one child policy has not been emulated. This will help to avoid the labor crunch China is going through right now.
However, Vietnam’s dynamic population will lead to other challenges. Population density is already twice as high as China’s, and growing quickly.
The Global Footprint Network, an environmental think tank, estimates that the environmental footprint of the average Vietnamese is over twice as big as the country’s available bio capacity per person (*).
That was the situation in China 20 years, where it has significantly worsened since, affecting not only biodiversity and human health, but also economic efficiency and productivity. With Vietnam’s population of almost 100 million still growing, this challenge will only get bigger.
This underlines the urgent need to safeguard a sustainable path towards prosperity as well as to upgrade the population’s skill level, speeding up the climb up the value chain. Korea and Singapore may have a few lessons to share in this respect.
Right now, Vietnam is full of promise. The recent ratings upgrade by S&P Global makes it likely that the country will be the next “rising star”, referring to the achievement of its first investment grade rating in the next few years.
Sustained success demands that the country’s leaders remain vigilant against complacency or hubris. The investors that are now flogging to Vietnam might otherwise move on looking for greener pastures in the next Vietnam.
Mr. Jens Ruebbert currently represents the Landesbank Baden Wuerttemberg Bank as Managing Director, Regional Head for the Asia Pacific region. Throughout more than 30 years banking experience, Mr. Ruebbert has held various leadership positions across Europe and Asia. In these roles, he has been a tireless advocate for the advancement of economic cooperation as well as for the reduction of barriers to trade between Asian and European countries. Likewise, he set decisive impulses in Vietnam for intensified economic dialogues with Germany and EU. In 2021, Mr. Ruebbert has been honored with German Order of Merit acknowledging his great contributions towards forging closer ties of Asia’s economies with Germany and EU.
Dr. Moritz Kraemer is Chief Economist and Head of Research at Landesbank Baden Wuerttemberg Bank, based in Stuttgart, Germany. Until 2018 he was at S&P Global as the Sovereign Ratings Group’ Global Chief Ratings Officer, overseeing the analytical work on assessing the creditworthiness of over 130 national governments worldwide. Dr. Kraemer started his professional career as an Economist at the Inter-American Development Bank in Washington, D.C. and Tegucigalpa/Honduras. He holds a PhD in Economics from the University of Göttingen (Germany).
(*) Environmental footprint measures human demand on natural capital, i.e. the quantity of nature it takes to support people or an economy. In short, it is a measure of human impact on the environment.