Vietnam has emerged as a sought-after partner, strategically positioned between two giants ~ China and the United States. The visits of US President Joe Biden and Chinese leader Xi Jinping in 2023 underscore Vietnam’s relevance on the world stage. Yet, as the country positions itself for economic prosperity, internal challenges threaten to impede its journey. Vietnam’s economic story is one of remarkable transformation. Opening up in the mid-1980s with an annual income per capita half that of Kenya, the country has since grown six-fold to $3,700. Its pragmatic and pro-business policies have turned it into an attractive destination for foreign investment, especially as geopolitical tensions prompt businesses to diversify away from China.
The manufacturing sector, in particular, has seen a significant shift towards Vietnam. Notable brands are now producing gadgets within its borders, drawing suppliers, including those from China, in their wake. This trend, often referred to as “China + 1,” reflects a strategic move by companies to reduce dependence on China and navigate a complex global trade environment. However, Vietnam’s allure is not solely tied to its geopolitical positioning. The country’s young, diligent, and cost-effective workforce has contributed to its economic success. Unlike its Southeast Asian peers, Vietnam has maintained a positive attitude towards commerce, with trade accounting for an astonishing 186 per cent of its GDP in 2022. This openness has attracted foreign direct investment, surpassing that of neighbouring countries.
While Vietnam’s economic performance has been commendable, internal challenges threaten to cast shadows over its prospects. The government’s political paralysis, exemplified by the recent mysterious absence of the 79-year-old leader, Nguyen Phu Trong, raises concerns about the country’s ability to make crucial decisions. A crackdown on corruption, while essential, has made officials hesitant to greenlight major projects for fear of potential scandals. One critical area where indecision looms large is energy. Despite successful efforts to connect homes to the grid, Vietnam grapples with an increasing demand for power, compounded by unreliable supply and a reliance on coal. Transitioning to cleaner energy sources is proving sluggish due to bureaucratic hurdles and a lack of clarity in the legal framework.
The country’s commitment to achieving net-zero carbon emissions by 2050 appears ambitious, given the current challenges in the energy sector. Moreover, Vietnam’s policy landscape is evolving rapidly, demanding agility from policymakers. The global minimum corporate tax rate agreement among OECD countries adds complexity to the government’s strategy of offering tax breaks to foreign investors. Simplifying rules and reducing red tape becomes imperative to maintain Vietnam’s appeal as a business-friendly destination.
For a country that aspires to become a rich nation by 2045, addressing political indecision, streamlining policies, and accelerating the transition to cleaner energy are imperative. The world watches as Vietnam navigates the delicate balance between global alliances and domestic reforms.