Vietnam’s economy has reached a very positive point in its economic transition from a centrally planned economy to a market-based economy.
Since the end of the Global Financial Crisis (GFC) in 2012, Vietnam’s gross domestic product (GDP) has continued to grow year-on-year. Vietnam’s GDP grew by 6.98 per cent between January and September 2018 (more than the Government’s 6.7 per cent target according to the General Statistics Office in Hanoi), representing the highest nine-month growth rate since 2011, and the second highest in the Southeast Asia region (behind Cambodia at 7 per cent).
RMIT Vietnam’s VinaCapital Professor of Private Equity Professor Ian Eddie believes the Government’s adoption of a strong policy in stability has contributed to building a prosperous Vietnam now, and into 2019 and 2020.
“The Government hasn’t made as many reforms as people have wanted, but the caution has reduced the level of risk for such a young economic market,” he said.
Currently classified as a Frontier Market by Morgen Stanley Composite Index, Vietnam’s growth is slowly shifting it towards an Emerging Market. A move to an Emerging Market classification will mark an important economic transition in the ASEAN region for Vietnam, as it will attract more foreign capital from large international investments that will support the development of the Vietnamese economy.
“You can argue that Vietnam probably has the best prospects to move further up towards the level of economic standards in Thailand and Malaysia. It has positioned itself well, reformed its financial system, has strong Government stability and in terms of Emerging Markets, has one of the strongest currencies,” Professor Eddie said.
“Vietnam has very strong foreign investment which has now exceeded more than 100 per cent of the GDP of the country. It’s in a very unique position as not many countries in the world have more foreign direct investment than GDP.”
According to Professor Eddie, the transition will depend on Government reform of state-owned enterprises.
“Reforms in market and securities will be critical to achieve the Emerging Market status. It’s important for Government to close those gaps, in order to sustain future growth, maintain openness for foreign companies and workers to come, and continue supporting new business startups. Cities today really need to be the centre for innovation and encourage new businesses.”
Supported by a strong Government policy, the entrepreneurial spirit in the country is thriving, particularly in Ho Chi Minh City which is home to half of all startups. It’s because of this natural entrepreneurial mindset and business capability that the people have been able to adapt to Vietnam’s emerging venture capital industry.
“The Vietnamese are very good at starting business. I think the next generation of entrepreneurs is going to look for opportunities to scale up their small businesses to create sustainability, higher pay rates and more opportunities for workers,” Professor Eddie said.
“Vietnam currently has a big export economy; most of the exports are sourced from foreign direct investments. But if Vietnamese companies are growing themselves and building their skills, they will be able to build their internationalised ASEAN capabilities further.”
RMIT Vietnam is supporting this entrepreneurial focus through the Graduation Certificate in Business Startups. These students all experience the real-life process of building a business plan and dealing with venture capital companies through the University’s Activator initiative, so they can take their business into the real world by graduation.
“We want to give our students the first step through the door into the commercial world where they are raising capital to turn their ideas into business products or services. So our graduates will be competitive in the market place, and in turn create jobs and opportunities for many other people in Vietnam,” Professor Eddie said.
While all signs point to positive growth for Vietnam’s economic outlook in 2019, Professor Eddie highlighted two clear challenges facing the Government in the next few years: sustaining strong economic growth in the face of a turbulent global economic environment, and managing inequity.
“The Government needs to retain a strong currency to ensure that the capital inflow is positive so that Vietnam has a positive trading balance, a strong currency and doesn’t resort to excessive borrowing of international funds that creates financial risk. If Vietnam can do that it will be well placed as a beneficiary, particularly if the trade war between the U.S. and China deepens in any way,” he said.
“Last year in the Global Wealth Index (Wealth-X), Vietnam was the third fastest growing country to generate new world billionaires. What an amazing fact; not only are there many successful entrepreneurs here, they’re successful at a global level. But this is also an issue that the Government needs to be well aware of; there is still a degree of poverty, and income equity is a big issue. Income equity is always a fundamental issue for economic stability. The more inequity in any country, the more likelihood you’re going to get social and political unrest.”
Professor Ian Eddie is the VinaCapital Professor of Private Equity at RMIT Vietnam. His work focuses on research in economics and the capital market in Vietnam.
A recognised expert in international corporate governance regulations and practices, Professor Eddie has more than 20 years of experience in the strategic management of business school research programs and activities. He has held senior academic leadership positions in three Australian universities including the Head of the New England Business School at the University of New England, Dean of the Faculty of Business and Government at the University of Canberra, and Director of the Graduate College of Management at Southern Cross University.
Story: Lisa Humphries