Political, Economic, Social, and Technological attributes together represent four fundamental domains of an economy that play as a strategic tool for foreign investors to conduct panoramic view upon opportunities and challenges, market growth, business position, and navigate direction for potential investments
Political Environment in Vietnam
- Improving Economic Freedom ranking: Vietnam ranks as the 84th most free economy in the 2022 Index with a score of 60.6 while in the Asia Pacific area, Vietnam is placed 18th out of 39 nations. Therefore, Vietnam has now been classified as a “moderately free” nation.
Source: 2022 Index of economic freedom
- Corruption becoming less of a problem: CPI or Corruption Perceptions Index is the most widely used global corruption ranking in the world. Vietnam’s CPI has risen steadily since 2012, reaching 87th place in the most recent year, thanks to the increasing efforts from the government to tackle graft.
Source: Corruption Perceptions Index
Economic Environment in Vietnam
- Strong short-term economic recovery: Recently, the Vietnamese government adopted the Economic Recovery and Development Program, which was designed to boost industrial production while also bolstering economic momentum through improved external sector performance and a supportive monetary policy, per Vietnam News. As a result, annual real GDP growth was predicted to be 6.8% in 2023, which will be much greater than the averages for the Asia Pacific of 4.7%.
- Inflation to remain lower than peers: Although rising energy costs due to the conflict in Ukraine are likely to contribute to Vietnam’s inflation rate, changes in prices are predicted to be more restrained in the medium term. The IMF anticipates that in 2022, inflation will be below the government’s target of 4.0%, demonstrating that the nation is protected from foreign inflationary pressures.
Source: International Monetary Fund
Social Environment in Vietnam
- Relatively young, wealthy consumer base by 2040: Gross income per capita in Vietnam is forecast to increase by 148% in real terms over 2021- 2040, per Euromonitor. This measurement will increase at a faster pace compared to the Asia Pacific average and this is due to substantial foreign investment, strong domestic demand, and increasing manufacturing exports. Due to their growing exposure to Western culture and environmental awareness, as well as their use of social media and internet connectivity, the Middle Youth will therefore be a significant influence on discretionary expenditure in 2040.
- Large consumer market: Vietnam’s population is projected to increase by 9.1% over 2022 – 2040, and the population is forecasted to reach approximately 107.8 million by 2040, per Statista. As a result, it is envisioned that consumer-facing businesses would become more desirable, which will be supported by rising incomes.
Source: Euromonitor
Technological Environment in Vietnam
- Forecast growth in Internet use: By 2026, it is forecasted that 85.7% of the Vietnamese will use the Internet, up from 74.6% in 2021. This will open up excellent opportunities for technology companies to keep expanding their presence in Vietnam. It is also promising for e-commerce as more companies will adopt the internet as the critical channel to increase sales, particularly in the retail industry.
- Ambitious targets for digital transformation: It is expected that Vietnam will have 157 million mobile phone subscribers by 2026 or more than one subscription per person. This trend is being driven by the growing popularity of smartphones and the increased use of mobile technologies for business purposes. Therefore, these statistics show that Vietnam’s Mobile Commerce (M-Commerce) market is a very lucrative one for international organizations to enter, per Brand Vietnam.
Conclusion
Overall, Vietnam has become an emerging destination for foreign investors thanks to the country’s macroeconomic attributes including a stable political environment, urbanization, a young population, and attractively low wages. Due diligence process upon aforementioned major realms in relation to investment plan is of critical significance in driving the success of the business operation in Vietnam now and in decades to come.
