Is Vietnam Poised to be the Next Big Manufacturing Hub?

Basic Current Economic Situation

In the last decade, Vietnam has become a very fast-growing economy, registering an annual GDP growth of 7.1% in 2018 (highest following the last decade), and a record-high 8.02% growth in 2022. Their average annual growth rate in 1985 was 3.86%. They were the few countries to still produce growth during COVID-19, of around 2.19%. This can be largely attributed to the shift in labour allocation from primary sectors (such as agriculture) to secondary and tertiary sectors like manufacturing, services and construction sectors, as well as increased urbanisation, tourism and urbanisation.

Image Belongs to Copyright Holder: From Data Worldbank

Main Sectors in the Economy

The industrial, agricultural and services sectors of the Vietnamese economy are leading their recent growth. The agricultural sector is accountable for around 11.99% of Vietnam’s GDP (408.8B USD), encompassing not just agriculture, but also forestry and fishing. Top agricultural products include rice, coffee, corn, nuts, tea and cotton. Agricultural sectors maintain a labour workforce of 14 million- around 14.25% of Vietnam’s total population (as of 2022).

For decades, Vietnam has been an agricultural powerhouse due to its favourable yearly climate, fertile soil, abundance of natural resources and authorities’ tendencies to prioritise the preservation of farmlands. Lately, Vietnam have been trying to develop and switch their exports to more capital good based industries.

The industrial sector, including construction and manufacturing, contributes to 38.6% of Vietnam’s GDP, marking employment of 11.8 million individuals. In 2022, Vietnam ranked 21st in overall global exports; while a large portion of this is agricultural products, Vietnam’s top capital exports include phones, accessories, computers, machinery, textiles and garments.

Exports of Goods and Services in Vietnam, From 2000 to 2022 (USD)

Vietnam’s popularity for outsourced manufacturing of goods designed in other countries comes due to their high concentration of labour and therefore low labour costs.

Finally, the services sector is the largest and most profitable in Vietnam, accounting for 41.38% of Vietnam’s GDP, mainly through tourism and telecommunications. However, these industries were largely affected by COVID-19, and Vietnam continue to go through a ‘rebuild’ phase to produce services.

Potential Challenges + Solutions

50 years ago, Vietnam was poised as a potent military power in Asia, with the agriculture and business on a rise, however the Vietnam War disrupted these industries on a large scale- cities and towns were destroyed.

Even 50 years later, Vietnam is still a largely developing country. They possess a lot of inadequate infrastructure, bureaucratic inefficiency and some environmental concerns (Vietnam is in Asia’s top five worst polluters, especially regarding plastic waste in the ocean.) However, due its workforce being young, and Western allies looking to shift manufacturing of textiles and machinery away from China into other parts of southeast Asia (Thailand, Philippines etc.), Vietnam is looking at huge amounts of foreign investment in the future.

In 2019, for reasons stated above, the EU signed an agreement with Vietnam known as the EU-Vietnam Free Trade agreement, promising to eliminate 99% of import tariffs, open up new goods and services market, and much more.


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Cover Image: CGTN