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Vietnam Exports See Massive Growth as Neighbors Lag Behind

There are plenty of issues facing Vietnam’s economy – bad debt, over-reliance on FDI and weak consumer demand. But according to the Wall Street Journal, Vietnamese exports are enjoying tremendous growth, as its SE Asian neighbors lag behind.

Offering cheaper labor than China and a highly literate workforce, international companies are flocking to Vietnam in droves. Perhaps even more importantly, Vietnam is “a beacon of stability,” compared to neighboring countries like Thailand which is experiencing a period of political crisis.

“If you’re a foreign firm trying to offshore your production, one of your considerations is whether or not the people in power, the decision-makers, will stay the same,” HSBC economist Trinh Nguyen told the paper.

In addition to political stability, ANZ Bank economist Devika Mehndiratta said that Vietnam has found a “sweet spot” in electronics production, meeting high demand in China and the US: “In the last five or six years, from pretty much nothing, that has taken off hugely.”

In 2012, Vietnam’s electronics exports jumped nearly 68% and 35% in 2013 while phone exports grew by 85% and 67% in those two years.

HSBC’s manufacturing PMI for Vietnamexpects the country’s exports to grow by 20% in 2014.

If you’re thinking that Vietnam may find itself in China’s shoes in the near future, with foreign manufactures moving onto cheaper production bases as domestic labor costs increase, you’d be right.  

But Ms. Nguyen thinks this problem is still a ways off: “As you’ve seen in China that strategy can’t go on forever, but for the next decade at least it can continue.”

Hopefully Vietnam sees this economic challenge on the horizon and uses the next 10 years to learn from China’s mistakes and invest in sustainable areas of the economy, especially local businesses that will stick around instead of taking off for countries offering lower labor costs.

 

[Wall Street Journal // Photo via David Z]

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