The future of Vietnam's economy
/My initial view on Vietnam is that it is moving from a rural, agriculture-led economy to an urban, manufacturing-led economy. But I wanted to see if the data really held up to that.
Source: World Bank, chart by Vietecon.com
There were a couple of surprises, plus I am still shocked by how quickly the economy has changed.
You can see in the chart on the right that cumulative growth in manufacturing value added has vastly surpassed both real GDP growth. Services are mostly in line with real GDP, which is already quite high (7.5x 1985 figures). Agriculture has lagged at just 3x 1985 figures. But this doesn’t show the whole story.
Source: Vietnamese GSO, chart by Vietecon.com
The General Statistics Office of Vietnam also has data on GDP by sector, but instead of growth it is based on nominal GDP (meaning in current VNDbn). The VND figures are kind of meaningless, because there has been massive devaluation (in 1986 $1 was worth VND23; now it’s worth VND23,192). But you can see how the mix has changed.
Oh, and yeah, that was a surprise: the massive devaluation. to go from 23 to 23,000 in less than 30 years. But we have seen it in other countries as well. This is mostly due to inflation of the currency, but the government has that in hand for now (helped by moderate inflation world-wide). Core inflation was just 2.01%, while the CPI rose just 2.79% in 2019.
Source: Vietnamese GSO, World Bank, calculation and chart by Vietecon.com
Back to GDP: if we switch over to USD, then it is a bit clearer, potentially. Or at least, the numbers will be smaller. Total GDP is almost $250bn, of which 41% is services, 34% is manufacturing and 15% is agriculture (this includes aquaculture and forestry).
Source: Vietnamese GSP, chart by Vietecon.com
The breakdown is a bit clearer in the pie chart to the right. If we look back at 1986, the first year of figures, total GDP was $26bn, of which $10bn came from agriculture, $8bn from industry and $9bn from services. Basically an almost even split.
That isn’t the case anymore.
Source: World Bank, chart by Vietecon.com
I was most surprised by the jump in services. I thought for sure that industry & construction would be much greater than services. These are 2018 figures, and I am sure these figures changed a bit in 2019, but services continued to rise. Retail sales were up 11.8% in 2019 (based on preliminary figures from the GSO), while the industrial production index was only up 9.1%. Plus international visitors grew 16%. That’s a big jump and adds to the growth in services (tourists not only shop but they also stay in hotels, take tours, eat in restaurants etc.).
The last chart I want to leave you with is the one to the right. This shows the change in daily lifefrom having an evenly split economy to one where agriculture is much less important.
Employment in agriculture has fallen 30pp from almost 70% of total employment to less than 40%! In 27 years! Remember that the average age of the population is 30.5 years, which means that the majority of people have come to age in a period when agriculture is no longer the default job. But their parents and grandparents were almost certainly farmers and rural.
All of this means massive changes and restructuring. One of the major risks is that the people making decisions (many of whom are in their 50s or 60s or older). The president is 75. These leaders have lived through a massive change, but also, they grew up in a period when the economy was just completely different. Now this is true all over the world, but the change in Vietnam has been spectacular. It will be interesting if they can continue to make the right decisions, because the success so far has been tremendous.