Over the last few decades, Vietnam has been transformed from one of the world’s poorest nations, emerging as a key destination for low-cost and high-technology manufacturing and sourcing. There are a number of driving forces behind the country’s growing popularity, including its young, tech-savvy population, its participation in free trade agreements, and the opportunities it presents as an alternative to China for companies looking to diversify their supply chains.


Trade and economic overview

In 2020, Vietnam demonstrated remarkable resilience to the pandemic. The country had successfully contained the virus for most of last year – rolling out one of the world’s most effective Covid-19 responses. It also achieved one of the highest gross domestic product (GDP) growth rates in the world, at 2.9%.1

Since April this year, however, it has been battling its worst Covid outbreak, driven by the highly contagious delta variant, and the surge in cases in recent months has hit the Vietnamese economy.

In September the Asian Development Bank lowered its GDP growth forecast for the year by two percentage points to 3.8% on account of the impact of the ongoing Covid wave on economic activity.

Restricted movement and social distancing rules had led to temporary disruptions in industrial zones. However, these are gradually being eased, allowing companies to resume higher production activities.

The recent acceleration of Vietnam’s vaccine programme – previously held back by supply shortages and other challenges – and targeted vaccination drives in key economic centres, are set to play a significant role in boosting the country’s economic recovery towards the end of the year and into 2022.

According to its Taking Stock biannual report, the World Bank expects the Vietnamese economy to converge toward its pre-pandemic GDP growth rate of 6.5 to 7% from 2022 onward, with World Bank Acting Country Director for Vietnam, Rahul Kitchlu, noting in a release that “while downside risks have heightened, economic fundamentals remain solid”.2

“The overall outlook is contracted in 2021, but it is expected to be short-lived,” says Jared Mecham, Director, Vietnam Treasury and Trade Solutions Head at Citi. “There’s still a lot of optimism about the future, particularly as vaccination rates continue to rise. The pandemic hasn’t changed Vietnam’s attractiveness as a manufacturing and investment hub, and its medium and long-term prospects remain bullish.”


Ongoing export success

In the first six months of 2021, Vietnam’s trade in goods totalled US$317.66bn, 32.5% above the same period the year before, according to a preliminary assessment of the country’s trade performance by the General Department of Vietnam Customs, published in early August.3

Vietnam Customs data shows that the country’s largest export sector in the first half of the year was ‘telephones, mobile phone and parts thereof’, which reached US$25.05bn in export value and was up 14.1% on a year-on-year basis. At US$23.87bn, and with an increase of 22.8% from the previous year, ‘computers, electrical products, spare parts and components thereof’ was the second-largest export sector for the period. ‘Machine, equipments, tools and instruments’ reached US$11.1bn, up by 64.1%, with ‘textiles and garments’ hitting US$15.31bn, an increase of 15.5% on the previous year.

“Going forward, in terms of trade opportunities, electronics will remain a big part of Vietnam’s exports,” says Kathiravan Kanagasingam, VP Trade, Vietnam Treasury and Trade Solutions at Citi. “The Korean corridor continues to grow, despite the established presence of many clients. We are also seeing new corridors opening up, with increased investment from Greater China companies into Vietnam.”

The country’s semiconductor market is poised to grow by US$6.16bn over the next four years at a rate of almost 19%, according to market research firm Technavio.4

“Elsewhere, green projects are another focus industry, and the government’s goal is to double wind energy production by 2030 and triple renewable energy production between 2030 and 2045,” says Kanagasingam.

Vietnam is also fast emerging as a regional hub for financial technology companies. The country’s fintech startup landscape more than tripled in size between 2017 and 2020, as noted in a report by Fintech News Singapore.5

“Vietnam experienced a quantum leap in terms of payments; a market that was predominantly cash based has transitioned quickly into one that is home to an increasing number of digital wallet users, presenting growth opportunities to fintech service providers,” says Kanagasingam, adding that Citi engages a local fintech company on the cash management side of the business, and is also partnering with regional fintech players to offer trade solutions.


Comparative advantages

For years Vietnam has been strengthening its position in global supply chains and has emerged as an ideal ‘China plus one’ location as companies seek to reduce their over-reliance on a single production base.

Vietnam’s advantages include its low labour costs in comparison with China and other countries in the region; its strategic position in the centre of Southeast Asia and close proximity to China; its young, well-educated population; and a government that continues to prioritise improving business policies and labour laws and incentivise infrastructure investment.

In a bid to further boost its competitive advantage and grow its export markets, Vietnam has signed free trade agreements with a number of international counterparties, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, and recently with the UK and the EU.

“These agreements have helped Vietnam to grow its export footprint by reducing tariffs and simplifying the customs procedures in these markets,” says Kanagasingam.

The country’s ability to tap into intra-ASEAN trade flows are equally important. A report by the Economic Research Institute for ASEAN and East Asia published in August finds that Cambodia, Lao PDR, Myanmar and Vietnam’s share in intra-ASEAN exports increased from 7% to 9% between 2012 and 2018, while their share in intra-ASEAN imports expanded from 10% to 16% over the same period.6 “The emergence of these four countries has been one of the most important features of ASEAN’s recent growth experience,” the report says.

“The advantages of operating in Vietnam far outweigh the risks, but challenges remain,” says Mecham. “These challenges include infrastructure, where there is a gap, but which continues to improve; the availability of skilled labour in concentrated industrial and FDI zones; and a complex and rapidly evolving regulatory environment. New companies seeking to enter the Vietnam market can more successfully navigate these challenges by seeking out trusted legal, consulting, and/or banking partners.”


Financing support

ASEAN is an important cluster for Citi’s Asia Pacific business, and the bank has had a presence in the region for more than a century.

In Vietnam, Citi’s trade support is focused on three key trends. One centres around holistic working capital solutions for clients, aimed particularly at capturing those that are part of supply chain shifts. “These solutions span supply chain finance, sales finance and leveraging the network to facilitate cross-border flows,” says Kanagasingam.

Another trend is focused on green financing. “Providing ESG-linked financing for transactional flows as well as green projects, particularly wind and solar, is a key area for Citi. We continue to look for opportunities in Vietnam where we can leverage our strong partnerships with export credit agencies and development institutions to fund long-term green projects,” he says.

The third theme is digitisation. “The pandemic has forced companies around the world to digitise, and we too are trying to be as digital as possible within the framework of Vietnam regulations,” says Mecham, noting that this includes facilitating trade transactions on CitiDirect BE®, the bank’s electronic platform for corporate and institutional clients.


Regional growth prospects

With a combined population of approximately 661.5 million inhabitants across its 10 member states, over half of which are younger than 35 years old, and a 5.6% GDP growth rate in 2021, as forecast by the OECD in June last year, ASEAN is set to continue its upward trajectory. By 2030, its fast-growing economy is expected to eclipse Japan and become the fourth largest in the world.

“Like Vietnam, the impact of the virus on the wider ASEAN region is still evolving,” says Anoushka Dua, Managing Director, ASEAN Trade Head at Citi. “Although growth predictions have generally been revised downwards in recent months because of the pandemic, the acceleration of vaccination programmes, as well as containment measures should help us to see recovery returning in the second half of this year.”

The growth factors driving Vietnam’s development are analogous to those boosting expansion across the ASEAN region. “The supply chain shifts out of China in favour of some of the markets in ASEAN, such as Vietnam, Thailand, Indonesia and Malaysia, had started even before the pandemic, driven primarily on account of geopolitical and economic factors. The pandemic has not only accelerated that trend, but also made companies more aware of the need to ensure their supply chains are diversified away from single sources and closer to end markets, and more resilient against disruptions,” Dua explains.

“This, together with the region’s young, digitally native and growing middle-class population, exponential development in tech and the digital economy, urbanisation and infrastructure projects, are really the major trends propelling ASEAN towards becoming a very important growth region,” she says.



  1. https://documents1.worldbank.org/curated/en/522031629469673810/pdf/Taking-Stock-Digital-Vietnam-The-Path-to-Tomorrow.pdf
  2. https://www.worldbank.org/en/news/press-release/2021/08/24/vietnam-s-economy-is-forecast-to-grow-by-about-4-8-percent-in-2021
  3. General Department of Vietnam Customs: https://www.customs.gov.vn/Lists/EnglishNews/ViewDetails.aspx?ID=794&Category=News%20and%20Events&language=en-US
  4. https://www.technavio.com/report/semiconductors-market-in-vietnam-industry-analysis
  5. https://fintechnews.sg/45354/vietnam/2020-fintech-vietnam-report-and-startup-map/
  6. https://www.eria.org/uploads/media/Books/2021-Impact-of-the-ATIGA-on-Intra-ASEAN-Trade/Impact-of-the-ATIGA-on-Intra-ASEAN-Trade.pdf

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