How Tourism, Exports and Economic Reforms Are Driving Vietnam’s Economy

One way to invest in Vietnam is through the VanEck Vietnam ETF, symbol VNM on the CBOE. We see this ETF as a buy for aggressive investors who want to invest in the promise of Vietnam’s continuing economic growth. Here’s why:

Tourism has become one of the major segments of Vietnam’s economy in recent years, but the industry was severely disrupted by the COVID-19 pandemic. Today, the country’s tourism sector continues to recover following the reopening of its border to international tourists in March 2022, contributing to the overall growth of Vietnam’s economy.

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The growth in the Vietnamese tourism industry has been impressive. From 2009 to 2019, international tourist numbers increased almost 400%, while spending increased by 300% to $12 billion. In 2019, the country was ranked the 7th fastest-growing tourist destination in the world.

In 2019, the country received 18 million international tourists. That placed it among the 35 most popular global tourism destinations.

In that year, tourism contributed directly and indirectly almost 10% of Vietnam’s GDP; an estimated 2.5 million people were working in tourism-related business.

During the peak COVID period, international tourists stayed away, but they are now returning in large numbers. In 2023 the country received 12.6 million visitors, and there’s a good chance that the 2019 peak will be matched this year.

Investors can share in Vietnam’s export gains

A decade after the end of the north-south war in 1975, Vietnam was still one of the poorest countries in the world. However, since the enactment of Vietnam’s “doi moi” (renovation) policy in 1986, the country has followed a path of economic liberalization and implemented structural reforms to modernize and produce competitive export-driven industries. These reforms have been crucial in transforming Vietnam’s economy into its current dynamic state.

Vietnam is a one-party state ruled by the Communist Party, and The People’s Army of Vietnam has a significant influence on the political system. The country’s socialist-oriented market economy shares many common characteristics with the Chinese economy, combining a market-based economy with state-owned enterprises.

The size of the Vietnam’s economy is measured at around $430 billion, which places the country among the top 40 in the world.

Exports are an important part of the economy with the equivalent of 94% of GDP exported in 2022. The size of the population is 106 million and the unemployment rate is 2.3%.

Despite the extensive involvement of the government in the economy, the country grew its gross domestic product by over 6% per year between 1986 and 2019 It also improved its government effectiveness and global competitiveness scores.

A variety of factors, including trade liberalization and free trade agreements that helped the country expand its exports, are major contributors to that growth in the past and going forward.

Another factor were the comprehensive domestic reforms that promoted deregulation; this lowered the cost of doing business and opened the economy to foreign investors. A demonstrable outcome was the country’s improved ranking in the Global Competitiveness Report—from almost last in 2000 to number 67 (out of 144) in 2019.

A further factor was large-scale investments in primary education and the Internet. As a result of the investment in education, Vietnamese students perform very well in the Program for International Student Assessment by beating students from many developed countries.

The Vietnamese economy also derived benefits from the trade war between the U.S. and China, with numerous prominent companies establishing or expanding production facilities in Vietnam in recent years. These include Foxconn and Pegatron from Taiwan, Kyocera, Sharp, Ricoh, and Nintendo from Japan, Samsung from Korea, and Dell from the U.S.

In fact, Vietnamese exports increased in U.S. dollar terms by 170% over the past decade, with an expanding share of U.S. imports being sourced from the country.

Apart from the U.S., key export partners include China, South Korea, and Japan. The main export products include electronics, telephones, clothing, integrated circuits, food, and machine parts. This diversification of exports has been a key factor in strengthening Vietnam’s economy and reducing its vulnerability to external shocks.

Growing exports also helped the Vietnamese economy to register positive growth in 2020 to 2022 despite strict measures to control the spread of COVID-19.

The World Bank estimates GDP growth of 5.5% for 2024, up from 5.1% in 2023, driven by increasing global demand and restored domestic consumer confidence. Growth is then projected to rise to 6.0% in 2025.

Inflation has moved higher but is still relatively low. The latest reading of the consumer price index indicated that prices moved up by 4.4% in April 2024, compared to a year earlier.

Inflation has eased on rising interest rates. The central bank base policy rate is now at 6.0%.

Government finances are sound, although the budget surplus turned into a moderate deficit as government spending surged during the peak COVID-19 years of 2020 to 2021. Government debt measures a relatively modest 38% of the economy.

The Vietnamese currency, the dong, has been stable against the U.S. dollar for the better part of the past decade but has dropped about 10% against the dollar in the past year.

All in all, Vietnam remains one of the fastest-growing and most rapidly developing countries in the world.

The VanEck Vietnam ETF is a buy for aggressive investors who want to invest in the promise of Vietnam’s continuing economic growth.

How do you think Vietnam’s economy will evolve in the coming years? Share your thoughts on the challenges and opportunities facing Vietnam’s economic growth below.