Vietnam's Tiger Economy Recovering With Rising Foreign Investment

After a rough few years, Vietnam’s economy is now slowly but steadily recovering amid a surge of direct foreign investment.

Until 2008 Vietnam was expanding at above 8 percent annually and lauded as one of the so-called "tiger" economies of southeast Asia. But growth siezed up in 2009, according to data from Trading Economics. Since 2012 the nation's growth rate has languished under 6 percent. But it would appear that the worst is over – GDP in the first nine months of the year grew 5.14 percent. That's faster than the 4.9 percent first-half growth, according to Standard Chartered research published this week. The reports pegged third quarter at 5.4 percent.

Most of the recovery is driven by foreign direct investment (FDI), which remained strong despite sluggish growth. In the first 10 months of the year, registered FDI rose 95.8 percent to $13.1 billion while disbursed FDI rose 6.4 percent to $9.6 billion, and the country is well positioned to attract even more investment in the coming years.

Standard Chartered surveyed a number of China-based manufacturing clients that are considering relocating and investing in the Mekong region, where Vietnam is located. Most cite China’s rising labor and operating costs as well as a labor shortage for the relocation, and Vietnam could receive a large portion of that investment, attracting business with its roughly 52 million-person workforce.

Vietnam also has a relatively modern and efficient infrastructure, ranking 53^rd out of 155 countries in Logistics Performance Index, according to the World Bank. It enjoys a stable electricity supply with a power grid that covers more than 90 percent of its land, a considerable advantage compared to less developed countries in Southeast Asia like Myanmar, where only 30 percent of the country’s population has some access to electricity.

Exports rose about 17 percent in 2013's first 10 months despite weak external demand, the Standard Chartered note said. What’s more remarkable is that Vietnam is beginning to shift from traditional low-end products to higher-end electronics, which have surpassed textiles to become the country’s top export. Not surprisingly then, 70 percent of registered FDI in the first 10 months went to the manufacturing sector.

Structural issues in banking, state-owned enterprises and the real estate sectors may impede growth in the short term though, and growth near 2008 levels is unlikely anytime soon.