PEST Analysis: Vietnam

C ountry Report | 28 Jul 2023

Although economic freedom is improving, the rule of law in Vietnam remains weak. Strong
economic recovery has outpaced regional peers and inflation is not a major issue, but the
external sector is susceptible to supply and demand shocks. Higher disposable incomes will
support the consumer market, but the rural population hinders its development. The state is
focusing on improving cybersecurity and opportunities for foreign players are plentiful, but
restrictions on online activities persist.
PEST ANALYSIS
PEST analysis (political, economic, social and technological) describes a framework of macro-
environmental factors assessed as a strategic tool for environment scanning, understanding
risks and opportunities, market growth or decline, business position, and potential and
direction for operations, helping companies to become more competitive.

Chart 1 Main PEST Points in Vietnam

Source: Eurom onitor International

POLITICAL ENVIRONMENT
Opportunities
Improving Economic Freedom ranking: Vietnam’s ranking of 72nd globally in the Index of
Economic Freedom has improved in 2023 versus the previous year. This is largely due to
better scores in most pillars, especially ‘fiscal health’ and ‘trade freedom’, with the latter
benefiting from liberalisation. Vietnam remains in the ‘moderately free’ group of countries and
its private sector has gained from a privatisation drive, with reforms that are helping the
economy towards greater market orientation.
Better perceptions of corruption: In the Corruption Perceptions Index, Vietnam’s ranking
improved over 2014-2022 to stand at 77th globally at the end of this period. The Vietnamese
state has actively cracked down on corruption in recent years, owing to greater pressure
from the public, which has resulted in the ousting from power of the president in January
2023 that stood accused of graft. Public sector officials have been charged with corrupt
practices relating to government procurement of testing kits during the Coronavirus (COVID-
19) pandemic. Additionally, the naming of the new president Vo Van Thuong in March 2023
signals a continuation of the status quo, which is likely to lead to greater political stability, as
the state will maintain its economic and political policy decisions in the medium term. Having
said that, corruption remains an issue in Vietnam and implementation of anti-corruption
legislation is often arbitrary and subject to the will of the ruling elite.
Solid state finances: Although the government ran a budget deficit of 2.5% of GDP in 2022,
it narrowed from 3.4% in 2021, owing to the withdrawal of measures associated with the
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COVID-19 pandemic and stronger economic activity. Public debt also fell to 37.1% of GDP in
2022, highlighting that it remains sustainable and is not a threat to stability, whilst it also
stood considerably below the Asia Pacific average of 95.2% that year. Given that the
Vietnamese government has room to manoeuvre fiscally, it plans to expand its spending
through higher public sector wages and investment, whilst cutting taxes to bolster internal
demand, which could lead to a widening of the budget deficit and higher public debt in the
short term.

Challenges
Weak rule of law: Although Vietnam’s economic freedom is improving, the country still
suffers from weakness in its rule of law. These indicators perform poorly in the Index of
Economic Freedom 2023, with ‘judicial effectiveness’ achieving the lowest score of all pillars,
which points to a judiciary that is subject to political influence. ‘Government integrity’ also
scores unfavourably, given that the country is under an authoritarian Communist regime that
prevents competition amongst political factions and democratic elections. The Vietnamese
government is becoming more authoritarian in nature, an example of which is the detention of
a high-profile environmental activist on the grounds of tax evasion in June 2022, which she
denies. This was part of a greater suppression of environmental and civil campaigners.

Chart 2 Political Environment Dynamics in Vietnam

Source: Eurom onitor International from the Heritage Foundation/International Monetary Fund
(IMF)/Governm ent Finance Statistics (GFS)/Institute for Econom ics and Peace/Transparency International/W orld
Bank /Eurostat/national statistics

ECONOMIC ENVIRONMENT
Opportunities
Economy outperforming peers: In 2022, Vietnam's GDP expanded annually by 8.0% in real
terms, a robust rate of expansion and surpassed the average growth rate of 3.9% for the
Asia-Pacific region. This expansion was driven by elevated private spending, strong exports,
foreign direct investment (FDI), public consumption, and gross fixed capital formation (GFCF).
The resumption in the inflow of Chinese tourists and the renewal of trading relationships with
China, after the lifting of all COVID-19 restrictions, further supported Vietnam's
economy. Over 2023-2027, Vietnam's economy is forecast to continue growing at an average
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annual rate of 6.4% in real terms, which is above the Asia-Pacific average of 4.4%. This
growth will mostly be supported by growing FDI, along with a wealthier population continuing
to increase spending on goods and services.
Inflation contained: In 2022, inflation in Vietnam increased to 3.2%, driven by global
geopolitical tensions that have created an energy crisis and price pressures on imported raw
materials. The inflation rise was lower than many countries, owing to contained food prices,
as Vietnam depends less on imported staple foods and experienced a less severe supply chain
bottleneck impact. Vietnam's inflation rate is expected to witness an upward trend over the
next five years, with a forecast rate of 3.9% by 2027. To tame rising inflation, the central
bank policy rate in Vietnam increased from 4.0% in the previous year to 4.5% in 2022, as
Vietnam's central bank has tightened its monetary stance. In June 2023, the inflation rate fell
to 2.0% from a short-term period high of 4.9% in January 2023.
Attractive FDI climate: Two reasons for Vietnam’s solid economic progression are robust
export performance driven by investment by foreign entities, which account for around three
quarters of Vietnam's total exports, and improved FDI disbursement. In 2021, Vietnam
received USD15.7 billion in FDI, and in 2022 FDI accounted for 4.4% of the country’s GDP.
Vietnam’s FDI intensity was higher than the Asia Pacific average of 2.0% of GDP, indicating
plentiful investment opportunities in the country and flexible business regulations for foreign
investors. In 2022, several multinational technology companies such as Samsung, LG,
Foxconn, and Lego, announced investments in Vietnam, with many of them shifting their
supply chains and moving production to the country. These developments are expected to
further bolster Vietnam's appeal as a destination for FDI.
Low unemployment: Vietnam’s unemployment rate stood at 2.3% in 2022, considerably
lower than the Asia Pacific average of 5.4% that year. This is due to the strength of the
Vietnamese economy, which has enabled the creation of a dynamic labour market.
Additionally, the majority of workers that were absent from the labour force during the early
stages of the COVID-19 pandemic have returned to the employment market, whilst the
transition to secondary economic activities from agriculture has also led to higher labour
demand in industrial settings and the services sector, leading to a larger labour pool in urban
areas. Having said that, high labour informality means that the official unemployment figures
may mask the true nature of the employment landscape in Vietnam.

Challenges
Vulnerable external sector: Given that total goods exports accounted for 91.7% of GDP in
2022, Vietnam has a very open economy. Furthermore, total goods imports equated to 90.3%
of GDP in 2022, highlighting that the country is very reliant on imports. These indicators
illustrate that Vietnam is susceptible to global cyclical changes in trade, as well as exposing
the country to supply disruptions and demand shocks within key trading partners. A case in
point in the dormant nature of the Chinese economy during its zero-COVID-19 policy, which
led to lower demand from importing countries into China, such as Vietnam.

Chart 3 Economic Environment Dynamics in Vietnam

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Source: Eurom onitor International from Eurostat/O ECD/United Nations (UN)/International Monetary Fund
(IMF)/W orld Econom ic O utlook (W EO )/International Financial Statistics (IFS)/International Labour O rganisation
(ILO )/UNCTAD/International Merchandise Trade Statistics/national statistics

SOCIAL ENVIRONMENT
Opportunities
Strong rise in disposable income: Vietnam is set to record fast-paced economic growth over
2023-2040, which will lead to strong real terms growth in per capita disposable income
equating to 139%. Remittances also play a major role for the country’s gross income growth.
In 2022, Vietnam received the 15th largest inflow of remittances in USD terms globally and
recorded a 5.2% increase compared to the prior year. Whilst COVID-19 strained wage growth
and improvements in job quality over 2020-2022, the country is considered to have handled
the pandemic well and managed to sustain economic growth during the health crisis. Over the
forecast period, per capita income levels will increase at a faster pace compared to the Asia
Pacific average, which will raise the appeal of Vietnam’s consumer market.
Lower income inequality: Social progress in Vietnam is set to pick up over the 2023-2040
period, leading to a closing gap in income distribution throughout the population. Income
inequality (based on the Gini Index) in Vietnam is moderate by global standards and is
estimated to decrease over the long term. In 2022, 5.6% of the population was living below
the national poverty line, compared to 8.1% in 2017, which illustrates impressive social
progress in the country. According to the World Bank, poverty rates in some chronically
poorer groups such as ethnic minorities and households in the Midlands and Northern
Mountains regions were reduced by at least half between 2010 and 2020. In addition, ethnic
minorities are gradually shifting from agriculture to manufacturing for their income source,
which leads to better wages.
Tackling skills shortages: Although science graduates increased by 27.2% over 2017-2022,
Vietnam continues to face skills shortages. Recognising the need for upskilling, the
Vietnamese government has included this goal in its Social and Economic Development
Strategy 2021-2030 and has partnered with developed countries to improve its labour force
competitiveness. For example, Vietnam has a bilateral education cooperation agreement with
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Australia, which brings several Australian education programmes to Vietnam, including RMIT
University, Swinburne University, the University of Technology Sydney (UTS), the University
of Western Sydney, and Monash University. Additionally, the Programme Reform of TVET in
Vietnam, in partnership with the German Ministry of Labour, supports high-quality colleges
that provide modern training programmes and foster digital transformation. These initiatives
are expected to play a crucial role in improving Vietnam's labour market and promoting social
progress in the long run. Nevertheless, higher educational attainment is expected to remain
low at 7.5% of the population aged 15 in 2040, which will be below the Asia Pacific average
of 13.6%.

Challenges
Significant gender gap: In 2022, the female employment rate stood at 66.3%, whilst the
male equivalent was 74.5%, but men on average had 45.8% larger disposable income
compared to women, pointing to a meaningful gender gap. Reducing the gender income gap is
important for businesses in the country, as women often tend to be the decision-makers for
household purchases and are usually more generous with their spending on family needs
compared to men. The prevalent gender gap will hinder female consumer influence over the
direction of the total consumer market over the 2023-2040 period.
Large rural populace: Over 2023-2040, the urban population will surge by 34.0% in Vietnam,
as the rural dweller moves to metropolitan areas to benefit from economic opportunities.
However, urban residents will still account for less than half of the total population in 2040.
Given that the majority of the population is expected to remain rural, this will prevent the
consumer market reaching its full potential, as there will be a lower pool of consumers in
concentrated urban locations. Furthermore, consumer-facing businesses are also unlikely to
branch out into remote and rural areas to expand their reach, owing to the lack of
infrastructure and suitable units for their retailing spaces in rural settings.
Chart 4 Social Environment Dynamics in Vietnam

Source: Eurom onitor International from United Nations (UN)/Eurostat/O ECD/W orld Bank /International Diabetes
Federation/national statistics
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Note: Social classes present data referring to the num ber of individuals with a gross incom e A - over 200%, B -
between 150% and 200%, C - between 100% and 150%, D - between 50.0% and 100%, E - less than 50.0% of
an average gross incom e of all individuals aged 15 .

TECHNOLOGICAL ENVIRONMENT
Opportunities
Cybersecurity in focus: As a result of the government’s focus on growing the contribution
of the technology sector to the overall economy, Vietnam is increasingly focused on
cybersecurity. As e-governance gathers pace and the internet of things (IoT) also becomes
more prevalent, the risks to Vietnam’s online activities rises through cyber attacks. In an
effort to mitigate these attacks, the government issued a decree in 2019 requiring the public
sector, as well as state-owned enterprises (SOEs), to enhance its cybersecurity capabilities.
This will involve the public sector allocating more than 10.0% of its total yearly information
and communications technology (ICT) spending to cybersecurity proposals over 2020-2025.
Solid opportunities for foreign ICT players: Owing to the relatively nascent nature of the
ICT sector landscape in Vietnam, the country imports the majority of its hardware, software
and ICT services, with the status quo anticipated to be maintained in the near future.
Consequently, this presents opportunities for overseas players to fill the gap that domestic
outfits are unable to satisfy, with companies from Taiwan, the US, China and Japan expected
to be key beneficiaries of this trend.
Boost to R&D: Vietnam’s research and development (R&D) expenditure equated to 0.4% of
GDP in 2022, which was considerably lower than the Asia Pacific average of 2.2% that year.
However, there could be a rise in the country’s R&D intensity through new investment from
foreign players. Samsung launched its R&D centre in Hanoi in December 2022, which is
regarded as a strategic hub in Southeast Asia and globally. The facility is the largest research
centre in Southeast Asia constructed by a foreign company, focusing on developing
Vietnamese talent in areas such as artificial intelligence (AI), IoT, Big Data, and 5G.

Challenges
Relatively low internet use: The percentage of the population using the internet is expected
to rise to 87.2% in 2027 from 76.8% in 2022, but the figure will remain below some of the
more advanced economies in Asia Pacific in the forecast year. This is largely due to the
significant prevalence of the rural population in Vietnam, which has made the deployment of
connectivity infrastructure costly for telecoms operators. Consequently, technology players
may find limited opportunities to extend their reach in this burgeoning economy, which will
also be hindered by low digital literacy amongst the population as a whole, given the
prominence of the rural populace.
Further limits on online activities: As expected, the Ministry of Information and
Communications passed into law in November 2022 the requirement for social media players to
take down what the state deems to be ‘illegal’ content within 24 hours, which is a further
sign of the growing censorship that the state is imposing on digital content that is also
limiting freedom of expression online. Violation of the legislation is accompanied by punitive
custodial terms. Also in 2022, the authorities instructed social media platforms to carry out
the removal of online content that criticised the state numerous times. Given that the
telecoms sector is dominated by the state-owned Vietnam Post and Telecommunications
Group (VPCG) and Viettel, which is owned by the military, the government is able to disable
the internet as a whole, which is disruptive for businesses and consumers.
Chart 5 Technological Environment Dynamics in Vietnam

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Source: Eurom onitor International from International Telecom m unications Union
(ITU)/Eurostat/O ECD/UNESCO /W orld Econom ic Forum (W EF)/national statistics

Statistical Summary
2015 2016 2017 2018 2019 2020
Inflation 0.9 3.2 3.5 3.5 2.8 3.2
(%
change)
Exchange 21,675.51 21,987.86 22,368.46 22,605.79 23,050.79 23,205.04
rate (per
US$)
Lending 7.0 7.0 7.1 7.4 7.7 7.6
rate
GDP (% 7.0 6.7 6.9 7.5 7.4 2.9
real
growth)
GDP 5,191,323,729.9 5,639,401,003.3 6,293,904,553.9 7,009,042,131.7 7,707,200,287.1 8,044,385,729.1
(national
currency
millions)
GDP (US$ 239,501.8 256,478.0 281,374.1 310,055.2 334,357.3 346,665.4
millions)
Birth rate 16.8 16.4 16.1 15.9 15.7 15.4
(per '000)
Death rate 6.4 6.5 6.6 6.7 6.7 6.2
(per '000)
No. of 25,462.2 25,847.4 26,205.1 26,543.1 26,870.1 27,196.3
households
('000)
Total 162,016.9 176,580.8 215,118.6 243,698.7 264,340.8 282,528.8
exports
(US$
millions)

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 2015 2016 2017 2018 2019 2020
Total 165,776.0 174,978.4 213,215.3 236,868.9 254,092.8 262,673.3
imports
(US$
millions)
Urban 30,970.3 31,882.7 32,797.0 33,713.0 34,632.4 35,564.6
population
('000)
Urban 33.6 34.2 34.9 35.5 36.2 36.8
population
(%)
Population 23.4 23.3 23.2 23.0 22.9 22.7
aged 0-14
(%)
Population 69.6 69.5 69.4 69.2 69.1 68.9
aged 15-64
(%)
Population 7.0 7.2 7.5 7.8 8.1 8.4
aged 65
(%)
Male 49.3 49.3 49.4 49.4 49.4 49.4
population
(%)
Female 50.7 50.7 50.6 50.6 50.6 50.6
population
(%)
Life 69.1 69.2 69.3 69.2 69.4 70.8
expectancy
male
(years)
Life 78.7 78.8 78.7 78.8 78.9 79.9
expectancy
female
(years)
Infant 14.7 14.5 14.4 14.2 14.0 13.9
mortality
(deaths per
'000 live
births)
Adult 94.5 94.7 94.9 95.0 95.8 96.0
literacy
(%)

Imports and Exports

2022 Share 2022 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 45.5 Imports (cif) from Asia Pacific 80.3
Exports (fob) to North America 31.6 Imports (cif) from Europe 5.7
Exports (fob) to Europe 15.6 Imports (cif) from North America 4.3
Exports (fob) to Latin America 3.0 Imports (cif) from Africa and the 3.7
Middle East
Exports (fob) to Africa and the 2.3 Imports (cif) from Australasia 3.1
Middle East
Exports (fob) to Australasia 1.9 Imports (cif) from Latin America 2.8

© Euromonitor International 2023

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