Although the outlook for the passage of the Trans-Pacific Partnership (TPP
) is dim under the Trump presidency, the prospects are still bright for Vietnam’s exports, HSBC
has said in its latest “Vietnam at a glance” report.
Alternative FTAs Will Bolster Vietnam’s Exports
With its rising wage costs, China is no longer the most attractive investment destination for many businesses, and Vietnam has come up as a serious contender thanks to its strategic geographic location for foreign companies with operations throughout Southeast Asia.
In addition, Vietnam’s attractiveness comes from its young, inexpensive and increasingly highly skilled workforce, says the report.
Besides TPP, export-reliant Vietnam has already signed 12 free trade agreements (FTAs), giving Vietnam good access to international market. These include the recently negotiated EU free trade agreement (FTA) and other agreements through the ASEAN.
In addition, Vietnam is joining other countries to form the Asian Regional Comprehensive Economic Partnership (RCEP
) that embraces the world’s three most populous markets namely China, India and ASEAN.
In the Short Run: Mind the U.S., but Don’t Forget China
The UK bank warned that if the U.S. begins to throttle back imports, Vietnam’s exports will be hurt and China could also feel the brunt of a restrictive trade stance by the U.S.
“If that happens, Chinese demand for Vietnamese imports might decrease as well (especially for components used for re-exports from China to the U.S.). The indirect effects of more restrictive U.S. trade policy could thus provide a meaningful drag on Vietnam’s exports,” says the report.
Pressing Need for Reform
Vietnam is committed to continuing its reform agenda, with a focus on three pillars which are public investment, state-owned enterprises (SOEs), and financial institutions.
On the public investment front, the government is set to drastically reform budget expenditure and collections, ensuring the safety of public investment and the national fiscal situation.
For SOEs, the target is to make the reform process “faster and stronger” by making the privatization process transparent and in line with the market mechanisms.
Financial institutions will be strengthened by speeding up bad debt divestment and having at least 12 to 15 commercial banks in compliance with Basel II standards.
If structural reforms are pursued properly, the gains from these reforms will help Vietnam strengthen the fundamentals of the economy. In addition, the Vietnamese economy would be less vulnerable to external shocks, according to the report.
“The fact that the TPP will not be implemented is a set-back, but one that Vietnam should overcome on the back of its impressive competitive position,” the report concludes.