Consumption, production, and FDI to drive economic growth

A continued boost of domestic consumption and production, in addition to an expected increase in foreign direct investment, is set to help the Vietnamese economy achieve its new growth goal of at least 6.5% this year.
The government has determined that a boost in consumption, production, and FDI will help the economy achieve its desired growth target
The government has determined that a boost in consumption, production, and FDI will help the economy achieve its desired growth target

According to the government’s Resolution No1/NQ-CP, dated January 6, on key tasks and solutions for the implementation of socioeconomic development plan; state budget estimates; and improvement of the business climate and enhancement of the national competitiveness in 2023, the government has required that efforts and solutions are to be made to amplify domestic consumption and production as well as to woo more foreign direct investment (FDI) – all of which are considered by the government as prime priorities for the country in achieving its new growth goal of at least 6.5% this year.

The General Statistics Office (GSO) has reported that in January 2023, total goods retail and service consumption revenue is estimated to have hit 544.8 trillion VND (23.68 billion USD), up 5.2% month on month and 20% year on year. If inflation is excluded, the year-on-year rate will be 15.8%, while that of the same period last year reduced 4%.

When it comes to sector, the revenue of goods retail in January is estimated to have reached 435.4 trillion VND (18.93 billion USD) – up 18.1% year on year, in which garments increased 27%; home appliances 23.8%; food and foodstuffs 17.9%; vehicles 14.8%; and cultural and education items 7.2%.

Meanwhile, revenue from catering and sojourning services is estimated at 56 trillion VND (2.43 billion USD) – up 37.3% compared to the corresponding period last year. In addition, revenue from tourism-related activities is estimated to sit at 2.2 trillion VND (95.65 million USD) – up 113.4% year on year. Revenue from other types of services is estimated to have touched 51.2 trillion VND (2.22 billion USD), representing a year-on-year rise of 16.8%.

China’s reopening after three years of COVID-19 restrictions is set to benefit Vietnam in terms of tourism and trade, according to some economic experts.

Local media cited Michael Kokalari, chief economist of investment fund VinaCapital, as saying, “We expect China’s re-opening to boost Vietnam’s GDP growth by over 2% in 2023, driven by the full resumption of Chinese tourist arrivals in the second half of 2023.” He added that China accounted for one-third of Vietnam’s pre-COVID-19 total tourist arrivals.

Kokalari expects the number of foreign tourist arrivals to ascribe by more than 50% over pre-COVID-19 levels in 2023 based on the assumption that Chinese tourists fully recovers in the second half of the year.

In 2022, the Vietnamese economy’s total goods retail and consumption service revenue hit almost 247 billion USD, up 19.8% year on year and 15% compared to that in 2019 before the health crisis had appeared. If inflation was excluded, the rate would have been 15.6% year on year. In 2021, such a rate fell 6.7%.

What is more, last year saw strong recovery of the tourism sector, with 102 million domestic visitor arrivals and 3.7 million foreign visitor arrivals. The sector harvested estimated revenue of about 19.6 billion USD, which is 2.5 times higher than the 7.8 billion USD reaped in 2021.

Increase in industrial production

According to the GSO, in January, when the Tet holiday took place, the economy’s index of industrial production (IIP) dropped 14.6% month on month and 8% year on year. However, with the government’s pro-business policies, the IIP is expected to bounce back strongly in the coming months.

Last year, the IIP is estimated to rise at a relatively high level of 7.8% year on year. The country’s added value of industrial production expanded 7.69% for the whole of 2022, up from 4.82% in 2021. The manufacturing and processing sector climbed 8.1% over the corresponding period of 2021, when this sector increased by only 6.37%. The electricity production and distribution increased 7.05% year on year, also higher than the year-on-year expansion of 5.24% in 2021.

Under a GSO survey on manufacturing and processing enterprises in Q4 of last year, 31.4% of respondents said their production volume will increase in Q1 of 2023 as compared to Q4 of 2022, and the rate of those predicting that their production will stabilise in Q1 of 2023 is 38.5%.

Regarding orders, 30% and 30.6% of respondents hope that their orders in Q1 of 2023 will rise and stabilise, respectively, compared to Q4 of last year.

As for export orders, 42.7% of respondents project that their export orders will stabilise in Q1 of 2023. Only 24% of surveyed businesses predict that these types of orders will climb in Q1 of this year.

“Consumers’ confidence has gradually recovered,” Minister of Planning and Investment Nguyen Chi Dung said. “Many businesses have founded it difficult to boost exports due to a reduction in global demands, but they have turned to the domestic market.”

FDI remains upbeat

According to the Ministry of Planning and Investment (MPI), Vietnam is expected to woo as much as 36-38 billion USD worth of FDI in this year, up strongly from nearly 22.4 billion USD recorded last year. FDI will continue acting as one of the key drivers of economic growth.

The MPI’s Foreign Investment Agency expected that FDI disbursement in 2023 will likely reach around 22-23 billion USD.

According to the agency, key factors for FDI to continue to flourish this year will include economic growth results in 2022 and big efforts of the government, ministries, and localities in ameliorating the domestic business and investment climate, in addition to big advantages from free trade agreements which have been signed and put into effect. This will continue strengthening the confidence of enterprises and investors.

Minister Dung stated that Vietnam had been changing its method of wooing FDI, in which priorities are placed on FDI with high technology, environmental protection, and high added values created for the economy. This will contribute to the nation’s deployment of sustainable development.

“To attract more FDI, it is important to develop innovation and financial centres at the regional and international levels, creating a new impetus for national socio-economic development in the coming period,” the minister said, adding that stabilising the macro-economy and ameliorating the quality of infrastructure and human resources will be also needed.

As of January 20, 2023, Vietnam had about 36,460 foreign-invested projects registered at 441.31 billion USD.

In the first 20 days of this year, the newly registered capital, capital contributions, and capital from stake acquisitions hit 1.69 billion USD, down 19.8% year on year

However, the number of newly-registered projects stood at 153 for $1.2 billion USD – up 48.5% in the number of projects and tripling in the volume of capital – as compared to those in the same period last year.

“This demonstrated foreign investors’ continued confidence to the Vietnamese business and investment climate,” said Minister Dung.

On January 7, China’s Yadea Group revealed that it will invest 100 million USD into a factory to manufacture and assemble electric motorcycles with an expected annual capacity of about 2 million vehicles in the northern province of Bac Giang’s Tan Hung Industrial Park. The 23.2-hectare project is slated for construction in Q2 of this year.

Earlier, on January 2, Bac Giang authorities granted an investment certificate to Singapore’s Ingrasys Pte Ltd’s Fulian precision technology factory project, and also granted a business registration certificate to Fulian Co. Ltd., which will construct the project. This project, which is to be carried out on an area of 49.6ha in Quang Chau Industrial Park, will churn out electronic spare parts, computers, and telecommunications equipment.

Also on that day, an MoU was also signed between Hainan Longi Green Energy Technology Company Limited and the provincial Industrial Park Management Board. Under the MoU, the Chinese investor will implement a 761 million USD project to manufacture solar panels, with an annual capacity of 3,500MW. This project will begin construction in Q1 of 2023.

Currently foreign investors are investing into 19 out of the 21 sectors in the national economic classification system, of which the processing and manufacturing industry maintained its lead in terms of attracting FDI with a combined registered investment of 261.53 billion USD.

Among the 142 nations and territories investing into Vietnam, the Republic of Korea ranks first with 81.2 billion USD, followed by Singapore (71.85 billion USD), and Japan (69.17 billion USD).