Benefits and Risks of Investing in Vietnam

Many Americans are familiar with Vietnam, because of the long war fought in the 1960s and 1970s. But the country has attracted the attention of U.S. investors. The economy made a shift from a highly centralized to a socialist-oriented market. Since then, it has become much more attractive to those looking to diversify into frontier markets.


Here is a look at Vietnam's changing economy. Learn how you can gain exposure and some benefits and risks to keep in mind.


Photo: Unsplash


Vietnam's Changing Economy

Vietnam's economy began as an agricultural feudal system until French colonization in the mid-19th century. The country's regions developed very different economies. Then, they became further politically divided in 1954. The north of the country adopted communism. The south adopted capitalism. This set the stage for the Vietnam War.


Between the 1970s and 1990s, Vietnam was a member of the Council for Mutual Economic Assistance, also known as CMEA or Comecon. It heavily depended on the Soviet Union and its allies. When CMEA dissolved, it led to trade liberalization. It also led to currency devaluation and a policy of economic development. Throughout the 1990s, tens of thousands of businesses were created. The economy grew at a rapid clip.


The growth briefly came to an abrupt halt during the Asian Financial Crisis in 1997. This pushed the country to focus on macroeconomic stability rather than growth. Since then, the economy has grown to a gross domestic product (GDP) of $271.2 billion. It also has a stable credit rating, strong exports to the U.S., and modest public debt relative to its growth rates.


Vietnam's economy relies on foreign direct investment to attract capital from overseas. But that capital has been producing strong economic growth. PwC estimated that the country may be the fastest-growing of the world's economies. It could have a potential annual GDP growth rate of 4% by 2041. This would make it the world's 20th largest economy by 2050.


How to Invest in Vietnam?

Here are the 5 forms of foreign investment in Vietnam, according to Article 21 of the Law on Investment 2020:

  • Establish a new economic organization, such as: opening a new company

  • Capital contribution, share purchase, purchase of contributed capital

  • Implementation of investment projects

  • Investment in the form of Business Cooperation Contract (BCC)

  • New investment forms and economic organizations according to the Government’s regulations

Among all, the establishment of economic organizations, in specific, starting a company in Vietnam is the most common form for foreign investors.


What Are the Benefits and Risks of Investing in Vietnam?

Vietnam's economy involves benefits and risks that you should carefully consider before investing. The country's rapid growth rates may entice you. But be sure to think about the higher risk profile, government controls, and reliance on key industries to support that growth over the long term. These factors may make the country too risky for some.


The benefits of investing include:

Rapidly growing economy: Vietnam's economy has been skyrocketing. Its growth rate had been between 2.9% and 8% since its recovery from the Asian Financial Crisis of 1997.

Self-powered economy: Vietnam relies on the petroleum industry for its energy consumption and for export. Crude oil production is expected to decline.


Risks of investing include:

Socialist-orientated economy: Vietnam may have transitioned from a centrally planned economy. But the government still controls many key industries.

Early stage market economy: Vietnam remains at an early and vulnerable stage in its economic development. That means it is riskier than developed markets.


If you want to know more about investing in Vietnam through data and professional analysis, read Vietdata's articles and reports here


Source: The Balance