The Vietnamese economy experienced its slowest rate of growth in 30 years – but still expanded by 2.9 per cent in 2020, spurred by steady growth in manufacturing and processing. GDP is expected to grow 7 per cent a year over the next five years. The country has benefitted from free trade agreements with the European Union and the United Kingdom, as well as Asia’s Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP), which gives Vietnamese goods improved access to Canada and Mexico. Both before and during the pandemic, it has seen an influx of manufacturing and investment, including some from producers looking to relocate from China, some from neighbouring countries that could not reopen production lines amid the pandemic.

However, so rapid has the investment and arrival of new businesses been that it is creating challenges of its own. There is a shortage of skilled workers in the technology manufacturing sector, lack of industrial zone capacity with the outskirts of Ho Chi Minh City occupancy at 94 per cent in 2020, and a lack of local suppliers of components forces Vietnam to import materials, namely from China.

Further reasons for the success of Vietnam in this year’s Index lie with how the country dealt with the Coronavirus pandemic. It is among the countries most successful in containing the virus. The combination of social and economic restrictions in combination with a strict and comprehensive test and trace system, saw lockdowns last less than three months and less than 1,500 cases over 2020 (Johns Hopkins University), and by June many factories were reopened helping domestic operations recover quickly. Production and export capabilities were brought back online rapidly.

The Southeast Asian country’s entry into the Top 10 as well as a boost of three places is due to its effectiveness in limiting the spread of the virus, how it positioned itself deftly to absorb manufacturers seeking to leave China and the fact it possesses an enviable investment pipeline across a number of sectors, including fashion and electronics, which could see its rise continue in 2022. Addressing the skills, capacity and ecosystem challenges Vietnam faces will be vital or each threatens to arrest the country’s growth.

Source: Transport Intelligence, February 18, 2021. Originally published on https://www.ti-insight.com/. This brief has been taken from a larger paper, ‘Agility Emerging Markets Logistics Index 2021’. The paper is available to GSCi subscribers. Each week, TI’s team of senior analysts and industry experts deliver analysis covering the latest logistics and supply chain trends exclusively to users of GSCi.