PEST Analysis: Vietnam

C ountry Report | 14 May 2021

Vietnam’s Economic Freedom ranking has been improving. However, individual freedoms
continue to be repressed and corruption is widespread. Strong economic performance will be
powered by a growing manufacturing sector. Increasing incomes are forecast to support
middle class expansion, whilst population growth will enhance consumer market potential.
Nonetheless, the population is ageing and will remain largely rural. State focus on e-
governance and e-commerce will boost technology firms.
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
Sum m ary 1 Political Env ironm ent Analy sis in Vietnam
Opportunities
Economic Freedom ranking improving: In the Index
of Economic Freedom, Vietnam’s ranking has
improved over 2016-2021, owing to better scores
in most pillars over this period. Fiscal Health has
improved recently, causing the country to now
rank amongst the ‘moderately free’ group.
Challenges
Communist leadership a barrier to
freedoms: Communist control that is
punitive against rebellious factions leads
to uncertainty in Vietnam’s political
landscape, which is accompanied by a
lack of civil liberties that impinges on
personal progression. Consequently, the
country ranks poorly in the World Bank’s
Voice and Accountability Index,
illustrating limited capability of the
populace to voice its discontent with
the state.

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 Opportunities
Strong response to COVID-19 pandemic: The
Coronavirus (COVID-19) was first confirmed to
have spread to Vietnam in January 2020. Despite
being one of the earliest countries to be affected,
owing to its proactive and effective epidemic
control measures, the country has very few
cases. Lockdown measures have now been eased,
with the reopening of most non-essential
businesses, although travel bans remain in place.
Following a resurgence in some areas, localised
lockdowns have been instigated. Nevertheless,
the government has been able to contain the
COVID-19 pandemic more successfully within a
global context, owing to its authoritarian
tendancies.
Deteriorating state finances expected to be short-
lived: The budget deficit widened in 2020,
reaching nearly 8.0% of GDP in 2020, mostly
owing to stimulus spending to battle the
pandemic-induced effects. However, the deficit is
projected to decline gradually over the medium
term and stand at around 4.0% of GDP in 2022, as
government revenue rebounds. Public debt in
Vietnam rose only slightly in 2020 and remained
sustainable. This allowed the government to
provide a stronger financial boost to businesses.
Nonetheless, over the medium term, an uptick in
public debt is expected, which could hasten the
pace of privatisation of state-owned enterprises
(SOEs).
Source: Euromonitor International
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
Challenges
Strained relations with neighbours:
Vietnam is involved in an ongoing
territorial dispute over the potentially
hydrocarbon rich Spratly Islands.
Vietnam, China, the Philippines, Brunei,
Taiwan, and Malaysia all make claims to
the Spratlys. A wave of anti-Chinese
riots has occurred in Vietnam in recent
years, which is likely to have negatively
impacted its Global Peace ranking over
2012-2020. Vietnam’s Global Terrorism
ranking also deteriorated over 2017-
2020, owing to increased activity in the
region, which could spill over into
Vietnam.
Corruption a significant issue: Although
its ranking in the Corruption Perceptions
Index somewhat improved over 2012-
2020, it remained poor at the end of
this period, indicating that corruption is
a major problem for the country. The
judiciary is heavily influenced by the
Communist Party, creating a breeding
ground for corruption, whilst graft is
commonplace at all levels of the state
apparatus. Endemic corruption is
destabilising for the business
environment and leads to higher
operating costs.
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ECONOMIC ENVIRONMENT
Sum m ary 2 Econom ic Env ironm ent Analy sis in Vietnam
Opportunities Challenges
Manufacturing increasing its importance: The Large exposure to commodities:
flourishing manufacturing sector has diversified Despite the growing influence of the
beyond shoes, apparel, furniture and agri-products manufacturing sector within the
to higher value products like electronics in the last Vietnamese economy, the country
decade. Many manufacturers have skillfully remains relatively dependent on
integrated themselves into the supply chains of agriculture. Indeed, the sector
Chinese firms that are relocating owing to rising employs over a third of the workforce
wages at home. This applies particularly to industries and is a leading producer of cashews,
such as textiles and low-end assembly operations, pepper and rubber. Furthermore,
all sectors which China wants to exit. Vietnam is the world’s second-largest
supplier of both robusta coffee and
rice. This makes the country highly
vulnerable to global commodity price
fluctuations, adverse weather
events, and failure in crops or animal
husbandry. In 2019, the agricultural
sector was affected by African swine
fever, with the pig herd down by a
quarter.
Economic resilience in the face of pandemic: In
2020, Vietnam’s economy witnessed positive growth,
despite the surging COVID-19 pandemic. The
comparatively high and solid GDP growth can be
largely attributed to an increase in manufacturing
output and a surge in the value of exports.
Additionally, the Vietnamese numbers of COVID-19
cases were considerably lower than in many other
nations, hence allowing the lifting of lockdown
restrictions and the reopening of the economy more
quickly. Economic growth could come back to pre-
crisis levels in 2021, whilst it could outpace the Asia
Pacific average over 2025-2040.
Great potential for external sector: The potential to
boost exports further is considerable. In addition to
the benefits of new trade agreements, there are
substantial opportunities to increase the export
contribution of small and medium-sized businesses
(SMEs). Presently, just over a third of all Vietnamese
firms are integrated into export-orientated
production networks, compared with nearly 60.0% in
Malaysia and Thailand. If this gap is closed, exports
should rise accordingly. Furthermore, over the
medium to long term, Vietnam’s trade is likely to
intensify, as global value chains shift. As
protectionism is resurging, many countries are
expected to diversify their suppliers and turn to
more trustworthy trading partners. This is likely to
benefit Vietnam, as a country with growing
manufacturing capabilities, rapid economic
development, and a comparatively stable economy
and fiscal policy.
FDI a major economic driver: Given that foreign
direct investment (FDI) inflows equated to 6.2% of
GDP in 2019, Vietnam demonstrates that FDI is a key
driver of economic development. However, owing to
the uncertainty surrounding the pandemic, FDI
inflows plummeted in 2020. The key factors were
supply disruptions, China’s lockdown, and a drop in
demand from key export markets. Many companies
put their investments on hold until a clearer picture
would emerge regarding the global economic
landscape. However, over the medium to long term,
foreign investment in Vietnam is expected to
increase considerably, as global supply chains are
likely to shift. Over the past few years, the country
has been an attractive destination for investors,
especially in manufacturing. Hence, production
volumes are likely to see an uptick in the post-
pandemic period.
Source: Euromonitor International

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
Sum m ary 3 Social Env ironm ent Analy sis in Vietnam
Opportunities
Gen Y and Gen Z to shape discretionary spending:
Income distribution is projected to remain
unchanged with younger Generations Y (born in late
1990s and early 2000s) and Z (the population aged
20-24 in 2020) (Gen Y and Z) shaping discretionary
spending patterns in 2040. The same generations
will also dominate among the highest income earners
of more than USD250,000. The young people of
Vietnam grew up largely exposed to Western
culture, which strongly shapes their current
spending preferences. Businesses that are socially
and environmentally responsible, or stand for a
cause, are increasingly favoured. Furthermore, due
to having a digital nature, Gen Y and Z’s spending,
especially related to food and fashion, is more likely
to be influenced by social media suggestions.
Challenges
Ageing trend: Increasing longevity
and dropping birth rates should
encourage a hastening of the ageing
trend, with Vietnam's median age
overtaking the regional average from
2021 onwards. As 60 age cohorts
expand rapidly and under 40s decline
up to 2040, the future consumer
landscape will be affected somewhat,
as lifestyles and spending habits
change. The proportion of the
working-age population will drop and
the share of retirees will nearly double
over 2021-2040 causing the old-age
dependency ratio to climb, putting
more pressure on state resources
such as pensions.

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 Opportunities
Middle class to witness expansion: A substantial
increase in average income facilitates the growth of
the middle class in Vietnam. It is anticipated that in
2040, 28.0% of all households will belong to the
middle class, increasing from 2020. Social classes B
and C are projected to witness the fastest growth
rate over 2021-2040. Such trends are expected to
support more aspirational spending patterns, which
could favour some discretionary spending categories
like transport and hotels and catering. Higher
spending on transport is further reinforced by
Vietnam’s Consumer Confidence Index (CCI), which
has been steadily rising for almost a decade,
indicating an increasingly positive consumer outlook
for future purchases, including big-ticket items.
Growing population: Propelled by natural increase,
Vietnam’s population is set to increase by 10.0%
over 2021-2040, a similar pace to regional growth.
When Vietnam’s population reaches 108 million in
2040, it will continue to be the 8th largest country
in the Asia Pacific region. A huge consumer base,
growing middle class, and rising incomes mean that
Vietnam should become an increasingly attractive
consumer market. However, incomes will remain
lower than the regional average, and poverty,
although waning, will continue to be an issue
especially in rural areas.
Source: Euromonitor International
Chart 4 Social Environment Dynamics in Vietnam
Challenges
Low fertility rate: Birth and fertility
rates are set to continue to drop,
supported by changing lifestyles and
increasing contraceptive prevalence,
leading to falls in live births in most
years up to 2040. Despite falling
numbers of children aged 0-14 after
2024, rising disposable incomes and
dwindling family sizes should mean
that consumers are willing to spend
more on child-related products.
Negative net migration and lack of
diversity: Net migration will remain
negative in Vietnam up to 2040, but
Vietnam’s flourishing economy means
that negative rates will be much lower
than in the 2000s and previous
century. However, brain drain will
remain a major issue. Immigrants,
most of which come from other
regional countries, account for a
negligible share of the total population
and this is not set to change
significantly up to 2040.
Consequently, products and services
catering to an international market will
not be in high demand.
Significant rural population: Although
the urban population will surge in
Vietnam, as the rural population
moves to urban areas to benefit from
economic opportunities, urban
residents will still account for only
48.4% of the total population in 2040.
This could somewhat limit
opportunities for consumer
businesses, whilst logistics could need
further upgrades to meet the needs of
the substantial rural population.
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Source: Eurom onitor International from United Nations (UN)/Eurostat/O ECD/W orld Bank /International Diabetes
Federation/national statistics
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
Sum m ary 4 Technological Env ironm ent Analy sis in Vietnam
Opportunities Challenges
Solid rise in internet use by 2040: The percentage of the Rapid decline in fixed line
population using the internet is expected to rise strongly from network: Over 2012-2020,
72.0% in 2020 to 98.0% in 2040. This is likely to provide ample the number of fixed
opportunities for technology companies to increase their telephone lines in use
presence in Vietnam. E-governance is also expected to make witnessed a sharp fall. This
further inroads, an area in which the state has made progress, was in spite of growth in
which could open up the possibility of creating smart cities in capital investment in
the country. Furthermore, e-commerce is also forecast to telecommunications, which
receive a boost. Indeed, in May 2020, the government was mostly diverted to
approved a master plan for national e-commerce development fortifying the mobile arena.
through to 2025. It expects that 55.0% of the population will Consequently, the low
participate in online shopping by 2025 and for Vietnam to rank number of fixed telephone
among the top three countries in Southeast Asia in terms of its lines in use is likely to
e-commerce development. The government will support and create communications
promote the widespread use of e-commerce in businesses and infrastructure gaps,
the community as part of its master plan. In addition, it will try particularly in rural areas,
to build a healthy, competitive and sustainable e-commerce where more than half of
channel. the total population is
forecast to reside in 2040.

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 Opportunities Challenges
Significant growth in mobile subscriptions: In 2040, the number Low R&D spending could
of mobile telephone subscribers is anticipated to reach a stifle innovation: With
massive 193 million, up from 140 million in 2020. This points to expenditure on research
solid growth prospects for mobile network providers, which will and development (R&D)
be further enhanced by the rising proliferation of 4G accounting for only 0.4%
connectivity. Additionally, greater use of mobiles for work will of GDP in 2020, Vietnam
also result in more than one mobile subscriptions per capita, demonstrates that it
whilst m-commerce is likely to make further inroads in the somewhat lacks impetus to
online space given rising smartphone penetration as device drive innovation. This could
prices fall. restrain its
competitiveness versus
regional players like
Malaysia and Thailand.
Furthermore, it could limit
the manufacturing sector’s
potential causing it to
remain in the production of
low value-added
components.
5G to boost mobile revenues: Although Vietnam was one of the
first countries in the world to log a call made using 5G
technology, the rollout of the 5G network has been slower than
anticipated. Nevertheless, two network providers have
commenced commercial testing of the technology, which is
expected to be completed by mid-2021. Successful rollout of
5G is expected to result in 6.3 million subscriptions by 2025 and
lead to a sizeable increase in the revenues of mobile network
providers. Having said that, the expected uplift in revenues
must be preceded by significant expenditure in the network by
mobile players, which has been mooted at USD1.5-2.5 billion by
2025.
Source: Euromonitor International

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$)
Lending 7.0 7.0 7.1 7.4 7.7 7.6
rate
GDP (% 6.7 6.2 6.8 7.1 7.0 2.3
real
growth)
GDP 4,192,862,000.0 4,502,733,000.0 5,005,975,000.0 5,542,332,000.0 6,037,348,000.0 6,293,053,000.0
(national
currency
millions)
GDP (US$ 193,437.7 204,782.7 223,796.2 245,173.1 261,915.0 271,193.4
millions)
Birth rate 17.1 17.0 16.8 16.6 16.3 16.0
(per '000)
Death rate 6.0 6.1 6.2 6.2 6.3 6.4
(per '000)
No. of 25,386.5 25,766.9 26,132.7 26,504.2 26,870.1 27,173.6
households
('000)
Total 161,913.8 176,580.8 215,118.6 243,483.3 264,189.4 277,365.5
exports
(US$
millions)
Total 165,554.0 174,978.4 213,215.3 236,687.9 253,070.9 262,779.0
imports
(US$
millions)
Urban 30,982.8 31,925.2 32,885.2 33,880.3 34,888.2 35,826.6
population
('000)
Urban 33.6 34.2 34.9 35.5 36.2 36.8
population
(%)
Population 23.1 23.2 23.4 23.5 23.5 23.6
aged 0-14
(%)
Population 70.0 69.8 69.5 69.1 68.7 68.4
aged 15-64
(%)
Population 6.8 7.0 7.2 7.4 7.7 8.0
aged 65
(%)
Male 49.6 49.6 49.7 49.7 49.8 49.8
population
(%)
Female 50.4 50.4 50.3 50.3 50.2 50.2
population
(%)
Life 71.0 71.0 71.1 71.2 71.3 71.4
expectancy
male
(years)
Life 79.2 79.3 79.4 79.4 79.5 79.6
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 95.1 95.2
literacy
(%)
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Imports and Exports
2020 Share 2020 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 47.4 Imports (cif) from Asia Pacific 79.6
Exports (fob) to North America 29.2 Imports (cif) from Europe 7.1
Exports (fob) to Europe 16.0 Imports (cif) from North America 5.2
Exports (fob) to Africa and the 3.0 Imports (cif) from Africa and the 3.2
Middle East Middle East
Exports (fob) to Latin America 2.9 Imports (cif) from Latin America 2.6
Exports (fob) to Australasia 1.5 Imports (cif) from Australasia 1.9

© Euromonitor International 2021

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