The recent report ‘Navigator: Now, next and how for business’ from HSBC states that if the status quo in trade policy is maintained, Vietnamese merchandise exports will grow at an average 10 per cent per year from 2021 - 2030.
The bank also predicts that services exports will increase at seven per cent per annum over the same period while the total exports will stand $750 billion in 2030, four times higher than in 2016.
In terms of structural developments, we expect FDI-related ICT (Information and Communication Technologies) exports to retaining its top position among goods flows, and tourism to continue dominating services exports.
Firms are particularly optimistic about the growth outlook in key destinations such as China, Japan and Korea, which currently account for almost 30 per cent of Vietnamese merchandise exports.
“Companies in Vietnam maintain that favorable economic environment and increasing demand for their products are the top growth factors for cross-border trade," said Pham Hong Hai, Chief Executive Officer of HSBC Vietnam.
"A low-wage workforce, an improving business climate and the implementation of trade deals such as the EU – Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) are also seen as strengths and will further encourage foreign investment into the country,” he added.
HSBC’s report shows that surging manufacturing-related foreign direct investments have turned Vietnam into a ‘near-shore’ production base for East Asian manufacturers.
Accordingly, firms should see the strong demand outlook for Asian economies as an opportunity to expand regional trade linkages and diversify their export markets.
Besides, attracting foreign investments to the manufacturing sector will remain a key strategy in ensuring firms are able to compete with regional peers. Firms should demonstrate their support for government efforts to improve the business climate and strengthen investor protection.
Buoyant demand among major global economies such as China, the US, and the Eurozone are driving the positive near-term outlook for global trade.
Thanks to its high openness to trade and continued attractiveness to foreign manufacturers as a production base, HSBC foresees that Vietnam is ideally-placed to benefit from this trend.
In line with the optimistic trade outlook, many companies report a need for increasing trade finance to meet the rising demand. While some firms feel that high transaction costs and exchange rate volatility could be major obstacles, 86 per cent still believe that their needs will be matched with improved access to finance.
Also, HSBC’s report assesses that trade in services is substantially outweighed by cross-border flow in goods – in 2016, services contributed only four per cent to the increase in total exports.
And while exporters are generally optimistic about the near-term outlook for services trade, only around half of the surveyed companies indicate this is an important source of export revenue.
Tourism is projected to remain the key sector of services thanks to rising incomes and living costs in neighboring countries. In that context, deepening cooperation amongst ASEAN economies is seen as the most relevant development in this respect for Vietnam.
Vietnamese companies are justifiably upbeat about both ongoing and new trade agreements. Around three-quarters of HSBC survey respondents indicate the ASEAN Vision 2025 would further help grow their exports, while 63 per cent are convinced CPTPP would boost their trade prospects.
Therefore, firms are advised to support pro-trade government initiatives such as RCEP and ASEAN Vision 2025, to ensure Vietnam remains an attractive location for growth-enhancing foreign direct investments in the region.
Besides, businesses should make sure they understand the implications of upcoming trade initiatives such as “Belt and Road” and CPTPP, to make sure they are in a good position to seize the benefits from planned infrastructure investments and higher connectivity.
According to HSBC, firms should continue seeking opportunities to engage in the supply chain for higher-cost producers elsewhere. This can range from supplying inputs to offering IT and other business support services, a fast-growing market that has considerable potential for growth in Vietnam.
Businesses should also lobby for trade facilitation policy and necessary trade infrastructure investments to cater for the projected increase in global demand.