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The economy of Vietnam after COVID 19

Phung Thi Ngoc Tram, Han Myint Zu, Cassidy Saetern

Seattle Central College

Econ 202 Fall 2024

Prof. Faye Houshyari

Introduction

Vietnam, located on the eastern edge of the Indochina Peninsula, is a rapidly

developing economy in Southeast Asia, strategically positioned near major trade routes

and bordering China, Laos, and Cambodia. With a population of over 100 million

people, it boasts a young and dynamic workforce that has fueled economic growth and

urbanization. Vietnamese culture is deeply rooted in traditions, influenced by Confucian

values, Buddhism, and local customs, creating a unique blend of cultural heritage that

values community and family ties. Economically, Vietnam operates a socialist-oriented

market economy, which combines state-led initiatives with open-market policies that

attract foreign direct investment and encourages private enterprise. Historically,

Vietnam's economy was predominantly agrarian and centrally planned until the Doi Moi

(Renovation) policy reforms in 1986, which introduced market principles and opened the

country to foreign investment. Since then, Vietnam has experienced rapid growth,

transitioning from one of the world's poorest nations to a middle-income country with a

strong export sector. Its economy is now driven by industries such as manufacturing,

agriculture, and services, while the government aims to further integrate into the global

economy through trade agreements and continued economic reforms.

GDP Analysis

Vietnam's GDP has shown consistent growth over the years, with notable

fluctuations due to global economic shifts and local challenges. Post-COVID quarterly

reports on Vietnam’s GDP trends have showcased a path marked by recovery and

resilience, driven by strategic policies and global integration, although the trajectory has
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varied due to a blend of global and domestic factors. After the severe downturn in 2021,

when Vietnam's GDP contracted by -6.02% due to pandemic-induced disruptions, the

country began a significant recovery in 2022. This turnaround was spurred by strong

export performance, particularly in the electronics and manufacturing sectors, bolstered

by foreign direct investment (FDI) from global giants like Samsung and Intel. Vietnam’s

strategic integration into global supply chains and economic stimulus measures were

also pivotal in this recovery phase.

By the third quarter of 2022, Vietnam's GDP growth surged to 13.71% year-on-year,

marking one of the highest growth rates in recent history. This spike was driven by a

resurgence in consumer spending, robust industrial production, and the reopening of

service sectors that had been severely affected by pandemic lockdowns. The

government’s effective economic policies, investments aimed at modernizing key

industries, diversifying trade partnerships, and enhancing productivity all contributed

significantly to this growth. These measures ensured a swift and effective bounce-back

from the pandemic's impact.

In 2023, the quarterly GDP reports indicated a more stable but still strong recovery.

By the second quarter, GDP growth was recorded at 5.6% year-on-year, which

represented a shift from the previous year’s rapid recovery but still highlighted positive

momentum. The industrial sector, supported by manufacturing and high-tech industries,

remained a key contributor to economic growth. However, the global economic

environment presented challenges, including inflationary pressures and interest rate

hikes in major economies, which impacted export demand. Despite these factors, by the

third quarter of 2023, Vietnam’s GDP growth rebounded to 7.4% year-on-year,

showcasing continued resilience. This resurgence was fueled by consistent export

growth and government-led economic initiatives aimed at revitalizing economic activity.

Vietnam's strategic push toward diversifying its industrial base and investing in high-

value sectors like technology and electronics played a crucial role in sustaining

economic momentum, even amidst global supply chain disruptions and trade tensions.

Vietnam’s GDP has demonstrated consistent growth over the years, characterized

by notable fluctuations influenced by global economic shifts and local challenges. From

2000 to 2024, Vietnam’s average annual GDP growth rate has been approximately

6.35%. The highest recorded growth was 13.71% in 2022, showcasing the country’s

strong rebound post-pandemic, while the lowest was -6.02% in 2021, driven by the

pandemic’s adverse effects. In 2020, GDP growth decelerated to around 2.91% as the

global economy contracted and supply chains were disrupted by the pandemic.

Vietnam's trade is a major driver of its economic growth, significantly contributing to

GDP. The trade-to-GDP ratio has consistently exceeded 150% in recent years,

highlighting Vietnam’s strong reliance on trade. This sector is vital for its export-oriented

economy, with key exports including electronics, textiles, and machinery. Major trading

partners such as China, the United States, Japan, and South Korea play essential roles

in boosting export revenues and supporting job growth.

From 2010 to 2019, Vietnam's exports grew at an average annual rate of 10-15%,

driven by foreign investment and a competitive manufacturing sector. The COVID-19

pandemic in 2020 posed challenges, disrupting supply chains and slowing trade.

However, Vietnam's quick recovery, supported by government stimulus measures and a

strategic focus on diversifying its trade partnerships, enabled the country to regain
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growth momentum. By 2021, exports had rebounded, driven by strong demand for

electronics and textiles. Vietnam has a trade surplus, with exports exceeding imports,

contributing positively to GDP. This open trade model, where Vietnam engages globally,

supports economic growth through export revenue and foreign investment. This model

aligns with the concept of open economies. In an open economy, trade boosts growth

by increasing access to global markets, encouraging investment, and enhancing

productivity, all of which are evident in Vietnam’s trade dynamics.

Vietnam's inflation rates have fluctuated significantly, impacting price levels and the

overall economy. From 2010 to 2020, inflation fluctuated, with a significant spike in 2011

reaching 18.6% due to rising food prices, fuel costs, and credit growth, with rice prices

surging by 20-30%, raising the cost of living for many, especially lower-income families.

This caused short-term economic slowdowns as higher prices reduced consumer

spending and purchasing power. However, inflation gradually stabilized between 3-4%

from 2012 to 2019, coinciding with strong GDP growth of 6-7% annually. In 2020,

despite the global economic slowdown from COVID-19, inflation remained relatively low

at 3.2%, supported by falling oil prices and government measures, allowing Vietnam to

recover quickly compared to many other countries.

Employment and Unemployment

Vietnam’s employment status has remained stable, with unemployment rates

consistently low, reflecting its strong and resilient economic performance. Historically,

unemployment has dropped to below 3%, even during periods of global disruption.

During the COVID-19 pandemic, the unemployment rate rose modestly to around 2.4%,
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primarily affecting urban areas and industries reliant on tourism and retail. This increase

was relatively low when compared to the global world trends, thanks to Vietnam’s quick

policy response. According to the World Bank Open Knowledge Repository, the

government launched a series of financial relief measures in order to mitigate the

overall impact on the labor market. These included direct cash transfers to vulnerable

populations, reduced electricity costs, tax deferrals, and zero-interest loans to help

businesses maintain their workforce. By 2022, unemployment returned to pre-pandemic

levels, averaging approximately 2.3% in 2023. This consistent low unemployment is

closely linked to Vietnam's rapid GDP growth.

Despite Vietnam's low unemployment rate of approximately 2.3% in 2023,

underemployment remains a significant challenge, particularly in rural areas where

agricultural work still accounts for about 30% of the labor force. Structural economic

shifts have encouraged the transition from agriculture to higher-value sectors such as

manufacturing and services, which now collectively contribute over 80% to GDP.

However, rural regions often face challenges in accessing these opportunities, with

underemployment in these areas estimated to be as high as 10% in certain provinces.

Government policies and labor-intensive industries have been key in keeping

Vietnam's unemployment rates low. Programs like vocational training and rural

development have helped workers move into higher-paying sectors. Vietnam's steady

GDP growth, which averaged over 6% annually before the pandemic, and a rise in GDP

per capita from USD 2,370 in 2010 to USD 4,086 in 2022, reflect the country's economic

progress. These efforts have ensured stable employment levels while helping the

economy adapt to global challenges.

Some Important Sectors in Vietnam

Vietnam’s economy is driven by key sectors, including manufacturing, agriculture,

and services, which have significantly bolstered GDP and employment. The interactions

among Vietnam's manufacturing, agriculture and service sectors closely fit the

Aggregate Demand-Aggregate Supply (AD-AS) model, illustrating their joint impact on

economic growth and stability. In terms of Aggregate Supply, manufacturing drives long-

term economic performance by boosting industrial output and technological progress,

increasing the productive potential of the economy. Agriculture, although contributing a

smaller share to GDP, ensures stability of supply by providing raw materials and

supporting export activities. On the Aggregate Demand side, the service sector boosts

consumer spending and investment, particularly through booming industries such as

tourism, retail and financial services, helping to boost domestic and international

demand. Together, these sectors create a balanced dynamic and promote sustainable

economic growth.

The manufacturing sector in Vietnam has been a central pillar of the country’s

economy, contributing significantly to both GDP and employment. As highlighted in the

article "Vietnam Manufacturing Tracker: 2024-25" by Vietnam Briefing, in 2023,

manufacturing accounted for approximately 23.88% of Vietnam's GDP, reflecting its

importance as the backbone of the nation's industrial output. This sector includes key

industries such as textiles, garments,… which have benefited from both domestic and

foreign investments, particularly in export-driven industries. Manufacturing also plays a

critical role in job creation, directly employing millions of workers. According to the
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article "Vietnam Manufacturing Tracker: 2024-25", around 11.96 million people are

employed in manufacturing, contributing to 23.3% in total employment, which has

expanded as the country has become a regional hub for low-cost production and high-

quality exports. This strong performance in manufacturing underscores the sector's vital

role in Vietnam’s economic development, not only elevates Vietnam’s economic output

but also supports substantial employment, offering millions of jobs and reducing rural-to-

urban migration pressures.

Agriculture, historically central to Vietnam’s economy, remains a substantial

contributor. The country is one of the world’s largest exporters of coffee and rice,

particularly catering to markets in the EU and the US. By the end of the 2023-2024

period, as the report of RMIT University, Vietnam is the world’s second-largest coffee

exporter, with coffee exports reaching 25 million 60-kilogram bags. This substantial

output not only boosts export revenue but also supports rural employment, with coffee

farming serving as a primary source of income for many farmers. In 2022, the number of

people working in the agriculture, forestry, and fishing sector in Vietnam accounted for

33.61%, making this sector the largest employer among all industries, according to the

article "Vietnam: Employment in agriculture". Exports from agriculture also provide vital

foreign exchange, supporting overall economic stability and enabling investments in

infrastructure.

The service sector has been a driving force in Vietnam's economic transformation,

contributing significantly to both GDP and employment. As mentioned in the article

“Economic and Political Overview”, services play a crucial role in Vietnam's economy,

representing 41.3% of GDP. The service sector in Vietnam encompasses vital

industries such as tourism, banking and finance, telecommunications, and retail.

Tourism, in particular, is vital; despite setbacks from the pandemic, it still welcomed

around 12.6 million international tourists in 2023, supporting local businesses and

generating revenue in excess of USD 27 billion from hospitality services alone. Retail

sales also grew substantially, highlighting the sector’s resilience and importance and

revenue from accommodation and food services reached about $27.77 billion in 2023.

Additionally, the sector also benefits from a youthful, tech-savvy population, which

supports the growth of telecommunications and logistics industries. With a contribution

of about 37.8% of Vietnam's workforce, it reflects the role of this industry not only in

GDP but also in providing stable employment opportunities.

Government’s Policies

Vietnam's government has implemented a range of policies and tax incentives to

attract foreign enterprises, reflecting its commitment to economic growth, industrial

modernization, and integration into the global market. These policies aim to reduce

operational costs for foreign businesses while encouraging investment in key industries

and regions. The most prominent incentives focus on corporate income tax (CIT)

reductions, sector-specific benefits, geographical advantages, and additional cost-

saving measures. These policies align with the government’s broader development

goals and long-term vision for sustainable and inclusive growth.

Corporate income tax incentives play a central role in Vietnam’s strategy to attract

foreign investment. The standard CIT rate in Vietnam is 20%, which is already

competitive compared to other regional economies. However, businesses operating in

prioritized sectors such as technology, healthcare, and renewable energy can benefit

from preferential CIT rates as low as 10%. For some projects, the 10% rate can apply

for up to 15 years or even the entire duration of the project, providing significant

financial relief for investors. Moreover, the government offers tax holidays for eligible

foreign enterprises, exempting them from CIT for up to four years. Following this

exemption period, businesses can enjoy a 50% reduction in their payable taxes for the

subsequent five to nine years. These measures have been highly effective in attracting

high-tech companies, large-scale manufacturing projects, and multinational corporations

that seek a cost-efficient base of operations in Southeast Asia.

In addition to corporate tax incentives, the Vietnamese government has prioritized

specific industries to encourage foreign investment that aligns with the nation's long-

term economic and social objectives. High-tech industries, such as biotechnology,

information technology, and semiconductor manufacturing, receive substantial tax

benefits to foster innovation and support Vietnam’s transition into a higher-value,

knowledge-based economy. These sectors benefit from reduced CIT rates and

extended tax holidays to attract the necessary investment to develop and modernize.

Similarly, the government provides incentives for investments in socially important

sectors like education, healthcare, and environmental conservation. Enterprises that

contribute to improving the nation’s educational infrastructure, healthcare system, and

environmental sustainability benefit from long-term CIT exemptions and reductions.

These policies not only promote economic growth but also contribute to enhancing the

quality of life for the population, ensuring that foreign investments also serve broader

societal objectives.
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Geographical incentives are another key element of Vietnam’s investment strategy.

The government has established several economic zones and industrial parks

throughout the country to encourage foreign businesses to invest in regions with

underdeveloped infrastructure or lower levels of economic activity. Investments in these

designated zones are eligible for preferential tax rates, tax holidays, and other

exemptions. These zones typically feature improved infrastructure, logistics support,

and other facilities designed to help businesses operate efficiently. Projects located in

remote or less-developed areas can receive extended tax holidays and additional land

rental fee exemptions, encouraging the relocation of enterprises to regions that require

greater economic attention.

Beyond tax-related incentives, Vietnam also offers additional measures to lower

operational costs for foreign enterprises. For instance, import duties on machinery,

equipment, and raw materials that are not available domestically are often exempted,

which helps reduce the financial burden on businesses involved in manufacturing or

high-tech production. Additionally, businesses operating in priority sectors or designated

regions may benefit from land rental fee exemptions. These measures help make

Vietnam a highly attractive destination for foreign investors seeking to maximize their

profitability in a competitive global market.

The broader context for these economic policies can be traced back to the Doi Moi

economic reforms of 1986. These reforms marked a significant shift in Vietnam’s

economic strategy, transforming the country from a centrally planned economy to a

socialist-oriented market economy. The Doi Moi reforms included measures to open the

economy to foreign investment, improve the business environment, and encourage

private enterprise. This shift laid the groundwork for the liberalization of trade and

investment in the 1990s and 2000s, creating the foundation for the tax and investment

policies that are now in place. The Doi Moi reforms also paved the way for Vietnam’s

accession to the World Trade Organization (WTO) in 2007, further integrating the

country into the global economy. The changes introduced under Doi Moi allowed

Vietnam to modernize its economy, attract foreign capital, and raise its standards of

living, making the country an increasingly competitive player in the global marketplace.

Conclusion

Vietnam has transformed from a centrally planned farming economy to a fast-

growing, export-driven market economy, showing its strength, smart reforms, and

forward-looking leadership. The Doi Moi reforms in 1986 were a turning point, bringing

changes that opened the economy to foreign investment and supported private

businesses. Over the years, Vietnam has used its strategic location, young workforce,

and cultural strengths to join global trade networks and achieve strong GDP growth. Its

main economic sectors—manufacturing, agriculture, and services—work together to

create steady and balanced growth. Manufacturing is the country’s foundation,

attracting foreign companies and creating jobs, while agriculture supports rural

communities and brings in export income. The services sector, including tourism,

finance, and retail, shows Vietnam’s shift to a modern, consumer-focused economy.

Government policies, such as tax breaks and special investments, have helped attract

international companies and encourage innovation in technology and socially important

industries. Investment in less-developed areas shows the government’s dedication to

fair growth and global competition. Though challenges like underemployment, rising

prices, and global risks remain, Vietnam’s flexible reforms and steady progress offer

hope for the future. By continuing to modernize, diversify its economy, and connect with

global markets, Vietnam is set to grow further as an important global economy and

improve life for its people.

References

Asian Insiders. “Vietnam Country Profile and SWOT Analysis Vietnam - Asian Insiders.” Asian

Insiders, 15 Nov. 2024, asianinsiders.com/countries/vietnam/vietnam-country-profile.

Briefing, Vietnam. “Vietnam Manufacturing Tracker: 2024-25.” Vietnam Briefing News, 8 Nov. 2024,

https://www.vietnam-briefing.com/news/vietnam-manufacturing-tracker-2024-25.html/

#:~:text=GDP%20and%20the%20value%20added,the%20economy%27s%20overall%20growth

%20rate

Briefing, Vietnam. “Why Is Vietnam’s Economy Growing so Fast?” Vietnam Briefing News, 4 Nov.

2024, www.vietnam-briefing.com/news/why-is-vietnams-economy-growing-so-fast.html/

#:~:text=The%20country%20has%20used%20a,value%20manufacturing%2C%20and

%20sustainable%20development.

“Economic and Political Overview in Vietnam”. Credit Agricole Group,

international.groupecreditagricole.com/en/international-support/vietnam/economic-overview.

FX Empire. “Vietnam GDP Annual Growth Rate 2000-2024 | FX Empire.” FX Empire,

www.fxempire.com/macro/vietnam/gdp-annual-growth-rate

“Navigating Vietnam Industrial Policy Landscape: Key Considerations for Businesses.” Industrial

Property by Savills Vietnam, industrial.savills.com.vn/2024/02/vietnam-industrial-policy.

Trading Economics. “Vietnam GDP.” TRADING ECONOMICS,

https://tradingeconomics.com/vietnam/gdp

“Vietnam Employment in Agriculture - Data, Chart | TheGlobalEconomy.com.”

TheGlobalEconomy.com, www.theglobaleconomy.com/Vietnam/Employment_in_agriculture.

“Vietnam Economic Data & Projections.” Focus Economics, 6 Oct. 2024,

www.focus-economics.com/countries/vietnam.
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“Vietnam’s Coffee Sector Faces Headwinds in Global Market.” RMIT University, 4 Aug, 2024,

www.rmit.edu.vn/news/all-news/2024/aug/vietnams-coffee-sector-faces-headwinds-in-global-

market#:~:text=Total%20coffee%20exports%20are%20estimated,Robusta%20coffee

%20globally%2C%20following%20Brazil.