Vietnam is quietly positioning itself as a safe haven for manufacturers wary of getting caught in the crossfire of the tariff war between the U.S. and China. With a raft of free trade agreements, relatively cheap labor and close proximity to China, Vietnamese Prime Minister Nguyen Xuan Phuc has a good story to tell global executives he’ll meet in Davos.

“We are trying to increase exports in both quantity and quality of our products, especially in which we have advantages, such as seafood, commodities, footwear and electronics,” Phuc said. “We aim to become an export economy that can grow fast and provide more jobs with higher income for our people.”

Nonetheless, the Southeast Asian nation is yet to see a flood of companies moving in from China, he said. And the economy has some serious challenges to overcome: inadequate infrastructure and lack of skilled workers make it difficult to attract manufacturing beyond assembly-line work such as garment stitching.

Global economic conditions are also worsening. The U.S.-China trade war and more subdued world growth is weighing on export demand, a threat to an economy like Vietnam where trade accounts for about twice the nation’s gross domestic product — more than any country in Asia apart from Singapore. About a quarter of Vietnam’s total trade is with China.

Vietnam’s economy seems to be sheltered for now. Growth quickened to 7.1 percent in 2018, among the fastest in the world. Phuc said he is confident growth will reach the higher end of the government’s forecast range of 6.6 percent to 6.8 percent this year. He also vowed to keep the Vietnamese dong stable in 2019.

“We see growth momentum in different areas and have good foundations to achieve our goals,” Phuc said.

Vietnam, which has completed about 16 free trade agreements, began tethering itself to global trade after introducing market-oriented “doi moi” reforms in the 1980s. Exports surged to a record $244 billion last year, with U.S. customers accounting for about $48 billion of that — more than double compared with five years ago.

“The challenges this year will include global trade tensions, climate change and insufficient infrastructure,” Phuc said.

As a developing economy, he added, “we have to keep growing to bring more jobs to our people and eliminate poverty. We have to grow at more than 6 percent annually to boost per capita income and to escape the middle income trap.”

Still, Phuc has a good story to sell to global investors. Vietnam was ranked No. 1 among seven emerging Asian countries as manufacturing destinations by Natixis SA, which looked at demographics, wages and electricity costs, rankings in doing business and logistics, and manufacturing as a share of total foreign direct investment.

“The government has been doing a lot to help foreign investors to grow businesses long- term in Vietnam,” Phuc said.

Source: Bloomberg

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