Vietnam's Economy Performs Better than Expected in 2015

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Vietnam's economy grew at its fastest pace in five years due to such factors as record foreign investment and strong domestic demand, according to AFP. The government recorded 6.68 percent expansion for the year, surpassing expectations of 6.2 percent. The World Bank also predicts that the Trans-Pacific Partnership Agreement (TPP) could add up to 8 percent to Vietnam's GDP over the next 20 years.

Many nations around the world suffer from the Chinese slowdown, but Vietnam managed to maintain a strong economic showing through various means. First, the Vietnamese took advantage of the low-priced oil market to import raw materials at lucrative prices, resulting in an import surge of 12 percent this year.

Vietnam's central bank also intervened by weakening the dong multiple times throughout the year, boosting export growth by over 8 percent for 2015, and over 70 percent of those exports derived from foreign companies.

FDI Surge

Vietnam's surging foreign investment represents the main factor that fueled economic growth. Authorities accomplished this by having one of the cheapest labor markets in the region, causing investors to choose Vietnam over China, and many companies abandoned the Chinese by shifting operations to the small, communist country.

Firms such as Nike, Microsoft, and Intel have already moved factory jobs from China to Vietnam to save labor costs, notes Thanh Nien News. According to a recent survey, 57 percent of U.S. companies peg Vietnam as the top investment spot. Moreover, Vietnam's top markets, which include the European Union and the United States, are more eager than ever to do business with the Southeast Asian country.

The United States in particular is a major investor in Vietnam, and experts maintain that American investments will grow in 2016 by way of TPP. The United States is the seventh-largest investor in Vietnam and may soon become the largest under the agreement. Aside from TPP, Vietnam will also attract more investors through a separate trade agreement with the EU.

Potential Barriers

Vietnam is riding on a wave of success, but several barriers stand in the way. Corruption is a major issue, and state-run companies remain poorly managed. In addition, a large amount of public debt shackles the government, which may hamper reform efforts going forward.

Tax and customs laws prove cumbersome for many companies, and although firms are willing to withstand the hassle, Vietnam's high status may wane if such burdens become the norm. The delay of various investment projects is another major concern, which could force investors to turn elsewhere if officials do not make improvements.

With that, Vietnam will start strong in 2016, and leaders have vowed to enhance the private sector to maintain the nation's business-friendly image.