Vietnam’s economy is likely to continue to outperform its regional neighbours through 2024, with its manufacturing and export industries drawing significant inward investment thanks to the openness of its economy and the strength of its fundamentals.

The information was revealed in the Asia House Annual Outlook 2024 that was released on January 23. The report examines how Asia’s economies will power ahead in 2024.

According to this outlook, in the first ten months of 2023, foreign direct investment (FDI) in manufacturing projects in Vietnam stood at roughly $18 billion, or 73 per cent of the total FDI inflows registered in the same period. Additionally, foreign investors are increasingly turning to Vietnam to diversify their supply chains away from China.

The report points out that Vietnam’s digital transformation programme aims to situate its domestic tech firms as global players. Vietnam has a thriving tech startup environment and there has been significant public investment in AI.

The National Innovation Centre supports tech breakthroughs in multiple sectors, while the banking sector is very active in AI testing and application. VPBank has applied AI to currency transactions, personal credit, and digital banking, while Vietcombank has cooperated with FTP Smart Cloud to develop a customer chatbot platform, called VCB Digibot.

In 2024, AI will reshape multiple sectors in Vietnam’s economy and boost inward productive investment. By collaborating with educational institutions and participating in the development of AI infrastructure, inward investment can catalyse positive economic spill-overs – both horizontally and vertically.

As a major agricultural producer, Vietnam will benefit from inward investment in precision agriculture, AI monitoring, and analysis to optimise yields and fertiliser use. AI can also be used to collect data on soil conditions, weather, crop growth, and water usage, with sensors and drones also providing key insights. This can influence decisions on seed planting, fertilisation, pest management, and other agronomic procedures.

According to the Asia House Annual Outlook 2024, economic dynamism, resilient fundamentals, and the openness of Vietnam’s economy also augur well for its green finance ecosystem. Regulatory incentives to encourage a shift in the financing of the green economy will be key in 2024 and beyond.

The continued promotion and scaling of incentives to attract and channel green finance – with the engagement of domestic financial institutions – will spur Vietnam’s energy transition and help build resilience against climate shocks.

The Bank for Investment and Development of Vietnam became the first to issue green bonds, with the proceeds used to finance green, energy-saving, emission-reducing, and environmental protection projects. The first domestic green bond issuance in the Vietnamese capital market was scored by Moody’s.

This is also the first senior, unsecured, and unguaranteed green bond issued in Vietnam. Additional efforts to scale green bond issuance will create pathways for more issuances and deliver more depth and breadth in the green ecosystem.

Vietnam’s blended green finance initiatives – such as the Asian Development Bank blended finance loan supporting wind energy – are particularly effective in supporting Vietnam’s adaptation to climate risks and supporting renewable energy.

As is the case in neighbouring Southeast Asian economies, climate finance mechanisms need to be calibrated to mitigate risk and to promote risk-sharing, particularly when channelling sustainable finance to Vietnam’s smallholder farmers and small- and medium-sized enterprises.

Equity-based investments offer risk-sharing and risk mitigation, as well as give farmers greater financial flexibility during periods of low yields or unforeseen shocks.

Vietnam Investment Review