Despite COVID-19, Vietnam’s electronics industry has room to grow

The current slump should not disguise the fact that the trend lines are all pointing in the right direction.

Vietnam’s electronics industry, an increasingly important sector of the country’s economy, continues to grow despite the negative impact of the COVID-19 pandemic. Even before the COVID-19 pandemic, Vietnam was a shaping up as an ideal place to do business in this sector on account of the relocation of supply chains due to the U.S.-China trade war and rising manufacturing costs in China. All this had positioned Vietnam as one of the world’s key electronics exporters, ranking 12th in the world since 2015.

This period has seen a steady increase in Vietnam’s electronics exports, which climbed from $47.3 billion in 2015to $96.9 billion in 2019. The import of electronic products has nearly doubled over the same period.

Vietnam’s electronics industry also benefits from a diverse range of export partners. In 2019, China was the country’s top export destination, accounting for 19.3 percent of its electronics exports, followed by the U.S. (18.2 percent) and South Korea (9.1 percent).

Vietnam’s main combined export commodities are mobile phones, TVs, and cameras (41 percent), electrical apparatuses (18.2 percent), and electronic integrated circuits and micro assemblies (11.9 percent).

Foreign companies currently play a crucial role in Vietnam’s electronic industry. In 2019, LG announced that it would completely move its smartphone production facilities from South Korea to Vietnam. At the same time, both Apple and Foxconn have partly moved their production plants to Vietnam

As the local newspaper Vietnam Plus reported recently, Samsung has already invested over $17.5 billion in Vietnam, and its high-end mobile phones and electronic components now account for more than 20 percent of Vietnam’s total export turnover. The giant electronics firm currently employs more than 170,000 people at industrial parks in Bac Ninh and Thai Nguyen provinces, and plans to expand its investment in the country further. Panasonic has also relocated a refrigerator and washing machine factory from Thailand to Vietnam, suggesting that Vietnam is fast becoming the region’s main electronics manufacturing hub.

Of course, Vietnam is currently struggling to contain a third wave of the COVID-19 pandemic, which has resulted in lockdowns, restrictions, and disruption to manufacturing supply chains. But despite the negative impact on Vietnam’s economy, there is every chance that Vietnam can maintain this upward trajectory in electronics production and attract further foreign investment in the sector.

As I have observed previously, the recently signed Regional Comprehensive Economic Partnership trade agreement will help lower tariffs, boosting Vietnam’s economy and increasing further its appeal to foreign investors. In June 2019, Vietnam also signed a Free Trade Agreement with the European Union, which will gradually reduce most tariffs, regulatory barriers, and red tape, and hence, should create new opportunities for both sides to do business.

In addition, in 2020, the Vietnamese government provided an incentive scheme temporarily implementing a 30 percent corporate income tax cut for certain business and companies working in the high-tech sector as well as in specific industrial zones and underdeveloped regions.

According to a recent report from Fitch Solutions, Vietnam’s consumer electronics industry will continue to grow in 2021 due to “the global vaccine rollout and stronger external demand for important export industries.” The industry will continue to accelerate due to “a combination of purchasing power, demographic and economic modernization trends that gives Vietnam one of the stronger regional outlooks, with vendors set to tap into an expanding middle class and flow of first-time buyers.”

Vietnam’s economic outlook had stabilized in the first six months of 2021 before the onset of its current third wave of COVID-19. On August 11, Prime Minister Pham Minh Chinh urged businesses to avoid “any disruptions in the supply chain while regulations on goods circulation are strictly observed.” He said it was time to focus on combating the pandemic because a successful fight against the COVID-19 would help facilitate socioeconomic recovery.

Despite the current outbreaks, Vietnam’s economy is expected to grow between 3.5 and 4 percent this year, according to the Vietnam Institute for Economic and Policy Research, depending on how quickly it can get the COVID-19 pandemic under control in the last months of 2021. If it succeeds in limiting the economic impacts of the current wave of outbreaks, there is a good chance that the country can establish itself as a regional hub for electronics production.

By Thoi Nguyen – The Diplomat – August 20, 2021