Vietnam’s rapidly growing retail industry partially offsets economic slowdown

By    August 6, 2016 | 03:25 pm GMT+7

The rising middle class has been attracting foreign retail giants to Vietnam.

Vietnam’s annual economic growth cooled to an estimated 5.52 percent in the first half of this year after it had expanded at 6.68 percent last year, the fastest pace since 2007, due mainly to strong commodity exports and record foreign investment inflows into the manufacturing sectors.

The World Bank has once again revised down Vietnam’s gross domestic product growth for this year to merely 6 percent from the previous forecast of 6.2 percent.

Adverse weather conditions, sluggish global demand and low world commodity prices have reportedly hammered Vietnam’s economy, said Sebastian Eckardt, World Bank’s senior economist, in an interview with the Vietnam News Agency.

Buoyant retail market helps the economy to stay afloat

With the population of more than 90 million, Vietnam’s domestic retail market is growing rapidly, making it highly attractive in the eyes of foreign investors. The country is currently listed in the top five in Asia and ranked 11th globally in terms of retail growth.

Vietnam’s retail industry has witnessed healthy growth rates of 8 – 10 percent annually in recent years, said economist Eckardt.

The industry is forecast to reach $109 billion by 2017, according to the Economist Intelligence Unit.

Young population, rising disposable incomes, rapid urbanization and better living standards are said to be the main drivers of the growth.

Eckardt said the robust retail market growth has partially contributed to keeping Vietnam’s economy from losing momentum.

He forecasts the galloping number of middle-class income citizens with a high shopping demand in major cities like Hanoi, Ho Chi Minh City and Da Nang will catch the eyes of foreign investors.

Vietnam has recently emerged as a destination of global retail giants who are trying to set a firm foothold in the local retail market through mergers and acquisitions (M&A).

Thai billionaires have proven their particular interest in Vietnam’s retail market by sealing many M&A deals such as the $200 million acquisition of consumer electronics retailer Nguyen Kim, or $1.14 billion buyout of Big C supermarket chains in Vietnam, both by Central Group.

“It would be no surprise to see Vietnam to continue attract huge foreign investment inflow into its retail market in the future,” said Sebastian Eckardt.

vietnams-rapidly-growing-retail-industry-partially-offsets-economic-slowdown

Economist Sebastian Eckardt said free trade agreements will give Vietnam a decent change of growing stronger and faster. Photo by the World Bank.

Agriculture remains the linchpin of the economy

“The agricultural sector will remain an important part of Vietnam’s economy,” said the World Bank’s economist.

The sector now accounts for roughly 15 percent of gross domestic product and creates about half of the total employment.

According to estimates, Vietnam’s agricultural production, however, has fallen steadily over the past three years. The agricultural sector even recorded negative growth of 0.7 percent in the first half of this year, said the Ministry of Agriculture and Rural Development, after taking a hit from adverse weather conditions.

Vietnam is currently lagging behind many countries in Asia, including Thailand and Bangladesh, in terms of productivity in the agricultural sector.

Economist Sebastian Eckardt pointed out that it is Vietnam’s scattered farm land that has hit the overall efficiency of the country’s agricultural production.

The fact that farmland is divided into multiple plots and a considerable proportion of state-owned plots are left unused has dampened investors’ appetite for the agricultural sector.

Only about one percent of foreign direct investment is currently flowing into the agricultural sector, said the Institute of Policy and Strategy for Agriculture and Rural Development.

Eckardt urged the Vietnamese government to change the situation by making state-owned agricultural land available to the public through privatization.

The economist said Vietnam is “on the right track” in restructuring the state-owned enterprises as the authorities have gradually removed foreign ownership cap, allowing foreign investors to wholly own local companies.

Besides, the government has been trying to create more favorable business conditions and a level playing field for private companies.

The World Bank economist emphasized that openness to the global economy through a variety of free trade agreements including the pending Trans-Pacific Partnership will give Vietnam a real chance of growing stronger and further.

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