Finding the silver lining: How the strong US dollar is impacting Vietnamese tourism

May 8, 2024 | 05:00 pm PT
Nuno F. Ribeiro Lecturer
The U.S. dollar has recently surged against the Vietnamese dong, going as high as VND25,487 last month, and currently at VND25,461 (Vietcombank exchange rates as of May 8).

On the black market, the USD has reached 25,770, with the State Bank of Vietnam's reference rate stable at 24,245. This USD exchange rate hike negatively impacts the cost of imported goods, inflation rates, and the competitiveness of Vietnam's exports.

Most importantly, as the Vietnamese dong continues to depreciate against the U.S. dollar, it can lead to higher import costs for businesses in Vietnam, leading to increased prices for consumers as businesses pass on the higher costs to maintain their profit margins. A weaker Vietnamese dong can also make it more expensive for Vietnamese companies to repay their dollar-denominated debts, leading to increased financial strain and potential defaults.

Furthermore, a depreciating dong can also reduce the purchasing power of Vietnamese consumers, as imported goods become more expensive. This can lead to a decrease in consumer spending, which can negatively impact domestic businesses and the overall economy.

While the current situation is less than ideal, we should be wise to consider the saying "trong cai rui co cai may" (every cloud has a silver lining), particularly in the case of one of Vietnam's most successful exports - tourism.

The Vietnamese tourism industry may face challenges due to the current fluctuating exchange rates, but there are also potential opportunities to be found.

Foreign tourists take a boat tour in Ha Long Bay, northern Vietnam. Photo by Pham Ha

Foreign tourists take a boat tour in Ha Long Bay, northern Vietnam. Photo by Pham Ha

First, the strength of the U.S. dollar holds significant sway in luring American tourists to visit Vietnam. A favorable exchange rate can lead to enhanced purchasing power for U.S. visitors, potentially drawing more tourists from the USA to Vietnam.

Conversely, an adverse exchange rate might dissuade them due to increased expenses. A robust U.S. dollar also results in increased length of stay and higher spending by American tourists during their travels in Vietnam, benefiting the local economy, leading to greater revenue from tourism activities and contributing to domestic tourism growth.

Second, an advantageous exchange rate can also attract more American tourists during off-peak seasons, fostering a more balanced tourism demand throughout the year. With the projected sustained strength of the U.S. dollar against the Vietnamese dong in 2024, it is anticipated that Vietnam will see an increased number of American visitors throughout the year, potentially helping reduce seasonality in the Vietnamese tourism industry. However, a stronger U.S. dollar may influence the cost of imported goods and services for Vietnam's tourism industry, impacting the profitability and competitiveness of establishments such as hotels, resorts, and transportation companies that rely on imports.

Third, a high exchange rate makes Vietnam a more affordable and attractive destination compared to neighboring countries like Thailand, Malaysia, Laos, and Cambodia. This competitive edge can draw tourists who might have otherwise chosen different destinations, benefiting Vietnam's tourism industry. Similarly, it may encourage international tourists (not just from the USA) to add Vietnam as an additional destination when visiting Southeast Asia.

And fourth, the strong U.S. dollar can encourage foreign investment in Vietnam's tourism infrastructure, such as hotels, resorts, and attractions. This investment can lead to improved facilities and services, further enhancing the country's appeal as a tourist destination. A strong U.S. dollar coupled with the recent passing of two key laws regarding land and real estate (Land Law No. 31/2024/QH15 and updates to the Law on Real Estate Business No. 29/2023/QH15) will make Vietnam an extremely desirable destination for foreign investment in tourism and hospitality and other areas, boosting the country's economy.

The USA have long been one of the most important travel markets for Vietnam. Between 1977-2006, more than 2.4 million Americans visited Vietnam, making them 2nd market in international arrivals).

Between 2007-2016, more than 4.46 million Americans visited Vietnam (4th market in international arrivals). In 2023, Vietnam received 717,073 American visitors (4th market in international arrivals) and 232,358 visitors in the first 3 months of 2024 according to the General Statistics Office (GSO). According to the United Nations World Tourism Organization (UNWTO) and the World Travel and Tourism Council (WTTC), American travelers are some of the highest spenders and with the longest stays, making them an extremely desirable inbound travel market. American visitors spent an average of US$1,710 when visiting Vietnam in 2019, ranking third after the Philippines and Belgium (GSO).

This is the ideal time to invest in promotional campaigns specifically targeting American tourists. Focusing on this market can yield significant returns for the tourism industry. Capitalizing on the influx of American tourists in Vietnam can have a ripple effect on other desirable visiting countries like Canada and Europe. By attracting more American travelers to Vietnam through strategic promotional campaigns, the tourism industry can encourage visitors from high-income countries to explore and visit Vietnam.

To maximize the benefits of the current favorable exchange rate for Vietnamese tourism, it is essential for the government and tourism industry stakeholders to implement strategic initiatives. One effective solution is to invest in infrastructure development and enhance the quality of tourism services and facilities. By improving transportation networks, upgrading accommodations, and offering diverse and engaging tourist activities, Vietnam can attract a wider range of travelers – not just Americans – and increase its competitiveness in the global tourism market.

*Nuno F. Ribeiro, PhD CHE, is Senior Lecturer in Tourism and Hospitality Management, RMIT Vietnam and member of Vietnam EuroCham Tourism and Hospitality Committee.

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