The question posed by Robinson is why is Vietnam so popular among global investors that it accounts for 25% of all global money invested in Frontier equities, particularly when the nation is just one, making up 5%, of 22 countries in the MSCI Frontier index?
According to the author, the primary reason is that Vietnam truly values education, particularly as the nation already achieved an adult literacy of over 80% in the 1980s, ahead of China in the 1990s and India in the 2010s.
Any country requires a rate of between 70% and 80% to industrialise, with Vietnam being decades ahead of not just mainstream emerging markets, but also Frontier markets like Nigeria or Pakistan where the number remains around 60%.
Moreover, the country’s leadership, perhaps inspired by communist roots that have always prioritised education, have encouraged a strong focus on education at secondary school and university level too.
Nearly a decade ago, the nation already had 125,000 students at universities abroad, with the eighth largest national representation of any country at US universities. Of these students, the vast majority go on to one day bring home these hard-earned skills.
The development of manufacturing factories is also one of the nation’s strong points compared to other countries in the same group in terms of development level.
The latest data for 2018 indicates that Vietnamese per capita electricity consumption was above Mexico or Egypt, and more than double that of India or Indonesia. It is therefore estimated that countries require between 300 kwh and 500 kwh per capita of electricity to industrialise, with Vietnam soaring past this level in 2005, nearly a generation ago.
The third key element in terms of economic success is reaping the benefits of the demographic dividend. When a country’s fertility rate drops below three children per woman, parents stop spending all of their money on feeding their children and start saving money to invest back in their children’s future. Bank deposits begin to boom, followed by a bank lending boom, and occasionally a short-lived bust.
While countries boasting a high fertility rate have small banking sectors, typically making up around 20% of GDP, and a high double-digit cost of borrowing, Vietnam with a fertility rate of two children per woman has deposits above 100% of GDP and low interest rates.
This therefore helps to explain how the nation could afford to build the electricity network that it has.
Simultaneously, the adult share of the population remains high, with cheap financing being used to create infrastructure and investment within the private sector to support job creation.
The country is therefore experiencing the sweet spot of this demographic dividend and will do so for many years to come, even as countries such as the Republic of Korea (RoK) begin to age dramatically by 2030.
Furthermore, the nation now exports far more per capita than China. In 2021 the country had the world’s third largest trade surplus with the US, ahead of Germany and Japan, and only behind China and Mexico.
Its competitive minimum wage remains half that of China, although this is likely to rise in the coming years, adding fuel to an improving domestic demand story.
Moving forward, Robertson anticipates that Vietnam will double its economic size by 2030, and in today’s money, be a trillion-dollar economy by 2040, and a US$1.7 trillion economy by 2050, similar in size to where the world’s top-10 economies such as the RoK are now.
