Consumers Driving Vietnam into 'Golden Age'
Vietnam's major exports include its famed coffee beans and minor ones such as tea, but from scooter maker, Piaggio, to prominent local businessmen, investors are making their biggest bets on the Vietnamese consumer.
At the heart of this gamble is a demographic shift in Vietnam that could mirror the economic transformation of mid-sized countries such as South Korea, driven by both rapid industrialisation and new entrants into the work force who will help power output as well as consumption.
Of Vietnam's population of about 87 million people, nearly half is in the labour force. The median age of 28.5 years makes it a young crowd, and one that is increasingly moving from rural areas to bustling cities such as Ho Chi Minh City as part of government plans to turn Vietnam into a middle income country. The demographic trend is not lost on investors.
"We saw the opportunity to come here to build the premium market," said Costantino Sambuy, president and general director at Piaggio, the Italian maker of the Vespa scooter that has established its Asian headquarters in Vietnam.
"It can only grow right now, looking out of the window and seeing how Vietnam is growing and the way it is developing," Sambuy said, speaking in a showroom with a line-up of gleaming new scooters in a nation known for its millions of bicycles.
Chris Freund, managing partner of Mekong Capital, a Vietnam-focused private equity firm, has companies in his portfolio that target the 15 to 25 year old bulge. Those include Digi World, a distributor of consumer electronics and digital products, and cell phone retailer, Mobile World.
In stock markets, consumer-related stocks have been among the top recent performers. As of last week, Vietnam Dairy Products, or Vinamilk, was up 16.6 per cent since the end of 2008, compared with a 3.5 per cent loss in the Ho Chi Minh index during the same period. That is not to say Vietnam is a haven.
The country, wrecked by war in the 1960s and 1970s, is starting from a low base and the economy is heavily driven by a government perceived as lacking transparency.
GDP per capita at US$1,052 this year makes it the lowest among a group of six countries to which Vietnam is compared with in a recent study by Credit Suisse.
That is well below the US$1,721 for the Philippines ‒ the second lowest in that Credit Suisse group of six ‒ and a third of China's.
The economy faces steep challenges, including woeful infrastructure. In the short term, rising inflation and the government's struggle to tackle trade and budget deficits pose risks as well.
But to many executives and investors in Vietnam, the game changer was Vietnam's entry into the World Trade Organization in 2007, bringing with it trade liberalisation and increased security for companies such as Starbucks that have announced plans to enter the country.
A study by the United Nations Population Fund said Vietnam is entering a "demographic dividend", with two or more persons of working age for every person of dependent age (under 15 or 60 and over) ‒ a situation that it sees lasting until 2040.
"The 'demographic bonus' is a period of time in any country's development that typically happens once in its history," said Bruce Campbell, the UNFPA representative in Vietnam.
Vietnam's young population is also an increasingly technologically savvy one, like other youth worldwide, as signalled by the stir created when a local website posted pictures of the yet to be released iPhone from Apple.
"That's new people beginning to earn money, and it also speaks to the generation that's getting wise to Facebook, mobile telephony, and the internet," said Dominic Scriven, the CEO of local-based fund Dragon Capital. "That promotes an enormous amount of change."
According to the Credit Suisse study, Vietnam's urban population has risen from below 20 per cent of the total population to 28 per cent over the past 15 years, a pace akin to China's.
That will invariably have a major impact on domestic consumption, where real private spending already grew 12 per cent last year.
In its report, the UNFPA is seeing in Vietnam some parallels to "East Asia miracles" such as South Korea.
"The 'demographic dividend' offers Vietnam a 'golden opportunity' to use this abundant and young labour force for the next phase of economic growth," Campbell said.