Will the oil crisis slow Vietnam’s economic growth? - Asia Specific podcast, BBC World Service

Vietnam's economy is forecast to grow. at the fastest pace in South East Asia this year. But since this energy crisis triggered by the war in Iran, that's really starting to cause some headaches there. That's right, Mariko. The first impact was on Vietnam's riders, because fuel prices increased. But now it's hurting factories as well. And this comes as the government announced that. very ambitious target of 10% growth. So we're asking whether that's going to be achievable.

As always, I'm Mariko in Singapore and this is Asia Specific. from the BBC World Service, the podcast that unpacks. Asia Pacific stories with those who know them best. And today I have Sen Nguyen, a senior journalist from the BBC World Service. I also have Professor Edmund Malesky from Duke University joining me. from North Carolina in the United States. Welcome, both. Wonderful to be here today. Thank you for inviting. Hi. Good to be back.

So, Sen, can you just tell us how the economy is going? Because I saw that it tops the growth forecast for this year. in all of South East Asia. So it's doing quite well. Yes, the ADB has made it very clear that Vietnam topped the list. when it comes to GDP growth forecast in the next year. Well, this year to be more exact 7.4, going as high as 7.5, 7.2%. But you got to look at the short term shocks as well, right? And in particular, that is Iran war that we're seeing unfolding right now.

And but what does that mean really on the ground? So I spoke to a number of businesses of different sizes across the country. And one of them is the general director. of Deep C industrial zones in northern Vietnam. And they are the biggest complex, industrial complex by size in Vietnam. And he told me that because they are a Belgian industrial developer. and port developer, they create space for businesses.

by reclaiming land from the sea. And that means they have to use a lot of land filling materials. And that have gone up about 30% when you buy land filling materials. A third of that goes to fuel. So you can imagine. how that is impacting businesses because they need the fuel to, you know, to pump the sand on shore and all the other structures to drive in. And all of that also means that construction businesses also see costs rising up. Just to put a little bit of a finer point.

on some of the things that Sen said. I think it's not all just energy, and it is creating a little bit of a black cloud. So the first thing I'd say is that, so there's the general fuel supplies and that's affecting manufacturing. It is raising manufacturing costs. And it's not just the cost that's going up, it's the supply, and the current supply. So recently there were 15 chambers of commerce that did discuss issues. with being able to maintain production. Apple has been asked about its, Apple has a large amount.

of its supply chain for iPads, and has talked about. like reducing production for a little bit. The second thing is that there are two other effects. of the Strait of Hormuz crisis that are causing problems in Vietnam that we're not talking about too much. One is natural gas and how it's affecting agriculture. Vietnam does have a large agricultural supply. It still exports a lot of agriculture and depends a lot. on fertiliser, sometimes artificial fertiliser. And and those costs are going up for farmers. At the same time,

those farmers are being pinched by a difficulty exporting food. And so there is a, a pinch that's hurting the farmers. and you know, that and especially that area. So what we call the rice basket of Vietnam in the Mekong Delta. And the third one that I'm tracking that I didn't know a lot about. until the crisis is helium and helium supplies. Vietnam had started to move towards. And it's not just balloons at parties, though, that people are hurt by that. But helium is a major input in the semiconductor industry.

And that had been a place that Vietnam had been trying to move going forward. and been sort of a plan in its future development. And as helium has gone up, that's sort of, caused some uncertainty about the semiconductor industry in Vietnam. I guess this uncertainty caused by the Iran war is something. that many other regional governments are facing as well. But I just want to look back at the history, because even before the first trade war that the US started in 2018,

Vietnam's economy was doing quite well, wasn't it? So, Sen, if you can just explain, looking back at history, you know, policy called "Doi Moi" that was implemented in the 1980s and. how that shaped the country's economic growth over the last few decades. I mean, we're going back 40 years. That's quite a long time. And so I won't walk you through the minute details of it. But essentially 1986, we introduced this policy called, which is you can roughly translate it into innovation policy and.

it essentially turned Vietnam economy into a socialist oriented economy. And 40 years have gone by and you can see and you can really see. how opening the country to. to the world and in inviting foreign capital. in has really transformed the country dramatically. My parents still going back to stories back in the days. of how the country was very different back then and. how we got it so much better than them now. And I believe them. It's not just my parents who have been saying that.

And you see so much of that success flourishing and buzzing. and from the noise, from what you smell and what you see, um, in both economic powerhouse in Hanoi and Ho Chi Minh City. But then a country's GDP growth doesn't really speak. of the country growth overall. This development we're seeing is not distributed evenly. And when I talk to Eddy a few weeks ago, didn't I, we had a really interesting conversation.

And Eddy, you mentioned something about how... and we don't want to.... We want to be careful how we word this, right? But then the past 40 years have been a long journey. And now Vietnam is actually entering a chapter that is going to be. it's going to involve a lot bigger challenges that I haven't seen. in the past 40 years in terms of tech, in terms of innovation, in terms of leaping from what is the so-called cheap labour, and do you want to step in on this? Oh, sure. Yeah. So, yeah, so let me jump in.

So the way I think the best way to think. about Vietnam's reforms over the past 40 years, and they have been dramatic, they really have been like... It's been one of the fastest growing countries. in the world since the early 90s. It growing at 6 to 7% a year for that time. I like to sort of remind people, like in the early 90s, 90% of Vietnamese were below the poverty line. Today that number is 8%, right? And Vietnam is a country of 100 million people. So we're talking.

about millions of people that have been raised above poverty. The way I think about Vietnam's reforms, I, I sort of think of it like this, um, it is one part response to crises, a second part, a very pragmatic government and a third part, a government that was willing to use experiments that were happening in, in various provinces that were happening outside. of central plans and then use those generally.

So like, so the, the reforms that that Sen was talking about, the 1986 innovation or renovation. The renovation reforms. Yeah. That was a response to a major agricultural crisis and the drying up of Soviet aid. And what Vietnam did at that point was liberalise prices. and liberalise farm products being sold on the open market, which allowed for the exporting of rice. Before that, Vietnam had been a rice importer. Then they became a massive rice exporter. So that was that first one.

And that liberalisation, that idea of liberalisation, of prices. That idea came from provinces that have been so-called fence breaking, allowing farmers to sell on the private market, even though the central government was disallowing it later on in the 1990s, you got this sort of massive price reform that was a response. to a hyperinflation crisis, right? Then what happened in Vietnam became heavily dependent on foreign investment. But the Asian Financial Crisis hit. And when the Asian Financial Crisis hit, Vietnam realised. it couldn't depend solely on foreign investment.

And that's when Vietnam created the enterprise law. that essentially allowed for private enterprises, Vietnamese small domestic companies, to start businesses. Vietnam's early reforms were kind of easy in a way, because what they had to do, they had been a strict central planning system. that had a tightly regulated economy that was setting prices and. and had large amount of state owned enterprises. And so the first set of reforms has been. just the state getting out of the way, right?

The state not being involved in price, setting, the state not being involved. in distorting the market towards state owned enterprises. The state allowing domestic private companies to start their own businesses. and allow foreign investment to. But that's easy. But now what Vietnam is facing is the much harder part. It's dealing with high levels of urbanisation, the effects of... on environment and climate, of rapid economic growth, right? They're entering a high tech economy that requires different types.

of regulation and protection of intellectual property rights. And so the hard part now is going to be Vietnam, developing the institutions. for that modern economy. It's less about getting the state out. And it's now about building the appropriate state regulation. for these new types of problems that they're encountering. My parents used to live in Ho Chi Minh City in the 1998 until for. for a couple of years, I visited as a as a teenager.

And as you said, it was a bustling economy that was quite different from, I think, my parents and I imagine as, you know, communist government, you know, controlled economy. So it's quite interesting what you said, but also Sen. The last time we spoke, we were talking. about VinFast, the electric vehicle maker in Vietnam, and how BYD, the Chinese giant, it's still not the market leader there. And you were telling us about kind of the interesting relationship. between the two countries.

I noticed Vietnam's president recently went to Beijing to meet Xi Jinping. Do you want to explain, I guess, the interesting background, the relationship between the two countries. and whether or not are they are they now trying to get closer to Beijing, do you think, especially given what's happening elsewhere in the world? I mean, you can't really talk about Vietnam economy and diplomacy. without talking about China. They're the biggest neighbor that we have. It would be dismissive not to mention them. So yes,

To Lam did pay a very important visit in in China. And then he also visited one of these new residential town. that was hyped by Prime Minister for a few years back. That is the model that Vietnam had to have to learn after. So there's a lot of learning models and exchange of, of knowledge and also this kind of conviction that that, that they are the communist brothers that will never separate.

So ideologically, ideologically, two countries won't. live very far apart. But Vietnam has also been known to. walk the tightrope between the US and China. And I don't really like the simplification of this. is how Vietnam diplomacy policy goes, but it is a big factor, a big part of that, of that picture. And China is still a very important export and import market from Vietnam.

A lot of the materials and ingredients that FDI companies and factories. and even domestic companies use to produce and manufacture products. for domestic market and globally come from China. And so economically, diplomatically, you can't really separate the two. But then leaders in Vietnam also have to be very careful about falling, appearing too much interested or too much eager into China, because there is an anti-China sentiment among many Vietnamese.

Eddy, I know you guys have been talking. about how the government wants to boost the private sector, not rely too much on foreign investments, but I'm just wondering why Vietnam's economy is doing better than others. And one of our colleagues, our South East Asia correspondent Jonathan Head, was telling us earlier about how some companies are packing up factories. in Thailand and moving to Vietnam. And I'm just trying to understand why that is. Is that because it's cheaper, more affordable. to hire workers in Vietnam?

So I think you sort of when you set it up at the beginning, you were talking about like what was always on already. on this positive trajectory before the Trump tariffs hit. And I think what happened is the tariffs, it wasn't just that the tariffs went up. It's been it's caused a dramatic amount of uncertainty. Right. Like the so the tariffs were 46% and then they were 19%. And then the and then they were 21%. And then the Supreme Court threw them out.

And what's happening with a lot of foreign companies and globally is like. So in 2018, the Trump administration put tariffs on China. They went up to about 20%. They were just on China. And so companies could then say like, okay, what is the cost of shifting production to another country? Most of them had what I like to think of as an insurance contract. They were following something called China plus one, which is they had most. of their supply chain in China, but they would have one factory in Vietnam.

So then if it was affordable, they could just shift production to that new factory. or even build out new factories or run new shifts on those. But what happened in 2025 is that because. everything was fluctuating so much, because there was so much uncertainty, what people didn't feel comfortable to do was move around too much. And so most of them had already moved to Vietnam. A lot of them doubled down on their Vietnamese investments. Right. And since and now. And so that now we get to why Vietnam has a number of advantages.

One, its labour costs are still really relatively low, right? Like several times lower than production in China. So labor costs are relatively low. But with that labour, with that low labor cost, you get a, a labor force. that's about 97% literate, right? So you're getting a pretty like a relatively even in unskilled labour, a relatively skilled labour force that can do the job. Um, and then on top of that, Vietnam has been working very hard.

to improve infrastructure and governance to accommodate that type of investment. And Vietnam has maintained this sort of triangulation strategy of balancing. but not committing too closely. And in some ways, over the course of the 2000, had been hedging. towards the US a little bit and sort of an attempt to diversify, like Vietnam signing of the Trans-Pacific Partnership, um, was like a like a clear sign that it was willing to make major moves. in order to be able to access the US export market.

And then the US withdrew from TPP, not Vietnam, right? Then the the tariffs on Vietnam have been all over the place, despite Vietnamese efforts to negotiate. in a formal level toll on visiting and informal level, like helping out with the expediting of licenses for golf courses. Right? In the General Secretary's home province, right? So Vietnam has tried this and then but it is still dealt with the fact. that rules keep on changing on its negotiations.

And so like To Lam's visit, I think it was extraordinary like to watch it as an American. It was pretty extraordinary because the set of agreements were more than what we might have expected, given Vietnam's previous triangulation strategy. But when you think about it from To Lam's perspective. and from the General Secretary's perspective, that what he wants. is he has these ambitious plans, 10% growth, right? This is we're going to become a like a high income economy by 2035, right?

We are we're a high middle income economy. We are going to hit these huge achievements. And to do that, he needs a reliable partner. and rely and reliability on commitments. And China, for all its faults. and for all the historical problems and for all the current disagreements. Vietnam and China have about borders and the South, the Eastern Sea. China is willing to make those long term commitments.

Do you think the do you think this 10% growth target. that they've said, do you think that is achievable, especially given what's been happening in the Middle East? I want both of your opinions, but shall I start with you? Sen. I would divert a little bit from answering whether that is achievable, but I want to ask who will be held accountable if that is not achieved? That is that is an important question to ask too, especially in a single state, a single party state.

Um, essentially how politically, how it works in Vietnam is. that the party draws a vision that they want to achieve. And who will execute that? The government, who leads the government, the Prime Minister. and the Prime minister is elected by the National Assembly. Um, and by law, he's supposed to be held accountable by. 500 National National Assembly delegates, right? He has he has to answer for the policy that they have not achieved, um, the goals that have not been met. And that is the case in 2023,

when Prime Minister Phạm Minh Chính answered. in front of the National Assembly, listing out a bunch of reasons, externally and internally, of why GDP growth in 2023. and a lot of other economic growth won't be met because of so and so. So there's a lot of political structure here that we have to be mindful. of when we want to talk about whether a specific goal is going to be met. That is in this case 10% GDP growth. So I'll be I'll be paying attention to that.

How the government is going to respond to a goal if it's not met and. if it is met, will that goal be then elevated to something even bigger? Um, I'll be watching for that. What do you think, Eddy? Um, given Sen has very carefully. and cleverly avoided answering the question whether. Fully punted on that. It was very diplomatically punted. But she... Look, I have a little bit of a different take on this. Like 10% is extraordinarily ambitious.

I mean, just like this was a number. that was rarely We achieved um by the Asian miracle economies during the, during the period of like extraordinary economic growth in the 80s and 90s. in you know, in Singapore and South Korea, like 10% is one of the highest rates of growth that China achieved. during its fastest periods of economic growth. So this is this is like a a very big number.

And it and structurally, it's hard to see mathematically. how Vietnam was going to get there when you started sort of. just add up industrial production exports. It was just it was hard to see how the numbers would add up to 10%. And the way I think about them is it's kind of like me. when I'm getting ready to run, run a marathon, run a race. And I like, I say like, okay, I'm going to get. everything ready and I'm going to set my personal best, right? I am gonna run a little over three hours for my marathon. That's my goal. And I try and I do everything.

and I set that target and I set my training regimen. and I set my diet with the idea of hitting that. And if I don't hit it right, I'm not disappointed. Usually I did pretty well, right? I did better than I would have because I set that target as a focal point. And often what I think is trying to happen here is. this is setting a focal point for his administration to try. and sort of create energy toward to achieve that. Your marathon example, I'm not going to ask you what your best time was, Eddy,

but it's been it's been great to hear your insights. Sen and Eddy, thank you so much for joining me. It's been a pleasure. Thank you. This was great, and Sen, it's always wonderful to hang out with you. You've been watching Asia Specific from the BBC World Service. with me, Mariko Oi in Singapore. If you have any questions or thoughts on what we covered in this episode. or any other stories from the region, please leave us a comment below. You can also get in touch with us on email: AsiaSpecific@bbc.co.uk.

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