Steady Industrial Growth – Driver of Economic Recovery

9:20:23 AM | 4/1/2022

Vietnam's industrial production is recovering and strengthening investor confidence in the market in the first months of the year.

Sustainable growth

According to the General Statistics Office (GSO), the added industrial value was estimated to rise by 7.07% year on year in the first quarter of 2022. Particularly, the processing and manufacturing industry expanded by 7.79% and contributed 2.05 percentage points to the economic growth.

In the first quarter of 2022, some key industries grew strongly from a year earlier, with the textile and garment rising by 24.1%, machinery and equipment by 16.2%, electrical equipment by 12.2%, prefabricated metalware (except for machinery and equipment) by 10.1%, and electronic products by 9.4%.

The sales index of the processing and manufacturing sector in March 2022 climbed 19.1% month on month and 7.6% year on year. In the first quarter, the index advanced 6.6% over the same period of 2021.

In particular, March not only witnessed the sixth consecutive month of manufacturing growth, but also staged the highest growth since April 2021. Specifically, both output and new orders increased most in 10 months, with export orders jumping markedly.

According to IHS Markit, a reputable market researcher, the Purchasing Managers Index (PMI) of Vietnam's manufacturing industry climbed to 54.3 in February 2022 from 53.7 in January 2022.

Industrial production was forecast to be boosted by Government-backed policy on safe adaptation to COVID-19 and by swift response of businesses when gradually figuring out how to maintain smooth production and supply chains in the context of COVID-19 epidemic which tended to be complicated. Besides, export orders were relatively abundant.

Dr. Pham Tat Thang, Senior Researcher of the Vietnam Institute for Strategy and Policy for Industry and Trade (under the Ministry of Industry and Trade), said up to nine industrial products exported more than US$1 billion, with five items earning more than US$5 billion, including telephones, electronics, machinery and equipment.

Mr. John Campbell, Deputy Director, Head of Industrial Services at Savills Vietnam, said that Vietnam's economy is forecast to grow beyond expectations in 2022, boosted by domestic demand recovery and stable FDI inflows. In addition, business conditions picked up significantly following the lifting of restrictions to rein in the COVID-19 Delta variant five months ago.

Industry leads reopening wave

On March 15, the Vietnamese Government issued Resolution 32/NQ-CP on entry visa exemption for 15 days for citizens of 13 countries such as Germany, South Korea, Japan and France. This is good news for industrial property in Vietnam.

Campbell said, reopening is also an important factor to strengthen confidence of international businesses and investors and promises a strong industrial growth in 2022.

In fact, right in the first quarter of the year, many big investors invested in factories to expand production and business operations in Vietnam. Industrial growth was driven by billions of US dollars into industrial parks in Vietnam in the past three months.

In the first two months ending February, Bac Ninh province led the country in investment inflows, followed by Thai Nguyen province with US$924 million or nearly 18.5% of the total FDI capital. Prominently, Samsung Electro-Mechanics Vietnam Co., Ltd, a member of Samsung Group of South Korea, added US$920 million into its factory in Yen Binh Industrial Park, Pho Yen district, Thai Nguyen province, bringing its total investment to US$2.27 billion or nearly VND52 trillion.

Germany's leading lubricant group Fuchs successfully leased land in Ba Ria - Vung Tau province to build a 20,000-square meter production base in Phu My 3 Industrial Park. In February, Germany's leading injection molding machine manufacturer Framas rented 20,000 square meters of ready-built facilities in KTG Industrial Nhon Trach 2, Dong Nai province, becoming a successful cooperation deal, showing the appeal of the Vietnamese economy and industrial property in the eyes of foreign investors.

Gaw NP Industrial broke ground on a 16-ha ready-built factory project at GNP Yen Binh Industrial Center 2. Vietnam Industrial Park also held a groundbreaking ceremony for a 13.4-ha factory and warehouse project in Phu An Thanh Industrial Park, Long An province.

Supply chain

According to experts, beside the reopening plan, the Vietnamese Government's active support for foreign investors and absolute resilience and adaptability of domestic enterprises showed a positive future, not only helping economic recovery but also driving strong growth.

Dr. Pham Tat Thang said that industrial parks nationwide started stable operations again. Supply chains were resumed; trade promotion was restored; and inter-agency cooperation was improved.

Regarding logistics, Logos Vietnam Logistics Venture conducted the fourth M&A deal in Vietnam after buying a modern customized logistics factory for US$80 million. CapitaLand Development also signed a memorandum of understanding to invest US$1 billion with Bac Giang province to develop CLD’s first industrial, logistics and urban area in Vietnam. BW Industrial Development Joint Stock Company acquired 7.4-ha DEEP C Industrial Park in Bac Tien Phong Industrial Park, Quang Ninh province.

However, experts also pointed out that rising gasoline prices posed huge difficulties to the economy, including the manufacturing and processing sector. When the economy recovers, the demand for petroleum will inevitably increase, even soar. In addition, freights will increase as a result of gasoline price hikes and place pressures on industrial manufacturing.

To revive domestic leather and footwear companies, central authorities are expected to launch support packages for economic recovery and development, improve procedures for businesses to access support packages more easily; and introduce new policies to utilize FTAs ​​to increase export value.

By Huong Ly, Vietnam Business Forum