This article is an excerpt from an upcoming book, The Time Traveling Economist by Charlie Robertson @RenCapMan, Renaissance Capital’s global chief economist. It was stated in the interim report for Vietnam Holding released today.
In this one-page preview of his forthcoming book, The Time Traveling Economist, Charlie Robertson explains why Vietnam ticks every box it takes to escape poverty, achieve middle-income status, and converge towards the wealth level of educated people. markets.
Why is Vietnam so loved by global investors, accounting for 25% of all global money invested in Frontier stocks, while Vietnam is only one (5%) of 22 countries in the MSCI Frontier index?
First, Vietnam attaches great importance to education.
The vast majority of people do so in every country, but Vietnam had already achieved more than 80% adult literacy in the 1980s, ahead of China in the 1990s and India in the 2010s.
Every country needs 70-80% to industrialize and Vietnam is decades ahead of not only mainstream emerging markets but also frontier markets like Nigeria or Pakistan where the number is still around 60%.
In addition, the country’s leadership — perhaps inspired by communist roots that have always prioritized education — has also encouraged a strong focus on high school and college-level education.
Nearly ten years ago, Vietnam already had 125,000 students at foreign universities, with the 8th largest national representation of all countries at American universities.
The vast majority bring these hard-earned skills home with them.
Industrialization doesn’t just require a population that can read and write. It is vital that factories also have power.
Here, too, Vietnam is way ahead of so many of its peers.
The latest data for 2018 shows that per capita electricity consumption was higher than Mexico or Egypt, and more than double that of India or Indonesia.
We estimate that countries need 300-500 kWh per capita to industrialize. Vietnam had surpassed that level in 2005, almost a generation ago.
The third key element 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 their money on feeding their children and start saving money to invest in their children. Bank deposits begin to rise, and with it comes a boom in bank loans (and sometimes a short-lived bust).
In fact, as the basic chart of supply and demand in your first economics class will tell you, when the supply of something rises, its price tends to fall.
The “cost” of money is getting cheaper.
So while high-fertility countries have small banking sectors (about 20% of GDP) and high double-digit borrowing, Vietnam with a fertility rate of 2 children per woman has deposits of more than 100% of GDP and low interest rates.
This helps explain how Vietnam could afford to build the electricity grid it has.
At the same time, the proportion of adults in the population is high and cheap financing to create infrastructure and private sector investment supports job creation.
Vietnam is experiencing the sweet spot of the demographic dividend and will do so for many years to come, even as countries like Korea begin to age quite dramatically by 2030.
All these trends together explain why Vietnam is booming.
The country now exports far more per capita than China. In 2021, Vietnam had the world’s third-largest trade surplus with the US, ahead of Germany and Japan, and only behind China and Mexico.
The competitive minimum wage is still half that of China, but is likely to rise in the coming years, adding fuel to improving domestic demand.
We should not be surprised if the currency starts to strengthen gradually in the coming years, like Germany or Japan in the 20th century or the Chinese renminbi since 2005.
We expect Vietnam to double its economic size by 2030, and in current money a $1 trillion economy by 2040 and a $1.7 trillion economy by 2050 comparable to where the world’s top 10 economy is now Korea is. Unsurprisingly, we think foreign investors are right to love Vietnam.