QNB: Viet Nam’s Continued Economic Growth Hinges on Stronger Domestic Integration

Qatar National Bank (QNB) expects economic growth in Viet Nam to continue despite challenges arising from local companies’ limited ability to benefit from gains generated by the boom in exports and foreign investment.

In its weekly report, the bank said capitalising on this opportunity requires investment in skills, faster project implementation and stronger capabilities among local suppliers.

The report explained that Viet Nam has emerged in recent years as one of the global economy’s most successful growth stories. Real gross domestic product grew by 9.95% year-on-year in the third quarter of 2026, the fastest quarterly growth rate in four years, bringing growth during the first nine months of the year to 9.01%.

It added that this performance extended the strong growth recorded in 2025, which reached 8.02%, the highest level since 2011. Growth was supported by record foreign direct investment inflows, with registered investment rising by 76.4% to USD 50.4 billion during the first nine months of the year, while realised investment reached its highest level for a nine-month period in five years.

The report noted that these results received international recognition when the World Bank Group reclassified Viet Nam as an upper-middle-income economy in July 2026. It said the government’s target of achieving annual growth of at least 10% through 2030 strengthens the country’s position as an emerging economic power in Asia, following the experiences of South Korea and Taiwan.

In analysing the components of growth, the bank described the economy as operating at two speeds. The boom is concentrated in the foreign-owned, export-oriented manufacturing sector, where foreign direct investment companies account for most of Viet Nam’s high-technology exports, as well as most of the imported components and machinery needed to produce them.

By contrast, the report said local companies remain largely confined to assembly, processing and low-value-added supporting supply services, reflecting the limited benefits the domestic economy derives from production chains.

This dependence on imported inputs is evident in trade data, with imports increasing by 36.7% during the first nine months of the year compared with export growth of 24.5%. This was partly attributed to higher energy prices, while China accounted for the largest share of imports at USD 187.3 billion.

The report said Viet Nam’s growth momentum is likely to continue, but its sustainability depends more on local companies’ ability to capture a larger share of the value added generated by foreign investment than on simply attracting additional inflows.

It identified three main factors affecting the transmission of foreign investment gains to the rest of the economy: the structure of the foreign direct investment-dependent export sector, the nature of new technology investments and the strength of domestic demand.

Regarding the first factor, the bank said links between the foreign direct investment-based export sector and the rest of the economy remain limited. It cited data from the National Statistics Office of Viet Nam showing that manufacturing accounted for USD 17.40 billion, equivalent to 82.6% of the USD 21.07 billion in total realised investment during the first nine months of the year, despite the sector’s continuing weak links with local suppliers.

QNB noted that foreign-invested companies accounted for 80.7% of total exports during the same period, worth USD 350.41 billion out of USD 434.30 billion. Their goods imports into Viet Nam totalled USD 335.55 billion, including machinery required to equip new factories, indicating that most inputs are sourced from abroad and then exported by foreign companies.

The report explained that local companies remain largely outside these supply chains, limiting the value added generated within the economy and reducing the spillover effects of foreign investment.

It said this economic model makes Viet Nam more vulnerable to external shocks, including US trade scrutiny, with some exports subject to an additional tariff of 12.5% and others facing an ongoing trade investigation under Section 301.

Regarding the second factor, the report pointed to a new wave of foreign investment moving towards higher-value-added activities, offering greater potential for positive spillovers, particularly as investment grows in semiconductors, artificial intelligence, data centres, and research and development.

In this context, the report reviewed several planned projects, including a USD 1 billion advanced chip-packaging plant and a USD 2.1 billion artificial intelligence data centre in Ho Chi Minh City.

It noted that, unlike traditional assembly operations, these activities require engineers with advanced skills, specialised services and local research capabilities, offering Vietnamese companies and workers opportunities to move into higher levels of the value chain.

The report added that the government is supporting this direction by offering generous financial incentives for semiconductor and research and development projects. However, absorptive capacity remains a challenge, as shortages of skilled workers, regulatory bottlenecks, and limited land and specialised infrastructure could delay implementation.

Against this backdrop, registered foreign direct investment increased by 76.4% during the year, while realised investment rose by only 12.1%, indicating that a significant share of announced projects has not yet entered the implementation stage.

The third factor is the growing momentum of the domestic economy and its role in balancing the growth trajectory. Final consumption rose by 8.5% during the first nine months of the year, while capital formation grew by 17.8%.

The report said public investment is playing a pivotal role as the government accelerates the implementation of hundreds of major infrastructure projects valued at approximately USD 200 billion. Investment financed from the general budget increased by 19% during the first nine months.

It explained that infrastructure development helps reduce logistics costs and strengthen local companies’ connections to markets, alongside improving business activity. Approximately 111,700 new companies were registered during the first half of the year, an increase of 22.5%.

The bank concluded its analysis by noting that domestic growth drivers other than exports are less affected by US trade measures, helping to offset some of the vulnerabilities associated with the foreign company-led sector.

Source: QNA

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