Tourism fuels up as rising economic engine for Vietnam

February 21, 2024 | 11:21
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As a rising economic engine, Vietnam's tourism industry is set for healthy growth with a shift towards premium tourism and business travel, according to a report released by Maybank Vietnam on February 21.
Tourism fuels up as rising economic engine for Vietnam

Vietnam is becoming an increasingly well-known tourist destination, famous for its diverse attractions ranging from beaches and historical attractions to cultural destinations. The country aims to develop tourism into a key economic engine, targeting at least 18 million foreign and 130 million domestic tourists by 2025, and 35 million foreign and 160 million domestic tourists by 2030.

The report pointed out that receipts from foreign and local visitors climbed nearly 8-fold over 2010 to 2019. In 2023, receipts amounted to VND678 trillion ($28 billion), just 10 per cent shy of pre-pandemic 2019 levels. The tourism sector’s economic share tripled to 10 per cent of GDP in 2019, and recovered to about 6.6 per cent of GDP in 2023 following the country's reopening.

Hospitality and food and beverage (F&B) headcount (2.7 million) rose to 5.3 per cent of total employment in 2022 (vs. 3.5 per cent in 2010). But revenue per tourist remained relatively modest due to limited nightlife, shopping options and paid sightseeing activities. International visitors spent an average of $1,015 per trip pre-pandemic in 2019, lower than in Thailand ($1,562) and Singapore ($1,062).

Vietnam's international arrival numbers have overtaken Indonesia and are closing in on Singapore, but are still far behind Malaysia and Thailand. Foreign visitors more than tripled from the previous year to 12.6 million in 2023, surpassing government targets. Tourist arrivals exceeded pre-pandemic levels in January 2024 for the first time. Hotel occupancy in Hanoi and Ho Chi Minh City performed better than coastal cities in the second half of 2023, partly due to oversupply in the latter.

At 70 million, tourist arrivals were ahead of the Philippines in 2023 and broadly in line with the rest of ASEAN.

The return of Chinese tourists to Vietnam in 2023 (30 per cent of 2019 levels) has been the second slowest in ASEAN. Korea has replaced China as the top tourist source. India became the 9th largest source of tourists in 2023, with arrivals more than doubling from pre-pandemic levels.

Russia, which was among the top spenders, dropped out of the top 10. Domestic tourism has slowed as spending was impacted by the economic slowdown and soaring domestic airfares led to local tour package prices surpassing outbound tour prices to nearby countries. Buoyant arrivals during Tet suggest local demand could be recovering.

In 2024, the Vietnamese government is targeting 17-18 million foreign visitors, 110 million domestic visitors, and VND840 trillion ($34.2 billion) in tourism revenue, about 11 per cent higher than in 2019. Maybank's analysts think 110 million domestic tourists will be achievable, as it represents only a modest year-on-year increase. However, domestic tourism faces competition from overseas destinations, elevated domestic airfares, and still-cautious consumer sentiment.

Maybank's analysts project 16 million foreign tourists this year, which implies growth of about 27 per cent growth year-on-year and equates to 89 per cent of 2019 levels. Positives include easier visa policies, greater international awareness of local destinations, and a ramp-up in flight capacity.

Citizens from 13 visa-exempt countries were allowed to stay 45 days (vs. 15 days before) from August 2023. That said, visa-free entry is granted to only 25 countries, lagging behind ASEAN peers. Visa waivers for China and India have yet to be granted, unlike Thailand, Malaysia and Singapore. In addition, Vietnam is not a top choice for Chinese tourists, whilst its ability to attract return tourists from other countries is constrained by a lack of developed infrastructure, tourist-friendly services and environmental management.

Moving forward, local authorities are seeking a shift towards premium tourism, aiming to draw high-spending and longer-staying tourists. This entails providing high-quality services, such as more 4 and 5-star hotels, high-end shopping malls, recreational zones and event venues.

For instance, Korea’s Lotte Duty Free signed an agreement with Modetour in January to expand its duty free stores in Vietnam. Sales at its outlets in the country surged 351 per cent year-on-year in 2023. Japan’s AEON Mall plans to open 20 more shopping centres nationwide in the coming years.

A rising post-pandemic trend is music tourism, which entails visiting a location to attend a concert - and visiting tourist attractions as a by-product. Vietnam was host to several high-profile concerts in 2023, including BlackPink in July (Hanoi), Charlie Puth (Nha Trang) and Westlife in November (Ho Chi Minh City). Many famous Vietnamese artists choose tourist destinations like Dalat, Hanoi and Ho Chi Minh City to hold concerts, where any scenic backdrop can be transformed into a stage.

The focus will be on ramping up manpower training given the deficiency in hospitality personnel. Meanwhile, business travel will be on the rise, given an influx of foreign investment and companies relocating to Vietnam.

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