Foreign investment capital continues to pour into Vietnam

According to the Ministry of Planning and Investment, in January this year, more than 300 foreign enterprises paid attention to learning to make new investments or expand investment in Vietnam. It shows that Vietnam continues to be an attractive destination in Asia.
Production at a Japanese company in Tan Thuan Export Processing Zone in HCMC. (Photo: SGGP)
Production at a Japanese company in Tan Thuan Export Processing Zone in HCMC. (Photo: SGGP)
Various advantages

According to a report by the Global Economic Research Agency of the UK’s Economist Intelligence Unit, the factors that make Vietnam attractive in the eyes of foreign investors include an increase of 4.5 percent in economic growth in the last quarter of last year, raising the average growth rate in 2020 to 2.9 percent, making Vietnam become one of the fastest-growing economies in the world. Industrial production was stable, and retail sales continued to expand steadily, with a growth rate as high as that in the pre-pandemic period. The consumer price index rose sharply. Although the supply of essential goods fluctuated for a short time in the first outbreak in April last year, it has quickly stabilized, and so social order has also been maintained stably. Besides, the benefits from the new-generation free trade agreements that Vietnam has already signed are the motivation, luring international enterprises to establish hi-tech product factories here.

The World Bank also pointed out that as soon as the State Bank of Vietnam cut the policy interest rate in October, the country still kept credit growth, albeit at a slight increase. Ending the year 2020, credit growth stood at 10.1 percent. Land auctions, granting land-use rights, and land lease improved State revenue in the second quarter of last year, while abundant liquidity continued to reduce government borrowing costs further. Besides, the initial success of Vietnam in researching some Covid-19 vaccines by the end of last year has lifted the prospects for recovery of domestic economic sectors, especially the tourism and aviation industries – the two sectors that have been worst affected since the Covid-19 outbreak to now.

Last year, despite the pandemic, Vietnam also attracted $28.5 billion of foreign direct investment (FDI). Mr. Takeo Nakajima, Chief Representative of the Japan External Trade Organization (JETRO), assessed that although the total FDI capital in Vietnam last year was merely equal to 75 percent compared to the same period in 2019, it was a very high level compared to many countries in the region and the world. Especially, with the ability to control the situation of the Covid-19 pandemic well, FDI flows from global supply chains will strongly shift to Vietnam in 2021.

Selective attraction

According to Mr. Takeo Nakajima, Vietnam has not only a safe and stable investment environment but also a very attractive domestic market space. The Panasonic Corporation's investment shift is a testament to this. The spokesperson of Panasonic said that the corporation had decided to move its factory in Thailand to Vietnam since the beginning of last year. However, this shift is in the market assessment and not related to the Covid-19 pandemic. For instance, as for refrigerators and washing machines consumption in 2019 alone, Vietnam consumed 2.8 million refrigerators and 2.27 million washing machines, much higher than the Thai market with 1.92 million refrigerators and 1.75 million washing machines. The research of this corporation also shows that Vietnam has more room for growth in terms of sales. Specifically, in Thailand, up to 92 percent of households have refrigerators, and 70 percent have washing machines. Meanwhile, in Vietnam, the rates are 74 percent and 40 percent, respectively.

Along with that, the investment incentives that the Government applied in the past time has created many advantages in production for Vietnam. For example, high-tech enterprises receive import tariff exemption on raw materials, supplies, and components, which cannot be produced domestically for five years, starting from the date of production; tax exemption for goods imported for processing, goods to create fixed assets for investment projects in sectors that encourage investment and investment projects in areas with disadvantaged socio-economic conditions.

Moreover, although the labor cost of Vietnam has increased sharply in recent years, it is merely equal to about 60 percent of that of other countries in the region. According to experts, the remaining issue is that Vietnam needs to quickly add a high-quality workforce. At the same time, it should strengthen post-check and perfect the legal system to prevent transfer pricing. Especially, it should focus on FDI enterprises that report losses for many years but still constantly expand production scale, as well as consumption market share domestically and internationally.

However, Mr. Pham Xuan Hong, Chairman of the Ho Chi Minh City Association of Garment – Textile – Embroidery – Knitting, noted that Vietnam should attract FDI selectively. Priority should only be given to attracting high-tech enterprises and enterprises that produce additional raw materials to the supply chain of key manufacturing industries that are insufficient in Vietnam. On the other hand, the country should tighten the control on trade frau and origin fraud to prevent the risk that enterprises are imposed trade remedy measures by export markets. It is also the foundation for domestic enterprises to improve their production capacity and accelerate the development of market share, especially during the golden period that FTAs are bringing to Vietnamese enterprises.

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