The upswing in FDI commitments and disbursements has buoyed economic growth and underlined Vietnam as a solid investment destination.
According to the Foreign Investment Agency, foreign companies registered to invest $20.22 billion in Vietnam in the first eleven months of this year, up 16.7 per cent compared with the same period last year.
Mr. Eric Sidgwick, Country Director of the Asian Development Bank for Vietnam, said the disbursement of FDI in the country is supporting the growth of many industries, from construction to services and manufacturing. It also directly promotes local consumption. The Asian Development Bank therefore raised its growth forecast for Vietnam to 6.5 per cent for 2015 and 6.6 per cent for 2016.
Global giants on way
One thing highlighting the success of FDI in Vietnam this year is the continual relocation of investments by multinational companies to the country.
Samsung this year decided to add a further $3 billion to its investment in Bac Ninh and in May broke ground at a $1.4 billion manufacturing complex in Ho Chi Minh City. Its total investment in Vietnam over the last eight years now stands at $14 billion.
Jabil Circuit, a global provider of design, engineering manufacturing and supply chain solutions, also announced it would spend around $500 million on expanding its existing operations at Saigon Hi-Tech Park in Ho Chi Minh City. “As we continue to expand our services for customers in the region, we are also helping to support the growth and economic strength of Ho Chi Minh City and Vietnam,” said Mr. Alessandro Parimbelli, Executive Vice President and Chief Executive Officer, Enterprise and Infrastructure, at Jabil.
The US company said that by expanding in Vietnam it could gain important benefits, including access to a large pool of industrious workers, mid-level engineers, and managers.
The wave of investment from multinational companies has encouraged others that previously left Vietnam to return. Compal, one of the world’s largest contract electronics outsourcers, this year decided to resume operations at a $500 million factory in northern Vinh Phuc province, which it closed three years ago. But instead of manufacturing laptops, as was initially planned, Compal announced it will produce smartphones, following Samsung and Microsoft.
Cost still top
For most foreign companies investing in Vietnam, especially in industrial manufacturing, cost is still the biggest reason behind their decisions, followed by political stability and market size. Though the minimum wage rises annually it is still much lower than in China, India, Indonesia, Thailand, and Malaysia. Wages in Vietnam are only higher than those in Laos, Bangladesh, Cambodia, and Myanmar, all of which have worse infrastructure and legal frameworks for foreign investment.
The conclusion of the TPP, the EU-Vietnam Free Trade Agreement, and the establishment of the ASEAN Economic Community are also encouraging more foreign companies to come to Vietnam. The free trade agreements translate into lower costs for investors, as they can enjoy tax exemptions or low taxes on exports.
Cushman & Wakefield, the global property and industrial real estate consultancy, in August ranked Vietnam as the top destination for manufacturing investment among emerging markets in the world. In its “Where in the World? Manufacturing Index 2015”, Vietnam climbed one place to top the growth index, from second place last year. “Rising labor and operational costs in China, the world’s largest manufacturer in terms of output, are adding to the attractiveness of lower cost regions, with Malaysia, Indonesia, and Vietnam all ranking strongly as a result,” the report noted.
According to a study by FDI Intelligence, the Finance Times’ data division, Vietnam is the best in luring greenfield FDI projects as well. Almost half of Vietnam’s incoming FDI is in manufacturing, attracted by abundant and relatively low-cost labor, according to the study. This, of course, is good news for the country, as greenfield projects add more jobs and contribute more to the State budget via tax contributions.