Five Trends Driving Increased FDI in Vietnam
Vietnam has emerged as one of Asia-Pacific’s hotspots for corporate investors. Ranked by the Financial Times as the top global location for greenfield investment, Vietnam attracted $7.4 billion in foreign direct investment (FDI) in H1 2015, up 9% y-o-y.
Investors see Vietnam as a hotspot for the following reasons:
Proximity to China: Vietnam shares a border with China and improving transport links (see below) make it a strategic production base from which to market to Chinese customers.
Low-cost labour: Current minimum wage levels range from $101.4-$146.2 per month - depending on location - and are cheaper than current levels in China, which range between $147-$305 per month.
Improving trade infrastructure: State entities are spending big on infrastructure links, with $3.5 billion pledged to roads alone in 2014. Pricewaterhouse Coopers expects total spending to reach $56 billion by 2025, growing 9% y-o-y between 2015 and 2025 and exceeding outlays by competing countries in Asia Pacific such as Malaysia, New Zealand and the Philippines.
Vietnam: Infrastructure Investment Spending, 2008-2025(f)
Source: PWC: Asia-Pacific Infrastructure Prospects to 2025
Potential upside from forthcoming trade deals: The Trans-Pacific Partnership is looming large in investor's calculations. The deal, still being negotiated, will lower trade barriers and give Vietnamese exporters improved access to overseas markets. With this in mind, many manufacturers are shifting their production bases from China, particularly in textiles and footwear industries.
High-potential domestic market: Retail sales grew 16.6% y-o-y, on average, during Q4 2014 as increasing urbanisation and employment and income growth drove demand. While growth is expected to slow, sales are forecast to grow by a respectable 8.4% y-o-y between 2015 and 2020, according to Inside Retail, with organised retail expected to grow rapidly.
Vietnam: Disposable Income & Consumer Expenditure ($Billions), 2008-2017(f)
Source: Deloitte: Retail in Vietnam
In sum, Vietnam is a high-potential market, and this is supporting increased investment.
That said, the market still presents significant risks, it has a low ranking (78 in 2014, compared with 99 in 2013) on the World Bank’s Ease of Doing Business Index, indicating challenges with legal protection and government transparency.
However, these rankings show signs of improvement and investment numbers indicate that business leaders are both confident of managing risks and convinced of Vietnam’s potential due to the five factors discussed.
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