With a record US$17.5 billion in foreign direct investment (FDI) disbursement last year, Vietnam has become Asia’s hottest investment destination, according to a Forbes report. The Southeast Asian country is poised to hit a record FDI for the decade if foreign investment inflows maintain their growth momentum until the end of 2018.
Data from the Foreign Investment Agency (FIA), an agency under the Ministry of Planning and Investment, showed that Vietnam granted investment certificates to 1,918 new projects, with $13.48 billion of newly registered capital, as of August 2018.
A total of 4,551 M&A deals were also signed with the total investment capital of US$5.28 billion, up 50.9 percent compared to last year, the government data further showed.
What drove these foreign investors to pour capital into Vietnam?
According to the Forbes report, Vietnam’s vision of economic development focused on offering highly productive, cost-effective labour-intensive expert manufacturing is paying off, driving those record FDI inflows.
During the 2018 Horasis Asia Meeting held in Binh Duong Province, experts said Vietnam’s consistent economic reform, a young and increasingly urbanized population, affordable labour, constant improvements to its business climate, and political stability have further boosted the country’s ability to attract FDI.
“More foreign investment is expected to flow into Vietnam in the coming time,” said VinaCapital CEO Don Lam.
Bulk of the record FDI inflows last year came from more mature Asian economies such as Japan, Korea, and Taiwan, and over 90% of the new investments went to manufacturing.
In the first eight months of this year, the FIA data showed that 97 countries had invested in Vietnam, led by Japan with a total investment capital of US$7 billion, making up 28.8% of the total. South Korea ranked second with US$5.16 billion, accounting for 21.2%, while in the third spot was Singapore with US$3.47 billion, capturing 14%.
Vietnam attracting technology-focused investments
While Vietnam has been attracting investment in infrastructure, including power projects, road and rail construction, and renewable energy, a new foreign investment trend is emerging in the country – technology and innovation.
The Vietnam Association of Foreign-Invested Enterprises noticed this new foreign investment inflow called the new economy model this year, with many foreign major technology groups, such as Ericsson, Siemens, ABB, Volvo Buses, Roxtec, and Axis, venturing further into the country under the model.
Many cities and provinces in the country have also started developing plans to become smart cities to attract multinational corporations in the fields of technology and innovation.
“Vietnam should aim for more high-quality FDI inflows, focusing on projects that use modern, environmentally friendly technologies and competitive products that could be part of the global production network and value chain,” Alvarez told Vietnam News in an interview.
Vietnam, which was once a dormant market has also emerged as one of the most rapidly expanding tech ecosystems.
Silicon Valley-based venture capital fund 500 Startups in September announced plans to raise another $5 million for its Vietnam-focused venture fund. The fund invests in Vietnam-connected startups.
Alphabet Inc’s Google is also studying steps towards opening a representative office in Vietnam as the country increasingly becomes more open to social change, according to a Reuters report last week.
China-US trade war benefits Vietnam
Vietnam’s IPO market also became the fourth largest in the region in the first three months of this year, surpassing the Republic of Korea, Singapore, and Australia. Additionally, the realty market in Ho Chi Minh City is also growing about 7%, according to the Forbes report.
The ongoing trade war between China and the US is also expected to further boost the economy of Vietnam, which is set to become a major beneficiary of the feud.
Pakpoom Vallisuta, chairman of The Quant Group Corporation, a leading Thai investment banking advisor, said Vietnam is expected to achieve 6.8% GDP growth in 2019, as market reforms continue to help attract investment.
“We also see potential trade diversion as US import demand shifts away from China to other ASEAN markets like Vietnam,” Vallisuta said during the Horasis Asia Meeting.
Editor: Ben Jiang