FDI development in Vietnam since 2016 and its benefits
During the last decade Vietnam has become one of the most interesting investment locations for Foreign Direct Investment in Southeast Asia. This coincided with an impressive economic growth that the country has witnessed, which resulted entering the Top 40 global economies.
There were several factors that attracted investors entering Vietnam to tap in this new market or establishing new production fa cilities:
- A high demand of infrastructure projects
- Central location in the region supporting growth strategy for foreign businesses
- a noticeably young population (current median age is 32.5 years),
- improving education,
- growing wealth and development of a middle class.
Vietnam experienced a steady and ever-increasing growth of FDI since 2011, especially for larger infrastructure projects. However, the FDI development since 2016 got even a further push. The main reason was the business- friendly environment. Though the policy change by the US Administration regarding China with additional tariffs supported the development. This is shown in the strong growth of FDI from 2016 up to 2019. However, in 2020 the Covid-19 pandemic impacted Vietnam with a drastic reduction of FDI. Even though Vietnam managed the situation well and achieved one of the strongest GDP globally with 2.7%. The first two quarters of 2021 showed some promising recovery for both GDP and FDI. However, the strict lockdown for most of the industrial centres caused another slump for received foreign investment.
The lockdown of government offices and factories also impacted the development of Foreign Direct Investment (FDI), that declined by 20%. The inability of factories to produce goods added pressure on the already strained global supply chain. As a result nearly 20% of European businesses diverted their orders from Vietnam. One industry heavily hit by this was the fashion industries, with companies unable to fulfil their demand. For some companies in that industry this shortage from Vietnam had an impact on their share prices.
Unemployment was naturally hit as well, with the rate for Q3 hitting over 3.5%, which was a plus of nearly 1% to Q2.
FDI by Provinces
An interesting development in Vietnam is the development of investment by provinces. The key business hotspots like HCMC, Hanoi and key industrial areas Hải Phòng, Bình Dương and Đồng Nai received the largest investment. On the other side some provinces received large FDI due to required infrastructure projects for gas, electricity, or water supplies. And other provinces also managed to establish new industrial zones that was followed with strong FDI development, like Bà Rịa. In addition of the North & South Key Economic Zone, more industrial zones are established in Central Vietnam. This might attract investment from foreign businesses across ore provinces.
Outlook for FDI in Vietnam
During the recent Europe visit of the Vietnamese Prime Minister resulted in investment commitments with European businesses worth $30 billion. This is certainly a sign that Vietnam remains an interesting destination for foreign investors. The ongoing development of Vietnam as a hotspot for Start-Ups will bring more FDI for the Service sector into the country.
Together with the implementation of the Free Trade Agreements with the EU and UK, Vietnam can boost its status as THE investment location in the region.
Vietnam FDI Report
RSP International and Cekindo International have collaborated to create a report of the FDI development in Vietnam. The report includes a breakdown of FDI by industry, region, and countries. It is available for free to download from our website.
Vietnam's Economy Webinar
In October RSP International joined a Webinar “Business in Vietnam: Q4 Recovery & Beyond”. This session provided a summary of Vietnam's economic development during Q3 2021 and the impact of the lockdown in that period. We also provided some insights how business strategy can help companies recovering post Covid. A summary and the recording of this very interesting event can be found HERE.
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