FDI adding to Vietnam's economic recovery

Vietnam’s FDI prospects are looking bright. After some tough years following the 2008/2009 global financial crisis which hit Vietnam hard, sparking a stock market crash, a property crash, a spike in NPLs at the country's domestic banks, high inflation and a weak dong currency, things have definitely turned around of late. Last year GDP grew 6.8%, the stock market index was up 48% and exports rose 21%.   

Registered capital for FDI certificates granted last year reached $35.6bn, up 44% year-on-year, while disbursed capital for FDI hit $17.5bn, up 11% year-on-year. Vietnam remains a predominately Asian draw for FDI, with the investor nations last year led by Japan, South Korea, Singapore and China. It was the first time that Japan pipped South Korea as the lead Asian investor, although most of the Japanese FDI went towards large scale infrastructure projects such as power plants. 

Korea’s Samsung Electronics is the single largest investor in Vietnam, and the country’s single largest exporter. In 2017, Samsung Vietnam earned an estimated $50bn in export revenues, accounting for 23% of the country’s total exports of $213.7bn. Altogether, FDI companies accounted for $155.2bn of last year’s exports, or 73%. 

“The question is where are the local manufacturers because the export growth from the domestic manufacturers has been small,” said Barry Weisblatt, head of research at Viet Capital Securities. “What I think we will start to see, and even what the FDI companies have been pushing for, is to have more of the supply chain brought onshore because a lot of FDI companies are now just importing their raw materials from China and elsewhere. So if we can get more SMEs to supply the Samsungs and LGs that will be a good opportunity for the private sector to grow,” he said.

Vietnam’s attraction as a low-cost export base was enhanced on March 8, when the country joined the Trans Pacific Partnership 11 (TPP – 11,) a free trade agreement that was the initiative of former US president Barack Obama to counter the growing economic clout of China in Asia. Donald Trump pulled the US out of the TPP last year, which did not stop the other 11 members from going ahead with the pact without the US. 

The US’s withdrawal from the TPP was bad news for Vietnam’s garment industry, which was hoping to benefit from the phased in elimination of tariffs in the US market. But Vietnam benefitted, nonetheless, from the TPP in terms of FDI. “There was already American FDI coming in on the assumption that the TPP would happen,” said Frederick Burke, managing director of Baker & McKenzie (Vietnam) Ltd. “In order for Vietnam to get the preferential rates in the US market they had to have vertical integration to some point in Vietnam, not just sewing Chinese imports. Even Chinese were starting to bring in textile mills and things like that.”

The Vietnamese will be hoping that, with the US now out of the pact, the Chinese will not take their textile mills back home.