Thanks to the good control of the Covid-19 pandemic, Vietnam has become an attractive destination for investment when countries want to shift supply chains and reduce dependence on China. In fact, this trend has been going on for many years and the Covid-19 pandemic has been the catalyst for speeding up the change.

Promote existing advantages

Although economic experts expect the world’s gross domestic product (GDP) to drop by about 4.9% in 2020 compared to 2019, Vietnam still emerges as a successful model in the war against the Covid-19 pandemic and is considered one of the brightest points of the Asian economy in 2020. Vietnam's economy is growing steadily and holding a good position to expand its global market share in the field of export sector. Therefore, Vietnam is becoming an attractive destination for foreign investors, especially those who are looking to move their investment out of China.

According to Assoc. Dao Minh Phuc, one of Vietnam's strengths is that we are very actively participating in FTAs ​​(Free Trade Agreements) and currently leading in ASEAN in terms of the number of FTAs.

Twelve of 14 FTAs are now effective. FTAs will help enterprises in Vietnam enjoy attractive tax incentives upon exports to major markets around the world such as the US and the EU. Therefore, the signed agreements such as the CPTPP, EVFTA and EVIPA will bring advantages for investment attraction and production shifting not only in new investments but also in expanding existing investments.

According to ADB estimates, 5.8% of Vietnam's GDP is spent on infrastructure development, the highest spending level in Southeast Asia. In addition, the enhancement of public investment helps infrastructure improve, creating favourable conditions for trade and attracting investment in Vietnam.

The easiest thing Vietnam can do is catching the wave of production order
shifting into Vietnam. Illustrative photo: Xuan Thao

Catch the wave of order shifting

Regarding Vietnam's strengths in attracting FDI in the near future, PhD. Vu Thanh Huong says that if Vietnam knows how to exploit its advantages in the current period, it can restart economic activities faster than other countries in the world. This is an important factor to help Vietnam become a destination for shifting investment flows, thereby making FDI into Vietnam recover to the level of 2019 by the end of 2020 and is likely to increase slightly in the first half of 2021.

Ms. Huong says that in the near future, FDI will continue to increase in the manufacturing and processing industry, especially items related to machinery and equipment such as computers, phones and electronic components – which are industries that large are corporations in the electronic industry such as Samsung, LG, Intel, Panasonic chose Vietnam as destination before the pandemic.

In addition to the possibility of increasing FDI into Vietnam in the above industries, future FDI projects are likely to increase in Vietnam’s advantageous items such as textiles and garments and wooden products; or processed items and those traded strongly in Asia such as food, paper, plastic and rubber, metal products and building materials.

In addition, due to the increasing demand for energy in Vietnam as this is also a top priority industry of ​​the Government, the energy industry is also a potential one to attract FDI into Vietnam.

According to Mr. Dao Minh Phuc, while global companies are narrowing due to the pandemic, opening more factories in Vietnam is also difficult. Therefore, the easiest thing Vietnam can do is catching the wave of production order shifting into Vietnam. Vietnam should have a detailed plan to establish complexes and joint names for supporting industry complexes and joint name units including small businesses, industrial clusters, or provide specific incentives for medium-sized supporting industry companies that are investing in expanding production.

According to statistics, before the Covid-19 pandemic, FDI flows in Vietnam mainly focused on three main areas: processing – manufacturing industry, real estate business and wholesale, retail and repair of automobiles, motor vehicles and motorbikes (accounting for 81% of total registered capital in 2019).

Since the Covid-19 pandemic, foreign investors have been shifting their investments in information technology, high technology (such as Samsung, Apple); electronic equipment and accessories (Panasonic); logistics, e-commerce (Alibaba); consumer goods and retail goods (Zara, H&M). In addition, business conditions, logistics infrastructure and technology are being continuously improved by the Government.