Three factors attracting Vietnam’s FDI

Low labor costs, geographical location near Asian supply chains, and Japan and South Korea’s push to invest abroad are considered three attractive factors for Vietnam’s FDI.

Michael Kokalari, the chief economist of VinaCapital, said that foreign direct investment (FDI) inflows would continue to flow strongly into Vietnam in 2022 when travel restrictions are eased, creating favorable conditions for businesses leaders from Japan, Korea to Vietnam.

According to Mr. Michael Kokalari, Vietnam’s ability to recover FDI flows comes from three main factors.

Firstly, according to a survey by the Japan Trade Promotion Organization (JETRO) and several other organizations, workers’ wages in Vietnam are about two-thirds lower than in China, but the quality of labor is equivalent to that of China. China.

Second, Vietnam is close to Asia’s supply chains, especially the high-tech industry.

Third, Japan and Korea are facing structural problems, forcing investment abroad, and Vietnam is considered an attractive investment destination for businesses of these two countries.

Both Japan and South Korea face “permanent stagnation” of the economy, mainly due to a shrinking population. Japan’s population began to decline dramatically in the 1990s, and the Japanese responded to the country’s gloomy economic prospects at the time by investing heavily in Southeast Asia.

Japan’s population will not improve shortly, so Japanese companies will continue to invest abroad for many years to come. The strong inflow of “structured” investment from Japan into Vietnam every year reflects that the Japanese have to invest overseas, and Vietnam is the most attractive country for these companies to invest. That is the result of a survey of Japanese foreign investors published by Deloitte in 2021.

Meanwhile, Korea’s population problem is more severe than Japan’s, so investment capital from Korea will undoubtedly continue to flow into Vietnam for many years to come. South Korea has the lowest birth rate globally, and its population is aging at a faster rate than Japan’s (Korea’s population started to decline rapidly around 2015 – around the time that investments from Korea to Vietnam quickly increased).

In addition to the above three factors, the increasing number of multinational companies seeking to diversify their production activities outside of China also contributes to increasing the investment attraction of Vietnam.

The operating conditions of FDI companies in China are becoming more difficult for many reasons, including that China is the only major country in the world pursuing the “Zero Covid” strategy. Besides, China’s recent power shortage is likely to worsen in the future due to severe water shortage for power generation in the south of the country.

Finally, all of the above factors explain why FDI inflows into Vietnam have remained stable over two years. And these factors will also promote FDI inflows in 2022. Accordingly, there are three main highlights in 2021 that will support capital flows this year.

Firstly, the US Department of Finance and the State Bank of Vietnam have reached an agreement to eliminate the risk of Vietnam being labeled as a “currency manipulator” in the future, helping multinational companies to be more confident when investing in Vietnam.

Second, Vietnam’s Covid-19 vaccination campaign has reached a rapid pace, giving foreign companies confidence in the commitment of the Vietnamese Government to maintain a careful balance between health and safety. community health, and economic development with the strategy of “living with the SARS CoV-2 virus” that Vietnam has been pursuing since October 2021.

Third, the announcement of LEGO Group’s investment of 1 billion USD to build one of the Company’s largest factories in Vietnam will stimulate more FDI inflows into Vietnam in the future.

(Source: dautuonline)

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