Three factors attract Vietnam's FDI

Said Mr. Michael Kokalari, chief economist of VinaCapital, foreign direct investment (FDI) will continue to flow strongly into Vietnam in 2022. When travel restriction is eased, it will create favorable conditions for enterprise leaders from Japan and Korea to Vietnam.

Said Mr. Michael Kokalari, Vietnam's recoverability of FDI inflows comes from three main factors

Firstly, the survey of the Japan Trade Promotion Organization (JETRO) and some other organizations showed that the wages of workers in Vietnam are about two thirds lower than in China, but the quality of labor is comparable to China.

Secondly, Vietnam’s geographic location is close to Asia's supply chains, especially in the high-tech industry.

Thirdly, Japan and Korea are facing structural problems, they are forced to invest abroad, and Vietnam is considered as an attractive investment destination for the enterprises of the two countries.

Both Japan and South Korea are facing "permanent stagnation" of the economy, mainly due to the population decline. Japan's population began to decline dramatically in the 1990s, and Japanese people responded to their nation’s gloomy economic prospects at that time by investing heavily in Southeast Asia.

Japan's population cannot be improved in the near future, so Japanese companies will continue to invest abroad in the coming years. The annual strongly “structured” investment inflow from Japan into Vietnam reflects the fact that the Japanese people must invest abroad and Vietnam is the most attractive one for these companies to invest. That is the survey result of Japanese foreign investors published by Deloitte in 2021.

Meanwhile, Korea's population problem is more serious than Japan's, so investment capital from Korea will certainly continue to flow into Vietnam for the coming years. Korea has the lowest birth rate in the world and its population is aging with a faster rate than Japan (Korea's population started to decline rapidly around the year of 2015 – the period when the investments from Korea into Vietnam increased rapidly).

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 Vietnam’s increased investment attraction.

Operating conditions of FDI companies in China are more difficult because of many reasons, including the fact that China is the only major country in the world pursuing "Zero Covid" strategy. Besides, China's recent power shortage is likely to get worse in the future because of the severe shortage of water for power generation in the south of China.

Finally, all of the above factors explain why FDI inflows into Vietnam still remains stable over the past two years. And these factors will also promote FDI inflows in 2022. Thereof, 3 main highlights in 2021 will also 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 that Vietnam will be labeled as a "currency manipulator" in the future, helping multinational companies feel more confident when they invest in Vietnam.

Secondly, Vietnam's Covid-19 vaccination campaign has reached a rapid pace, helped the foreign companies confident in Vietnamese Government commitment to maintain the prudent balance between the public health and the economic development with the strategy of "living with SARS CoV-2 " that Vietnam has been pursuing since October 2021.

Thirdly, LEGO Group's announcement on investment of USD 1 billion to build one of the Company's biggest factories in Vietnam will stimulate more FDI inflows into Vietnam in the future.

Source : Baodautu