Vietnam should improve attractiveness to Asian FDI: experts

As Western multinationals are grappling with challenges from macroeconomics and geopolitical tensions, it may be time for Vietnam to focus its efforts on luring more FDI inflows from Asia, said Joonsuk Park, head of international subsidiary banking and wholesale banking at HSBC Vietnam.

Asian investors, who have been the top injectors of money into Vietnam for many years, continue to favor the country as a destination with a high-potential future.

Singapore and Taiwan were Vietnam’s two biggest foreign investors in the first two months of 2023, with investments totaling nearly $980 million and more than $400 million respectively.

In the last five years, Vietnam’s three biggest foreign investors have come from Asia . The top investors often include Singapore, Japan and South Korea.

Recently mainland China, Hong Kong, and Taiwan have become big foreign investors in Vietnam as well.

According to the annual business survey published last month by the Japan External Trade Organization (JETRO), the percentage of Japanese firms planning to expand operations in Vietnam over the next 1-2 years is 60%, up 4.7 percentage points compared to 2021.

Matsumoto Nobuyuk, JETRO’s chief representative in Ho Chi Minh City, predicted the scale of projects in Vietnam will shrink this year, but the number of projects will continue to increase.

Park said a number of multinationals in Asia are interested in a variety of sectors in Vietnam, including retail, semiconductors, electronics and components, plastic, renewable energy, and logistics. “They’re looking to expand or make new investments here.”

Thai investors also want to increase investment in Vietnamese animal feed, packaging, retail, manufacturing and chemical industries.

Last month, Thai retail giant Central Retail Corporation said it would invest 50 billion baht ($1.45 billion) in Vietnam over the next five years.

According to experts, Vietnam is attractive to investors from Asia partly because of geographical and cultural proximity.

The growing income and wealth of the middle class guarantees a promising consumer market.

However, Vietnam also faces challenges. It is not the only attractive destination for foreign firms whose strategy is to expand their production chain beyond China.

While Thailand and Indonesia are favorite destinations for the automotive supply chain, Vietnam is more likely to attract FDI in the electronics industry. But India is also luring FDI in electronics industry.

GoerTek, a Chinese maker of AirPods for Apple and PlayStations game consoles, said it is investing $280 million in the northern province of Bac Ninh to expand production outside China, but the firm is also considering pouring money into India.

Vietnam should improve infrastructure to lure Asian investors, experts said.

“The development of industrial parks in Vietnam needs to ensure the integration of sustainable factors as well as the ecosystem to improve its attractiveness and availability and lure large and long-term foreign investors,” said Vu Minh Chi, an industrial services senior manager at real estate consultancy Colliers Vietnam.

According to Nobuyuk, Japanese businesses need Vietnam to improve administrative procedures, tax systems, legal systems, visa procedures, and work permits.

The country lured total foreign direct investment (FDI) of nearly US$3.1 billion in the first two months of 2023, a year-on-year decrease of 38%, according to the Ministry of Planning and Investment.