Viet Nam still remains FDI hub: HSBC

Viet Nam has sustainably enjoyed foreign direct investment (FDI) inflows well above 4 percent of its GDP, among the highest in ASEAN (as a share of GDP), noted HSBC in its report Viet Nam at a glance released on August 8.

Regarding fundamentals that help Viet Nam attract FDI, the bank said, in the past 20 years, Viet Nam has grown to become a major manufacturing base that is tightly integrated with the global supply chain. Exports have grown more than 13 percent annually on average since 2007, dominated by foreign-invested enterprises.

Traditionally, FDI inflows have been led by South Korea, most notably by Samsung. Since Samsung's establishment of its first phone factory in the northern province of Bac Ninh in 2008, more than half its global smartphone production is now done in Viet Nam, with a cumulative investment in excess of US$20 billion.

The efforts of these "early movers" have encouraged other tech giants to invest in Viet Nam's manufacturing capabilities. In 2023, leading Chinese manufacturing firms have ramped up their investments in Viet Nam, with almost 20 percent of newly registered FDI being sourced from mainland China.

The surge in multinational corporations (MNC) interests in Viet Nam stems from a variety of factors, including competitive costs and FDI-friendly policies.

Comparing labor costs across Asia, manufacturing wages in Viet Nam are lower than that in mainland China and other peers.

Other costs, such as of the energy needed to operate factories, are also competitive in Viet Nam. When comparing electricity prices for businesses, Viet Nam ranked second-lowest among its peers.

In addition, Viet Nam has made significant progress in setting up various economic agreements with major trading partners, such as the EU-Viet Nam FTA (EUVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In turn, these developments have facilitated and enabled foreign investment, with Viet Nam seen as increasingly open to FDI, per the OECD.

Part of the favorable investment environment can be explained by proactive support from the government via the tax system. Viet Nam has a competitive position relative to its peers with a 20 percent statutory corporate income tax rate.

So far, these pull factors have been important in attracting investment and integrating Viet Nam with the global value chain, HSBC highlighted in its report.

In fact, Viet Nam's global value chain participation rate has sharply risen over the years, now comparable to that of Singapore. Viet Nam is now positioned as a hub for importing complex intermediate inputs for final assembly, corroborated by a low localization rate in the electronics industry, added the bank.

FDI inflows to Viet Nam reached US$18 billion in the first seven months of 2024, representing a year-on-year increase of 10.9 percent, according to the Ministry of Planning and Investment's Foreign Trade Agency.

Source: VGP