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Vietnam is ready to be the world’s factory. What’s next?

Thien Ly VNS Vietnam Insider Mon, May 25, 2020

HANOI – Vietnam attracted US$12.33 billion worth of foreign direct investment in the first four months of 2020, a year-on-year decrease of 15.5 per cent due to the impact of the COVID-19 pandemic, according to the Foreign Investment Agency.

But the figure was much higher than that in the same period in 2018 and 2017, when FDI was only $5.8 billion and $9.2 billion, it said.

The four-month period saw 984 new foreign projects licensed with a total capital of $6.78 billion, down 9.1 per cent in terms of number of projects but up 26.9 per cent in value.

Many experts said, however, the country’s FDI flows had shown some signs of a “break-out”.

Vietnam’s successful control of the pandemic has been one of the main reasons for attracting foreign investors, according to the experts.

Many of them are possibly those fleeing China due to rising labour costs and the US-China trade war, which is being escalated due to the pandemic.

But Vietnam has in recent years seen the arrival of many foreign manufacturers from China, including many Chinese.
For instance, in 2018 Korean giant Samsung and Japan’s Olympus closed their factories in Shenzhen in southern China and moved bag and baggage to Vietnam.

The former has already invested billions of dollars in building a grand manufacturing base in the Sài Gòn High-tech Park in HCM City. The park has also attracted huge investments from other high-profile tech giants like Intel, Schneider and Jabil.
Earlier, in 2015, Microsoft had moved its Nokia manufacturing from Bejing to Hanoi.

Now, amid the escalating US-China trade war and the Covid-19 pandemic, the US wants to bring high-tech manufacturing back home. To do this, it will have to revamp global supply chains.

Besides, multinationals have been moving from China to other countries to avoid the higher costs due to the US tariffs on Chinese exports.

Vietnam is among the countries they are moving to.

Besides low labour costs, the country also has other advantages that help it attract global firms, including a young population, a supportive policy environment and sustainable economic growth.

Nguyễn Đình Cung, member of the Economics Advisory Group to the Prime Minister, also pointed out another important reason for global firms’ switch to Vietnam: They want to diversify supply chains to reduce reliance on a few markets.

What should Vietnam do?

Analysts said when the US-China Trade War broke out, Vietnam was expected to become a new regional manufacturing hub since many global companies seemed interested, but things have panned out otherwise.

Markets that create good financial efficiency for investors and enable low costs attract foreign investors, according to the analysts.

Vietnam has yet to meet these conditions and if it wants to attract foreign supply chains it would have to do so and more.

They stressed the need for the country to soon restructure its economy to improve its competitiveness.

It would also need to have an industrialization program for 2021-30 to enable its firms to enter global supply chains.

Trần Toàn Thắng of the Ministry of Planning and Investment said it was very important for a country to attract foreign investors, but keeping them, especially large firms, is much more important.

Incentives like tax and land rent waivers and low labour costs could attract them at first, but these would not be enough to keep them, he said.

To keep them would require a country to have an open and transparent business environment, a modern and well-linked transport system and a comprehensive and reliable legal system that is in line with international rules.

“High-quality human resources, a large domestic market with a growing middle class and supply of supporting industries for foreign businesses are also imperative,” he said. – VNS

From: VIETNAM INIDER, VIETNAM Mon, May 25, 2020

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