Bright outlook for Vietnam’s economy despite Covid-19 setback

Vietnam remains attractive to foreign investors

FDI inflows into key sectors

According to the Foreign Investment Agency under the Ministry of Planning and Investment, FDI commitments to Vietnam dropped by 13.7 percent in the first eight months of the year compared to the same period last year due to the impact of the Covid-19 pandemic. However, Vietnam is hopeful that free trade agreements, especially newly implemented EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (EVIPA) will provide opportunities for Vietnam to promote economic recovery.

Economists say many companies and corporations are accelerating their efforts to relocate production out of China. Facing a shift in investment from China to other countries, with Vietnam featuring prominently on their radar, many domestic enterprises are paying great attention to investment in infrastructure development, especially building industrial zones associated with new urban areas.

According to Colliers International Vietnam, in addition to familiar destinations like Ho Chi Minh City and Hanoi, investors have been increasingly interested in other provinces and cities, such as Binh Duong, Long An, Dong Nai and Ba Ria-Vung Tau, as reflected in their infrastructure and logistics investments. For example, European investors have expressed interest in a US$1 billion seaport logistics project in the southern province of Ba Ria-Vung Tau.

European investors are also examining Vietnam’s garment and textile and high-tech industries. Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, said Japan, the Republic of Korea, Chinese Taipei and China previously were leading production powerhouses of garments and textiles. However, they have gradually reduced this type of production, making a shift to other production hubs inevitable. The Covid-19 pandemic is promoting this trend and with the benefits and incentives of some 16 free trade agreements to which Vietnam is a signatory, the country is an attractive destination for foreign investors.

To take advantage of this potential, Vietnam must develop support industries to attract foreign investment, which would mean increasing local content from 47-48 percent to 67-68 percent in the future.

Exports, key recovery driver

Terence Alford, director of Colliers International Vietnam’s Capital Markets and Investment Services, said the export market is one of the most important commercial drivers to help the Vietnamese economy recover over the next 6-12 months.

According to the Ministry of Industry and Trade, Vietnam’s exports to the EU reached US$3.78 billion in the month since the EVFTA took effect (August 1-31), bringing total export turnover to US$25.92 billion in the first eight months of the year. Many Vietnamese exports have benefitted already, including brackish shrimp, coffee, passion fruit and rice, while other items like phones and components, machinery, equipment and spare parts, garments and textiles, leather and footwear, seafood and furniture have also recorded growth.