Replenishing FDI into Viet Nam-dynamics of intra-Asia FDI flows

The Head of International Subsidiary Banking, Wholesale Banking, HSBC Viet Nam, Joonsuk Park, has released an article on the potentials of the intra-Asia Foreign Direct Investment (FDI) flows into Viet Nam.

According to Joonsuk Park, FDI flows into Viet Nam play a quintessential role and contribute to the growth story of the country. FDI has been one of the key catalysts spurring and transforming Viet Nam into one of the most open economies in the region.

The world has witnessed transformation across progressive regulatory changes, infrastructure modernization, formation of a characteristic supply chain manufacturing eco system and the emergence of an entrepreneurial young generation of talents leading the country into a digital era quantum leaping the analog stage of the economy that most countries have had to go through.

Today, Viet Nam has successfully emerged as a leading frontier market in Asia and an export led economy. Multinational companies as well as local exporters have the privilege of securing a highway pass enabling the access to 15 of the G20 markets.

The Vietnamese Government has actively sought to embed free trade agreement (FTA) execution as a key instrument to lay that platform very conducive to the country's export growth.

Viet Nam currently has 15 FTAs and multiple regional pacts including the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The efforts are even more pronounced knowing that Viet Nam was committed and pulled through to execute key FTAs including the UK-Viet Nam, RCEP and CPTPP all in the midst of COVID-19.

The domestic consumption market of Viet Nam is in parallel another important arena for the incoming multinational companies. HSBC study shows that by 2030, Viet Nam's domestic consumption market will outsize the markets of Thailand, UK as well as Germany.

The FDI investors or those regional and global multinational companies operating in Viet Nam effectively contribute to over 80 percent of Viet Nam's total exports and more than 25 percent of local investments. Of those multinational companies, the intra-Asian multinational companies compose the bulk.

Viet Nam's top exports include mobile, electronic goods, general machinery, apparels, footwear, wooden products and of all of these sectors, the Asian multinationals from the Republic of Korea, China, Hong Kong, Taiwan, Japan, Thailand and Singapore play an integral part.

These top intra-Asian investors continue to maintain their focus on Viet Nam. Following and supporting the intra-Asian capital flow as part of HSBC pivot to Asia strategy, HSBC has been providing advisory and treasury support to many multinational companies entering and operating in Viet Nam and is pleased to see the annual investment in-flows remain steady.

"Already coming into 2023, we have witnessed interest from a number of global intra-Asian multinationals engaging across a wide array of sectors including retail, semiconductors, electronics, mobile parts, plastics, renewables, logistics etc., looking to either expand or invest newly into the country", noted Joonsuk Park. 

Time for Viet Nam to attract more of intra-Asian FDI flows

However, as having been the case for many countries and markets, COVID-19 has also impacted Viet Nam in one way or another. Irrespective, the mid to long term view remains solid.

Many prospect and existing FDI investors harbor the view that Viet Nam will continue to benefit owing to an established manufacturing eco system in place, cost competitiveness, rising number of skilled workers, progressive regulatory support, affluence and the growing middle income story as well as from the China+1 leverage.

HSBC forecasts that Viet Nam's GDP will grow by 5.8 percent in 2023. Nevertheless, headwinds remain strong. The global trade recession impacts Viet Nam's exports, the elevated inflation deters domestic consumption and whilst the re-opening of China is expected to positively impact Viet Nam across FDI inflows, exports and receipt of tourists, it will be a challenging year.

Consequently, replenishing the FDI flow back into Viet Nam is of critical importance for both export and the domestic consumption market growth. And the intra-Asian flow cannot be underestimated.

The intra-Asian investors have keen understanding of the Vietnamese market from both a cultural and business practice perspective. The geographical proximity allows for the ease of travel for those Head Office decision makers.

And many of the Asian markets themselves are export oriented and hence understand the innate advantage of leveraging on Viet Nam's rich FTA platform. The growing middle income and wealth story in Viet Nam also underpins their efforts to further penetrate into the local domestic consumption market.

Whilst the Western multinationals battle with macro-economic challenges and geopolitical tensions, it may be an opportune timing for Viet Nam to focus the efforts on attracting more of the intra-Asian FDI flows into the country. Multiple measures can be placed in to replenish the FDI flows and many efforts are already in progress.

The mandate will then be to double up on the execution pace which will lead to investor confidence across the wide range of regulatory framework. Viet Nam is clearly on a transition journey to stepping up into an emerging market status.

Active inflow of FDI will support to speed up that journey. Fortunately, the latest February Manufacturing Purchasing Managers' Index (PMI) shows a rebound back up to 50 level signaling the recovery of new export order demand. Let's now welcome the intra-Asian FDI flow–the Viet Nam way, with energy and entrepreneurial spirit.