This is the first edition of Access Asia Group’s monthly foreign investment bulletin for Vietnam. We aim to provide a monthly recap of pertinent news, updates and insights to share with our clients and other interested readers as the country ushers in a new period of investment and development following the prolonged Covid-19 pandemic. Consistently among the top performing economies in the world, Vietnam is currently seeing a notable increase of investment from multinational companies diversifying their supply chains outside of China, including tech giants Apple, Intel and Samsung. Meanwhile, strong domestic consumption and a resurgence of the tourism and retail sectors have pushed economic growth numbers back to pre-Covid levels. Vietnam was the fastest growing economy in Southeast Asia last year and will likely retain that distinction in 2023.
Vietnam is also Access Asia’s country of focus where we provide a range of foreign investment advisory services including due diligence, corporate investigations and brand protection. In addition to providing services in the traditional finance and broad foreign investment sector, we have recently expanded our services to include due diligence and business intelligence in the blockchain and cryptocurrency sector, a nascent yet booming sector that is transforming the financial world. For those interested, please view our recent briefing note on Southeast Asia’s surging digital economy.
Q3 economic figures
Vietnam’s economy grew 5.33% in Q3 according to the General Statistics Office, faster than 4.05% in the second quarter but slower than 13.71% in the same period last year (though this robust pace was a result of a disastrous 2021 from the Covid-19 pandemic). Standard Charter predicts annual growth for 2023 will be 5.4%, while the Asia Development bank predicts growth of 5.8%. From what we see on the ground, this is mainly backed by a strong performance of the manufacturing, retail and tourism sectors backed by strong domestic consumption. Still in doubt, however, is the country’s property sector, plagued by credit woes and lackluster investor and consumer demand. One of the country’s largest developers, the listed property developer Nova Land, recently failed to pay interest on a $300 million bond. Foreign investment in the country’s property sector has seen a significant lull as investors have highlighted concerns about administrative and legal regulations while battling with an overall stagnant sector. Yet, we view this as a short-term hiccup as Vietnam’s macro fundamentals including a high urbanisation rate and a growing middle class clearly favour robust growth in the property sector in the coming years.
Foreign investment figures
Vietnam saw foreign investment inflows in the first three quarters of 2023 rise 2.2% from the same period last year to US$15.91 billion, with Singapore, China and Japan leading the way. According to Vietnam’s Foreign Investment Agency (FIA), Hanoi tops the list for inbound foreign investment into the country, followed by the northern port city of Haiphong and Ho Chi Minh City, the country’s economic hub. The manufacturing and processing sector led in FDI attraction, followed by real estate, finance and banking, and wholesale and retail. In our view, the fact that real estate remains a top sector for foreign investment is tantamount to the overall attractiveness of the sector despite its lackluster performance over the past year.
Notable news and deals
US President Joe Biden’s trip to Hanoi in September appears to have solidified a number of business deals, including a landmark deal worth US$7.8 billion between Boeing and Vietnam Airlines for the national carrier to purchase 50 737 aircraft. This is a significant shift as the carrier’s current fleet mostly consists of Airbuses, the European rival to America’s Boeing.
Another deal will see Amkor Technology assembling, packaging and testing AI chips in a new factory outside of Hanoi. During his visit, Biden emphasized the deepening cooperation between the United States and Vietnam in cloud computing, semiconductor manufacturing, and artificial intelligence, as well as reiterating Vietnam’s critical role in supplying rare earth minerals essential for electric vehicles and wind turbines. Of note, Vietnam plans to reopen its biggest rare earth mine, the Dong Pao Mine located in the northern province of Lai Chau, which is part of Vietnam’s strategy to challenge China’s dominance in the sector. Hanoi’s new focus on developing its rare earths sector is set to attract a number of foreign investors and will be a recurring topic in our future monthly bulletins.
Biden’s September visit also elevated Hanoi’s ties with Washington to a comprehensive strategic partnership – the same level as its China relations. Access Asia expects to see a marked increase of US foreign investment into Vietnam in the coming months, particularly in the manufacturing and tech sectors. Meanwhile, Singapore, China, Japan and South Korea should retain top positions.
While we view the overall economic and FDI landscape as favourable and in a period of robust growth, there are of course numerous challenges to investing and operating in Vietnam. Challenges on the macro level include a complex regulatory environment, weak (albeit rapidly improving) infrastructure, power grid problems, and a shortage of highly skilled labour as the country moves up the value chain. There are also business-culture differences that are more distinct and challenging for foreign investors from North America, Europe and Australia to navigate compared to those from other Asian countries. Finally, major foreign investment mistakes often stem from a lack of preparation, due diligence, and overall knowledge of the investment target.
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