Vietnam in a new FDI shift

By Kieu Mai - Apr 13, 2024 | 08:55 AM GMT+7

TheLEADERHSBC discusses Vietnam's role in supply chain relocation and outlined essential strategies for the country to enhance its appeal for attracting and retaining FDI.

Recent assessments from foreign business associations continue to highlight Vietnam's attractiveness for foreign direct investment (FDI). The latest report by HSBC also shows that Vietnam remains one of the highly sought-after markets in the Asia-Pacific region.

Ahmed Yeganeh, Country Head of Wholesale Banking, HSBC Vietnam, recently shared his views on Vietnam’s positioning in the supply chain relocation. He also identified key priorities for Vietnam to attract and retain FDI in the upcoming time.

How do you evaluate the trend of supply chain diversification in the recent years and in the future? How will this trend impact the ASEAN region and Vietnam in particular?

Ahmed Yeganeh: In today’s globalized world, supply chains have become quite diverse, shifting from China to Southeast Asia.

Furthermore, there's an ongoing trend that they have diversified further from Southeast Asia to markets like India, Mexico, as well as other key markets across the world.

On the other hand, however, we should not ignore growing incentives through taxes from developed countries as efforts to channel manufacturing and investments back to home countries. What I mean by this is the trend of localization.

Southeast Asia and Vietnam in particular benefit from certain foundations that have been well established for some time, including strong infrastructure and support around FDI, demographics, GDP growth and a skilled, young and tech savvy workforce which continue to act as great attraction.

Besides, the numerous free trade agreements between Vietnam, neighbouring and further countries as well as economic blocs also serve as key attractions in the FDI story.

Some of us here in ASEAN may have concerns when India has risen as a new destination of investment. However, I don't think that will have a materially negative impact on Southeast Asia or ASEAN. The recent ASEAN Business Sentiment survey that HSBC conducted also shows that businesses feel very optimistic about the growth opportunities in the region.

Vietnam in a new FDI shift
Ahmed Yeganeh, Country Head of Wholesale Banking, HSBC Vietnam

In addition to competition from other markets outside of ASEAN, one should consider the competition within the bloc. How do you evaluate this issue? What position is Vietnam in compared to our peers in the region?

Ahmed Yeganeh: FDI into ASEAN continues to be very strong. Countries within the region are in a race to attract investment from China, the US or Europe. Each of them has their own advantages and opportunities.

While Indonesia is growing as a FDI focused market, Malaysia is the largest beneficiary in terms of actual numbers. Looking to their neighbouring country, many businesses consider Singapore as a regional treasury hub, taking advantage of its sophistication in term of regulations, payments, banking system. 

How about Vietnam? I remain optimistic about the market due to its great resilience over the last 20 – 30 years. The country has managed diplomatic relationships between the East and the West very well, resulting in a significant number of FTAs with globally important markets and blocs.

It also has a great demographic story. While the population of countries in North Asia is ageing, Vietnam still has a young population with continuous investment in education.

There’s also the ongoing investment from new companies into the country. As an international bank with a wide global network, we receive many new referrals and enquiries from companies around the world to learn about Vietnam and its opportunities for foreign investors.

In my opinion, one could feel that the Vietnamese economy isn’t where it should be yet. But if you're an outsider looking into Vietnam, which is expected to have GDP growth of 6 per cent this year and a growing consumption story which is projected to be in top 10 largest consumer markets in the world by 2030, the economy continues to be really strong with lots of opportunities.

It should be noted however that we shouldn’t be complacent, as in addition to other ASEAN markets, Vietnam will face increasing competition from India and other countries like Mexico as previously mentioned.

What areas do foreign investors currently want and focus on in Vietnam? What do they worry about?

Ahmed Yeganeh: We have seen interest across all industries, ranging from semiconductors to renewables to manufacturing, textile & garments, etc.

Foreign investors are excited about Vietnam, but they also have their concerns when investing here including ease of doing business, regulations and the language barrier.

HSBC’s survey tells us that foreign investors are keen on looking for local partners in the country, who can help them navigate the different regulations and other matters such as suitable geographic locations and staff.

Besides, they are interested in whether they can access renewable energy to power their factory, how stable the energy for their operation here is. 

Vietnam in a new FDI shift 1
Foreign investors are interested in whether they can access renewable energy to power their factory. Photo: Hoang Anh

China plays an important role in investment to ASEAN. What’s your view on the risks to the ASEAN region from China's prolonged slowdown?

Ahmed Yeganeh: Despite its prolonged economic slowdown, China still has GDP growth above the US and Europe as well as many other parts of the world. China’s FDI into ASEAN and Vietnam continues to increase year on year. Looking at the data, especially in the first three months of this year, a large part of FDI inflow into the country was from China.

I think China will play a very important part in Vietnam’s broader FDI story over the next two to three years including that from Hong Kong and Taiwan, because a lot of Chinese businesses operate through those markets, where we see equally strong FDI opportunities.

What will perhaps change the balance? If interest rates see an ease in the West, the US may come back. As the European and US economies, our primary export markets, improve as expected through 2024, that will mean additional opportunities for countries like Vietnam and within ASEAN, primarily Indonesia and Philippines.

After the US-China trade tensions, recently, the phrase "chip war" is emerging, referring to the tensions between these two countries related to chip production. In your opinion, how will Vietnam be affected?

Ahmed Yeganeh: I think Vietnam’s focus has always been managing the diplomatic relationship with both the East and the West. From Vietnam’s perspective, maintaining that balance is key.

Last year, Vietnam welcomed presidential visits from both the US and China, also the upgrade of Vietnam - US relationship. They’re advantages for Vietnam, proving how open and favourable we are, in attracting FDI and technology development.

Related to the semiconductor industry, I think there is increasing competition to Vietnam's position in the semiconductor space, particularly from India, which has seen a significant investment in this area.

However, beside semiconductors, there are other high valued industries that are expected to attract FDI. For example, China now focuses on the solar system as an important part of its manufacturing story, some of which has moved to Vietnam. In short, maybe while there's a risk to semiconductors, there are other areas that still attract the investment and FDI into the country.

In the coming time, what does Vietnam need to do to continue attracting and retaining FDI enterprises?

Ahmed Yeganeh: The Vietnamese government has done very well to attract FDI for a long time. 

Since the first FDI came to Vietnam in 1988, the number of FDI projects has continuously increased. In 2016, Vietnam had more than 2,600 FDI projects, that number nearly doubled within just three years. 

In just the first quarter of 2024, there were nearly 650 newly registered FDI projects in Vietnam. 

The government also focuses on FTA negotiations, which help open our economy with more advantages. Vietnam currently has 16 FTAs and three others under negotiation. 

We shouldn’t ignore the efforts in upgrading the infrastructure with large projects including airports and highways, which will connect the country’s economic areas more conveniently and easily. All these initiatives need to be continued.

Other important things that can support FDI attraction include reducing bureaucracy, reducing approval times and more business support.

Vietnam in a new FDI shift 2
According to HSBC Vietnam's expert, China will play a very important part in Vietnam’s broader FDI story over the next two to three years. Photo: Hoang Anh

Related to the global minimum tax discussed recently, when we talk to our clients, frankly they are relatively comfortable with it. It’s very good that the Vietnamese government has conducted some dialogue and discussions on the impacts with key companies, and helped to navigate how they can manage after the implementation.

In my opinion, another advantage is Vietnam’s Ministry of Planning and Investment and Ministry of Finance who are very engaged with the business community, they talk to businesses frequently to understand their concerns as well as seek for their opinions.

I've previously had the privilege of attending a conference with the Prime Minister where businesses could raise their voices to the government’s highest leaders. The continuous two-way communication between the government and business community is a reassuring testament to international companies with the intention of investing to Vietnam.

However, again, we shouldn’t be complacent. There is still more to do, such as enhancing infrastructure, making Ho Chi Minh City an international financial hub etc. If we can do more, I think it will certainly enhance Vietnam’s potential in the eyes of foreign investors’.

Honestly, do you see any positive results from those conversations?

Ahmed Yeganeh: Yes, of course, I have seen positive outcomes. 

Our corporate clients share that they've had negotiations and discussions with the government and really appreciate those opportunities. Obviously, there are some areas needing more time to adjust, but at least, there's a platform for dialogue and an opportunity to discuss. That differentiates Vietnam from other markets.

Vietnam wants and plans to increase added value in the supply chain, but it lags behind in terms of labor productivity compared to regional peers. What is your opinion on this issue and what does Vietnam need to do?

Ahmed Yeganeh: The ambition to increase added value in the supply chains is commendable. China has done that over the last 10 – 15 years, as they’ve implemented their strategy to shift the lower end out of the country and focus on the higher end onshore. I think Vietnam’s case will be similar. That transition is inevitable.

But the key area, as reflected in our ASEAN Business Sentiment survey, is skills. Vietnam can enhance labour skills through continuous investment in education, and skill transfer via FDI.

If Vietnam wants to move up the global supply chain, I think we need to invest in people and technology. Our survey also shows that technological investment in Vietnam continues to be a big opportunity for improvement and growth, while the young, skilled and tech-savvy labour needs to continue to expand.