Vietnam demonstrating foreign funding attraction

Nicolas Michaux, managing partner at Alpha Prime Hong Kong

Vietnam’s GDP grew by 5.64 per cent in the first half of 2021, thanks to strong exports and domestic demand.

In the first half of the year, Vietnam managed to attract circa $15.27 billion of foreign investment, down 2.6 per cent compared to the same period in 2020, according to the country’s General Statistics Office.

During the time, more than 800 new foreign-invested projects have been licensed with the total registered capital of $9.55 billion, with Singapore as the largest source of investment, followed by Japan and Hong Kong, and manufacturing and processing as the main sectors targeted.

So far this year, Vietnam has had 460 operational foreign-invested projects raise capital by $4.12 billion in total, up 10.6 per cent.

Ho Chi Minh City came second on the list over the period, with the total registered investment capital of $1.43 billion. Investors are of course facing challenges due to the ongoing coronavirus wave, including border closures and quarantine measures as well as factory shutdowns that affect production and supply chain.

Some companies are trying to adapt their internal management systems to maintain a good level of production and delivery, and in particular by implementing coronavirus tests daily for their employees, and allowing them to access factories and production sites.

Therefore, Vietnam is living uncertain times in terms of foreign direct investment (FDI) expectations for the rest of the year.

In particular, the country is still competing heavily with China in certain production sectors, and the capability of one country or the other to face the demand will also determine the outcome of FDI for 2021.

Fortunately for Vietnam, China is still facing difficulties with overseas trades, into the third year of US trade war tariffs that are remaining in place for most goods under the Biden administration.

Also, the Vietnamese government has adopted measures to support businesses affected by the pandemic, including tax payment delays and helpful policies for employers and employees.

To facilitate a good level of production and competitiveness, measures to adapt to the working environment are needed, such as regular COVID-19 testing and vaccination campaigns.

In this regard, the government has announced a dedicated fund to vaccinate 70 per cent of the Vietnamese population by early 2022.

While still maintaining a good level of production, and adaptability from local authorities and companies, Vietnam is demonstrating that it is still an attractive country to invest in, and in the long term may not be affected by the current wave of COVID-19 as much as other places could be.

In order to maintain a high level of FDI in the coming months, local authorities must take sufficient actions to demonstrate to foreign investors that Ho Chi Minh City will adopt efficient measures to put local factories and companies in a situation where production and supply chains are unaffected.

Breaks in FDI flows come from disruption in these areas. Hence, fighting the pandemic is a priority and Ho Chi Minh City, as well as the entire country, could inspire itself through utilising certain efficient policies from elsewhere, such as Hong Kong, where a good level of testing combined with travel restrictions and vaccination incentives have recently proved to be successful.

Swift surveillance, quarantine, and social distancing measures, such as the use of face masks and school closures, have helped to cut infection transmission. After the crisis, wider adoption of teleworking practices, which could introduce a range of impacts and net effects on productivity, could be a good option.

Public policies and cooperation among social partners are crucial to ensure that new, efficient, and welfare-improving working methods emerging during the crisis are maintained and developed once social distancing is over.

Furthermore, to maximise the gains for productivity and welfare inherent in the use of more widespread teleworking, governments should promote investments in the physical and managerial capacity of businesses and workers to address potential concerns over worker wellbeing and long-term innovation related, in particular, to the excessive downscaling of workspaces.