There has been a range of foreign private equity funds as well as multinational corporations paying special attention to Vietnam and its diverse investment forms, export potential, rising opportunities in the manufacturing and processing industry, and market of 95 million people and burgeoning middle class. 

Existing foreign investors, especially those with a long-term perspective, are also expanding their operations in Vietnam, exhibiting trust in the country’s business and investment environment and its development capacity.

Positive prospects

2018 may see a new turning point reached in attracting foreign direct investment (FDI), given the positive forecasts from economists and organizations for Vietnam’s macro-economic outlook. Total registered FDI capital stood at $5.8 billion in the first three months of the year and new FDI projects totaled 618. 

The prospects for continued FDI attraction this year are bright, as inflows into Vietnam are set to increase given the confidence among foreign investors, according to Mr. Warrick Cleine, Chairman and CEO of KPMG Vietnam. “Multinational corporations will continue to build manufacturing facilities and factories, develop commercial centers, expand retail systems, and invest heavily in the local real estate sector,” he told VET.

He added that there were two major changes in investment trends over the last year. Firstly, it’s clear to see that foreign investors have an interest in the equitization of State-owned enterprises (SOEs), in fields from oil and gas, telecommunications, and heavy industry to banking, retail and consumer goods, following the government’s policies for attracting FDI and bolstering the State budget. “This shows the confidence and optimism of foreign investors in those SOEs’ business activities, which have taken major efforts to build up over many years and which led to positive results in merger and acquisition (M&A) activities in 2017,” he said.

FDI: important driver of growth

Source: KPMG Vietnam

The second major change is Vietnam’s increasing attraction among private equity funds, especially those from the US, Japan, South Korea and elsewhere in Asia. They have been injecting capital into private Vietnamese enterprises in order to support their expansion plans and increase their brand recognition and branding promotion, not only in the local market but also in the region. “I think private capital will be the most vigorous change for Vietnam through 2019,” Mr. Cleine said.

Of particular note, Warburg Pincus last month closed a deal to pour $370 million into Techcombank; its biggest bet in Vietnam to date and bringing its commitments in the country to more than $1 billion. The US private equity firm has been in Vietnam for some time but is now putting itself on the ground floor for a new cycle of wealth creation. It will identify new investment targets in the consumer, banking and logistics sectors as Vietnam’s economy grows and its capital markets develop.

Vietnam’s emergence as a major manufacturing destination next to China helped its economy grow 6.8 per cent last year; the highest figure since 2010. Continued growth is creating a large middle class that in turn is boosting consumer spending. The VN-Index has risen 20 per cent this year; the best performance in Southeast Asia, after surging 50 per cent last year.

Vietnam’s economy is also very different today from the one that relied on exporting crude oil, rice, coffee and footwear. Samsung Electronics has linked Vietnam to its global smartphone supply chain, assembling 30 per cent of its phones in the country and seeking to raise the number of local suppliers to 50 by 2020.

Furthermore, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was officially signed last month, is expected to take Vietnam to a new level regarding foreign capital inflows. “The CPTPP can be seen as an opportunity for Vietnam’s capital markets to attract stronger foreign investment flows and look for other countries to do business with,” said Mr. Cleine. “Now the agreement is signed we will see closer relations over the coming years and, especially, key countries such as Japan will continue to invest and build their business in Vietnam. This provides great opportunities for Vietnamese companies.”

Dynamic trade environment

Source: KPMG Vietnam

Preferred destination

Of the some 115 countries and territories that invested in Vietnam over the last year, according to the Foreign Investment Agency at the Ministry of Planning and Investment, Japan and South Korea still lead the way, accounting for nearly 60 per cent of foreign capital. Japanese companies invested $9.11 billion (25.4 per cent) and South Korean companies $8.49 billion (23.7 per cent).

This was the first time Japan surpassed South Korea, who had led in investment for many years. Economists, however, believe this is somewhat misleading, as large sums were invested in two build-operate-transfer (BOT) thermal power projects, in north-central Thanh Hoa and south-central Khanh Hoa provinces, totaling $5.37 billion.

The government did a very good job last year in enhancing Vietnam’s competitiveness and with a GDP growth rate the envy of others, according to Mr. Pham Van Thinh, CEO of Deloitte Vietnam. “We can see a shift in Japanese investment over recent years, as they gauge the risks in the Chinese market in terms of investment opportunities,” he said. “Investors have implemented a ‘one-plus-one’ policy, meaning that in addition to the main market of China they will invest in another market, with Vietnam being among their best choices.”

Japanese investment is indeed increasing in Vietnam as it’s long evaluated the country as a key destination for investment. Though Japanese investors have sharply shifted into finance, banking, retail, services, food and support industries in recent years, as investment capital in those sectors remains less than in assembly and manufacturing, investment from Japan is considered to not be high overall. 

Meanwhile, South Korean investors have stepped up their investment in manufacturing and real estate over recent years, with major projects from Samsung, LG, Doosan, CJ, Lotte, and others, which also involve a host of satellite companies coming to Vietnam.

According to a new study from BMI Research, Asia’s two largest economies - Japan and China - are racing to invest in infrastructure projects in the region. Besides the Philippines, Vietnam is one of their most preferred destinations.

In the current context, many experts believe that Vietnam should reduce the attractiveness of labor-intensive projects and not rely on cheap labor and incentives to attract investment. The country needs capital but, more importantly, it needs modern technology to restructure its economy for sustainable development and to enhance competitiveness, increase product value, and deepen its participation in global supply chains. It therefore needs to change its thinking in order to efficiently exploit foreign capital.

 “The CPTPP can be seen as an opportunity for Vietnam’s capital markets to attract stronger foreign investment flows and look for other countries to do business with. Now the agreement is signed we will see closer relations over the coming years and, especially, key countries such as Japan will continue to invest and build their business in Vietnam. This provides great opportunities for Vietnamese companies.” 

Mr. Warrick Cleine, Chairman and CEO of KPMG Vietnam.

VN Economic Times