Foreign direct investment in Vietnam expected to surge
Foreign direct investment in Vietnam expected to surge
Vietnam is expected to see a surge in foreign direct investment (FDI), thanks to various factors such as free trade agreements, the positive impacts of the trade war between China and the United States on Vietnam, and stronger interest in merger and acquisition (M&A) transactions.
Many financial experts considered the second summit between U.S. President Donald Trump and North Korean Chairman Kim Jong Un, held in the capital city of Hanoi on February 27-28, an opportunity for Vietnam to score points with potential investors.
They noted this event was the next success in the country’s international integration efforts. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership came into effect early this year, and the European Union-Vietnam Free Trade Agreement is expected to be ratified soon.
These factors are likely to provide further impetus for Vietnam’s economic growth, thereby paving the way for a large influx of FDI this year.
Since early this year, the country has approved several FDI projects by Chinese and Japanese investors.
Fresh FDI approvals nationwide during the year up to January 20 reached US$1.9 billion, marking a sharp rise of 51.9% from a year earlier, according to the Foreign Investment Agency under the Ministry of Planning and Investment.
FDI projects reported a total disbursement of over US$1.5 billion in this year's first few weeks, up 9.2% against the year-ago period.
Capital contributions and share purchases by foreign investors through M&A deals are becoming increasingly robust in the country. Statistics from the Foreign Investment Agency revealed that this segment brought in over US$9.8 billion in 2018, marking a 59.8% rise against the previous year and making up some 28% of the registered FDI.
In January this year, these investors conducted a total of 489 transactions to contribute capital and acquire shares in local companies with a combined value of roughly US$762 million, up a hefty 114% year-on-year.
Capital contributions and share purchases are becoming a more favorable channel of investment as foreign investors try to gain a foothold in the Vietnamese market.
The United States and North Korea’s decision to hold their summit in Vietnam marks a rare chance for the Southeast Asian nation to prove that it is worthy of being chosen to do business and organize major events, according to experts at Saigon Securities Incorporation.
While large economies are adopting protectionist trade instruments, Vietnam is trying to integrate its economy with the world economy, said Pham Hong Hai, chief executive officer of HSBC Bank (Vietnam) Ltd.
This policy helps Vietnam attract more FDI inflows, promotes bilateral trade growth and exerts pressure on the country to continue its economic reforms with the aim of complying with the stringent standards of new-generation free trade agreements.
He added that these reforms will create a sustainable development foundation for Vietnam in the future. FDI will continue to flow into Vietnam, mainly in the manufacturing sector.
Experts at Standard Chartered Bank also expect manufacturing growth to remain strong this year, though slightly lower than in 2018 due to the high base and uncertain external environment. Still-strong FDI inflows to manufacturing will likely support a robust manufacturing output.
FDI inflows are projected to stay strong in 2019 at close to US$15 billion, and FDI inflows to the manufacturing sector, particularly electronics manufacturing, will likely remain high in the medium term, according to the bank.
Samsung Electronics Vietnam, a subsidiary of South Korean electronics giant Samsung, has so far injected over US$17.3 billion into projects to develop the plants that produce electronics and screens among others in Vietnam.
In 2018, the firm’s total export turnover reached a staggering US$60 billion, marking a 10% increase over the previous year. Its leader noted that the firm is committed to expanding its business over the long term in Vietnam and regards the country as an important strategic base in the group’s global strategy.
