Singapore bank says Vietnam FDI on track to hit all-time high

By Hung Le   August 23, 2019 | 05:32 am PT
Singapore bank says Vietnam FDI on track to hit all-time high
A man works at a mechanical factory in Hanoi. Photo by Reuters/Kham.
Foreign investment in Vietnam is expected to top $20 billion this year, a record high, according to Singapore’s United Overseas Bank (UOB).

Vietnam has emerged as an attractive investment destination for multinational enterprises seeking to bypass tariffs resulting from the U.S.-China trade war, UOB said in a recent report in which it considered actual spending by foreign investors rather than licensed FDI.

The country’s relatively low labor costs, young labor pool and an array of free trade agreements enable manufacturers relocating to Vietnam to conduct cost-effective strategies and access major global markets.

The main sources of FDI this year are likely to be South Korea, mainland China, Taiwan, and Hong Kong. China has so far been the major contributor, accounting for nearly 25 percent. This is a reversal from the previous two years, when inflows were dominated by South Korea and Japan.

Nearly 75 percent of the FDI so far this year has been in manufacturing unlike previous years where investment was more evenly distributed among a broad base of industries. This trend is likely to continue given that the threats of trade protectionism could persist, said the report.

However, investment relocation to Vietnam might be constrained by a shortage of skilled labor since a large portion of the workforce is engaged in the agricultural sector. Skilled workers accounted for only 21 percent of the workforce, according to a 2018 survey by the General Statistics Office.

Vietnam's Politburo has issued its first ever resolution on attracting foreign investment, prioritizing high-tech and clean sectors.

FDI pledges for new projects, increased capital and stake acquisitions in Vietnam downed 11.9 percent year-on-year to $20.22 billion in the first seven months of this year, according to the Ministry of Planning and Investment.

Estimated FDI disbursement for the seven months was nearly $10.6 billion, up 7.1 percent year-on-year.

Vietnam has been attracting FDI for over three decades now, with the value reaching $334 billion as of August last year.

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