Economy - August 29, 2022 | 05:16 pm PT

Booming foreign investment to push Vietnam up value chain

The increasing number of manufacturing projects set up by behemoths like Apple, Foxconn and Lotte show that Vietnam is going up the global value chain, analysts say.

"Vietnam has repeatedly proven its ability to climb up the value chain over the years, to the point where the country has grown into a key manufacturing hub for tech products within the electronics space," CEO of HSBC Vietnam, Tim Evans, told VnExpress international.

Containers are seen at Cat Lai Terminal in Ho Chi Minh City. Photo by VnExpress/Quynh Tran

Apple is reportedly in talks to make watches and the MacBook in Vietnam for the first time, with its suppliers having started test production of the former in the north.

Foxconn, a key Apple supplier, this month leased 50.5 hectares of land in Bac Giang Province and plans to build a $300-million factory there and employ 30,000 workers.

South Korean conglomerate Lotte is seeking to expand in Vietnam, arguably its third most important market behind its home nation and Japan, and completely pull out of China.

Over the last decade Samsung, Intel and many other multinationals have made significant investments in Vietnam and consider it an important base for their production.

The country’s ectronics exports climbed to a record US$108 billion in 2021, equivalent to 32% of total exports, against less than $1 billion in 2000.

"Vietnam has effectively turned itself into a rising star in global supply chains, gaining substantial global market share in sectors ranging from textiles and footwear to furniture and consumer electronics," Evans said.

This has come about because of its strategic location, competitive labor and production costs, and political, currency and social stability, have helped it become an attractive investment destination, he added.

Vietnam attracted $31.15 billion worth of foreign direct investment last year, up 9.2% from 2020 despite Covid-19.

Multinationals are moving part of their production from China to Vietnam since the risk of the latter facing punitive tariffs in future is low, according to analysts.

The foreign direct investment flow from China to Vietnam reached $1.88 billion in 2020, up 245% from 2017, according to data from the United Nations Conference on Trade and Development, Thai lender Kasikorn – Kbank said.

Quang Chau Industrial Park in Bac Giang Province where Foxconn eyes to set up a $300 million factory. Photo by VnExpress/Ngoc Thanh

Michael Kokalari, chief economist of investment fund VinaCapital, said Vietnam still has a large number of workers who can move from the farm to the factory since over 40% of its workforce is still employed in agriculture.

"I don't see any other country in the world as a serious competitor to Vietnam in the assembly of high-tech products, which explains why Vietnam’s FDI inflows have remained so [consistent]."

But much remains to be done for Vietnam to take advantage of the increasing foreign investment.

World Bank data shows its non-tariff trade costs are higher than for its ASEAN peers, with transport congestion costing as much as 21% of GDP in 2016, much higher than the global average of 12%.

"Upgrading and modernising existing infrastructure will empower Vietnam to reduce the barriers to trade and strengthen its ability to attract additional FDI," Evans said.

Improving labor skills is another necessity as the demand for highly skilled workers is rising given the high level of technology and automation at foreign-invested manufacturers, he added.

Kokalari said factors such as wages, workforce quality and infrastructure are more important than government policies in attracting FDI.

More FDI means more opportunities for local firms to develop their capabilities to produce inputs the FDI factories require, he pointed out.

"FDI brings not only money into a country, but also creates spillover benefits that help foster that country’s industrial sector."

Dat Nguyen