Economy in Vietnam and opportunities for foreign investors

7 min.

Vietnam is attracting the attention of investors in the whole world when its market’s potential is highly appreciated by experts and national policies in the coming time brings promising development opportunities for enterprises. With the complicated situation of coronavirus pandemic, Vietnam even has become a more attractive choice for foreign investors thanks to excellent pandemic control and government support measures. 2021 is expected to be a year of spectacular recovery and development of Vietnam’s post-pandemic economy.

1. Vietnam’s economy in 2021

In 2021, the outbreak of Covid-19 pandemic has gravely wounded many countries’ economies leading to the global economic recession. Even while the economies are recovering around the end of 2020, the new waves of Covid-19 infections still threaten this recovery process.

Due to the economic integration process, Vietnam’s economy was not able to avoid the negative impacts and experienced a sharp decrease in most economic indicators. However, Vietnam still maintains a positive GDP growth of 2,91% and the inflation rate is within the allowed level of National Assembly. Vietnam’s stock market in the Covid-19 pandemic also recovered strongly, liquidity increased and was joined by new investors, raising capital for the economy of the stock market rose of 20%.

To obtain the above achievements, in addition to disease prevention and control which are timely, drastic and innovative, the Government used different fiscal and monetary policies to help private sectors overcome difficulties and boost the economic recovery momentum such as increasing the public spending, the disbursement of public, …

The positive economic outlook forecasts
Many forecasts of the largest financial institutions in the world predict that Vietnam’s economy will recover from 6% to 7% in 2021. Vietnam is assessed to experience positive economic growth based on the following factors: Firstly, the Government will keep promoting public investment and spending, implementing monetary – financial measures such as tax reduction, tax deferral, etc. in order to support enterprises and citizens to recover manufacturing and business. Secondly, the business environment in Vietnam in 2021 will be significantly improved as many laws come into effect (Enterprise Law, Investment Law, Environmental protection law, …). Vietnam has also concluded trade agreements with preferential commitments for investors and boost activities in the market. In addition, Vietnamese enterprises are expected to show their adaptability in the prolonged pandemic situation and maintain the supply chain stability.

In general, Vietnam still maintains macroeconomic stability and is in a V-shaped recovery trend. The Government set dual goals from the beginning of 2021 that protecting people’s health is the top priority task, at the same time, ensuring the normal social-economic activities, being not panic but still remaining vigilant. Vietnam’s economic outlook in the coming time looks bright.

2. Vietnam’s economic prospects for foreign investors

The US-China trade tension has led to the movement of capital among regions and countries, especially the tendency of capital flowing of international enterprises out of China. Currently, several of the world’s largest corporations plan to shift their production chain to Vietnam. For instance, LG Electronics moved its entire smartphone production line from South Korea to the northern city of Hai Phong, Vietnam; Panasonic Appliances Vietnam is preparing for being transferred to manufacture high-capacity refrigerators and large-capacity vertical washing machines from Thailand. Due to the impacts of the Covid-19 pandemic, this process occurs more vigorously. Many large contract manufacturers for electronics companies such as Foxconn, Luxshare, Pegatron, etc. also have plans to expand their investment in Vietnam.

FDI flows are expected to considerably increase when the Covid-19 pandemic is well-controlled, which makes the year 2021 potential for FDI flows. Besides the movement of capital flows of large investors, small-scale FDI projects will take advantage of the free trade agreements which Vietnam has signed to continue to enter Vietnam this year.

Regarding investment opportunities, the process of supply chain shifting from abroad, the industrialization and urbanization in the future are the factors supporting the strong development of the power industry, production of basic building materials and agricultural product manufacturing industry. This is the industry group benefiting from the promotion of the Government’s public investment. In addition, enterprises providing auxiliary services for the trade flows between Vietnam and other countries within the framework of the signed free trade agreements are also attractive targets for investors, the group of ports – logistics is a typical example. Many opportunities are opened for enterprises which apply new technologies thanks to the Government’s supporting policies and tax incentives for investors. Resolution No. 52 on digital transformation shows that the application of more advanced technology to production, business and the digitization in Vietnam’s economy is inevitable and irreversible.

The final highlight in 2021 is enterprises that have “their own sectors” related to looking for foreign strategic partners, mergers and acquisitions and new listings …

3. The reasons for FDI companies to invest in Vietnam:

Vietnam has become one of the attractive investment destination for foreign investors due to the following outstanding factors:

Firstly, Vietnam has deeply and broadly integrated into the world economy through continuously signing trade agreements with major countries and regions all over the world. These agreements will provide benefits to the market in general and foreign investors in particular. Specifically, when the EVFTA between Vietnam and the European Union takes effect, it will apply the tariff reduction for goods imported and exported between Vietnam and member countries between the parties together with a 10-year roadmap for tariff elimination. Vietnam also committed to creating a more favorable environment for the sector of trade in services and investment such as banking services, insurance, and telecommunications. In order to develop e-commerce between Vietnam and the EU, electronic transactions will be exempt from import tax. In addition, the Regional Comprehensive Economic Partnership Agreement (“RCEP”) signed between the members of ASEAN and six FTA partners: India, China, Japan, South Korea, Australia, New Zealand also made specific commitments on trade liberalization in goods, implementing the non-tariff barrier measures. Under this Agreement, customs procedures are applied in a simple and transparent manner. The agreement is likely to create the largest free trade area in the world and establish the new supply chains due to its commitment to opening markets for goods, services, investment, application of Rule of Origin in the geographical region of RCEP, creating an export market which is stable, long-term for ASEAN countries. In addition, investors also have accessed favorable conditions when Vietnam has signed Double Taxation Avoidance Agreements to exempt or reduce tax payable in Vietnam for residents in the member countries or deduct the tax amount paid in member countries by residents in Vietnam.

Secondly, by a variety of regulations which benefit enterprises have been changed and enacted in the New Enterprise Law, New Investment Law and Resolution 52 on digital transformation of the economy, administrative procedures are simplified and investment conditions are also reduced. The Government will decide the application of special incentives and investment supports to encourage investment projects which have great economic impacts. Technology development policies are concerned and promoted by the Government, investment incentives are applied to some sectors.

Thirdly, Vietnam is a potential and large market with political stability and is one of the most successful countries in the world at containing pandemic. With a population of nearly 100 million people, exploiting the domestic market of Vietnam is also considered as a potential business and investment strategy. In particular, while the tightening of trading conditions is applied in many countries due to the political changes and the impact of epidemics, enterprises can take advantage of the domestic market to mitigate the negative effects from outside.

Fourthly, the labor force of Vietnam is young, abundant and well-qualified while the labor cost is considered to be quite competitive in the region.

Fifthly, Vietnam is strategically located in the center of Asia, the flight time from Vietnam to major economic centers such as China, Singapore, Japan, South Korea, Taiwan and ASEAN countries is very short;

The Vietnam market has gradually attracted the attention and interest of foreign investors around the world due to its strengths in economy, society and politics. Therefore, Vietnam will be a worthy destination for investors and FDI companies to invest in at present.