What is Vietnam’s FDI outlook in the long term?

Thanks to a USD0.61bn paper manufacturing project Kraft Vina, newly registered capital in the processing sector hit a 6-month high of USD1.35bn, accounting for 56.3% of total registered FDI.

Going into details, new FDI registration rebounded to a 4-month high of USD1.20bn in August, up 341.1% YoY, which is a marked improvement after several months of subduing. Additional capital registered for existing projects also saw a slight advance compared to recent months, posting USD0.44bn and up 174.4% YoY. Most noticeably, the amount for foreign share purchase to the highest level in 2021, at about USD0.76bn and 161.9% higher than the same period last year. As a result, total registered FDI accumulated to USD2.40bn in the month, a 5-month high since March and up 232.4% YoY.

On the contrary, FDI disbursement remained depressed for the second month under lockdown in FDI-leading provinces, including HCM City, Binh Duong, Dong Nai, and Long An. The disbursement amount dropped to the lowest level since January 2017 (excluding Tet’s months in a 2017-2021 period), reaching only USD1.08bn,  down 12.2% YoY.

Thanks to a USD0.61bn paper manufacturing project Kraft Vina, newly registered capital in the processing sector hit a 6-month high of USD1.35bn, accounting for 56.3% of total registered FDI. Investment registration into the real estate sector also picked up in the month with USD0.42bn, the highest level since July last year, equavalent to 17.4% of total FDI. The retailing sector also posted about USD0.1bn registered capital in August (4.3%), although this sector has been severely impacted by the outbreak. Besides, it is noticing that about USD0.32bn investment was registered in the transportation sector via share purchase. FDI inflows into other sectors remained insignificant in the month.

There is a structural change in FDI inflows in August with Japan and European investors becoming the top 2 largest partners in the month. In which, Japan, with a USD0.61bn “Kraft Vina” paper manufacturing project, was the largest investor, posting USD0.68bn in registered capital and accounting for 38.9% of the total. Furthermore, investors from Netherlands and Cayman Islands (classified as European partners) invested about USD0.29bn and USD0.22bn via share purchase. In total, European investors made up about 36.0% of the total with USD0.63bn registered capital.

Investment from both China and Hong Kong was slowing down in August, approximately USD0.16bn registered capital from each one, followed by Taiwan investors with USD0.15bn. Regarding ASEAN partners, investment inflows from Singapore were slowing down in recent months in contrast to its peak during 4Q20 and 1Q21. It just posted about USD0.29bn registered capital in August (16.9% of total), while other ASEAN partners were nearly inactive.

From Kis Vietnam’s view, the ongoing pandemic has posed a more serious threat to the FDI outlook than initial FDI data can portray. FDI companies in the processing sector are facing tremendous pressure in production activities under the “three-on-the-spot” condition. Recently, Toyota carmaker, Adidas & Nike sportswear giants, etc., are the latest names that have voiced out the COVID-19 situation in Vietnam could potentially disrupt their global supply chain.

Back in the early days of COVID-19 origins in China, under potential disruption in production in China, a shift in the global supply chain from China had actually been taking place, and Vietnam was then among beneficiaries. “Once Vietnam’s position as a global manufacturing powerhouse is vulnerable under foreign investors’ eyes, it could do prolonged damage to Vietnam’s FDI outlook in the long term”, Kis Vietnam stressed.

Vietnam remained at the bottom in Nikkei’s list of 121 countries in dealing with the pandemic as of August 2021, worse than any manufacturing hubs in the region, including India, Bangladesh, Indonesia, and Thailand, etc. Meanwhile, business conditions in Vietnam are also severely deteriorating under a survey from European business leaders in Vietnam, although it just partly reflected the severity of the situation in an early phase of strict lockdown (as of 2Q21).

However, Ms. Dorsati Madani, Senior Economist at the World Bank Viet Nam said that FDI investors would still have confidence in the prospects of the Vietnamese economy for several reasons. "Vietnam is an economy that grew in 2020 by 2.9% when a majority of other countries experienced severe economic contraction. That is a major sign of resilience and economic strength, so the fundamentals of the economy are solid. In the first 6 months this year, the economy posted robust economic growth. The slowdown in economic activities in Q3 is clearly related to the social distancing policies", she stressed.

In its latest Taking Stock report, the World Bank estimated Viet Nam’s GDP to expand by about 4.8 percent in 2021. Vietnam's GDP is forecasted to continue recovering in the next years. So, many experts said Vietnam would remain a bright spot in FDI attration in long term.