Fed rate hikes challenge Vietnam’s FDI attraction drive
International institutions have lowered their global 2023 growth forecasts following the Fed’s interest rate hikes. Experts fear that investment flows worldwide would leave emerging markets for developed countries. The Investor talks with Professor Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises (VAFIE), about possible impacts on Vietnam.

Prof. Dr. Nguyen Mai, Chairman, Vietnam Association of Foreign-Invested Enterprises. Photo by The Investor /Trong Hieu.
Could you tell us about the impact of the U.S. Federal Reserve's (Fed) continuous interest rate hikes - five times in a row since the beginning of the year? Is this a challenge or opportunity for Vietnam?
Inflation has resulted in slow growth in many countries, not only the U.S. and European nations, but also Japan and South Korea. According to economists, the Fed's latest rate hikes will not stop, and between now and the end of the year, the Fed might continue to raise interest rates to a peak of nearly 4%.
This is a high U.S. dollar rate, maintained at 0% then 0.25% for a long time. The latest hikes may hit the world economy this year, next year, and even 2024. Some international organizations have lowered the world’s growth forecast for 2023.
Like other countries, Vietnam will see impacts from the Fed’s rate hikes. The country’s benchmark VN-Index in the stock market has been shaken, remaining in the region of 1,200 points but forecast to go lower, despite earlier expectation that it might return to the milestone of 1,500 points. No one knows the recovery possibility of the VN-Index.
Also due to the Fed’s rate hikes, the U.S. dollar has been gaining against the Vietnamese dong over the past two weeks. According to the most optimistic forecast, from now to the year-end, the Vietnamese dong may lose about 3% against the U.S. dollar. This will have both advantages and disadvantages.
Vietnam’s exports will be encouraged but spending on imports will go up. Even Chinese imports are paid in the U.S. dollar. When input costs go up that way, if Vietnamese exporters can’t negotiate new prices from signed deals, they will see losses.
On September 22, Prime Minister Pham Minh Chinh asked the central bank to consider an increase in regulatory interest rates. The same day, the State Bank announced a series of increases, effective on September 23. Commercial banks then increased their savings interest rates. These will certainly affect credit supply for businesses, especially exporters. The impact may be quite negative, as businesses have gained growth momentum.
Vietnam’s January-September export results are quite good. The Ministry of Industry and Trade predicts that the country would see this year’s import and export growth up 15-16%, reaching $800 billion both ways.
However, compared to other regional countries, the Vietnamese dong depreciates much less thanks to regulator policies and management. Basically, international agencies have predicted Vietnam's macroeconomic situation to remain stable, the highest inflation rate to stay under control at around 4% this year, and its economic expansion to hit at least 6.5%, even 7%, among the world’s highest rates.
The factors, together with our positive balance of payment, will create good conditions for us to enter 2023.

Cat Lai Port in Ho Chi Minh City. Photo courtesy of the port.
Which are the positive signals for 2023?
A positive signal is in a recent survey, with 60-70% of responders, both domestic and foreign companies, planning to expand production and increase investment in Vietnam. Major multinationals, especially leading corporations in technology and services, tend to increase their investments in the country like Intel, Samsung and LG. Some other majors like Microsoft and Apple have also shown interest in business expansion. This shows both operational and potential investors have noticed stability and opportunities in Vietnam.
Vietnam will attract more investments into hot industries like semiconductors, and not just traditional sectors. This means more opportunities for Vietnam to join global value chains in high-tech industries.
In addition, according to some service providers of major multinationals, the localization rate among made-in-Vietnam products has been significantly improved and will increase in the coming time with supply chain participation.
Does that mean we are seeing great opportunities for foreign investment in the global process of shifting investment flows?
The opportunity is there, but there are big challenges. Like it or not, our potential is limited and cannot be compared with the world's powers like the U.S., Europe, Japan, and South Korea. Moreover, all countries are competing with each other. Even the U.S. is seeking to attract foreign investment. Tech giant Samsung has announced an investment of $5 billion to make semiconductor products in the U.S.
Therefore, it is necessary to properly evaluate Vietnam’s potential, and select which products we should invest in. Some Vietnamese corporations and high-tech start-ups can join support industries in order to gradually advance to higher levels.
This can be considered a national issue, an orientation for Vietnamese businesses. It is necessary to overcome weaknesses in policies connecting domestic and foreign businesses, supported by policies requiring large corporations to transfer technology when participating in the supply chain, in both traditional and advanced industries.
A must in catching today’s production shift includes Vietnam offering what major investors expect. The Politburo’s Decree 50 details the task. It is necessary to accelerate the progress to attract more foreign investment, otherwise, by early 2024, we will have no chance.
Vietnam still has a lot of work to do. A few months ago, regulators and experts started to discuss the Global Minimum Tax Rule, then there was information that a special task force would be established to study the impacts of the rule, but the unit has not been formed yet. This will negatively affect Vietnam’s investment environment. By 2024, other countries will have applied the rule, Vietnam cannot catch up with them, it would probably lose a large amount of tax collections and have a less attractive investment environment.
We should take into consideration Vietnam’s net-zero commitments at COP26 in 2021, and signed free trade agreements. Vietnam has to date inked 14 FTA deals. All require us to have new policies to adapt. Turning the challenges into opportunities will make it better for Vietnam’s exports worldwide, showing the country’s responsibility to global risks.
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