Vietnam is in a good position to attract more foreign direct investment (FDI), given its competitiveness and an ongoing supply chain shift to the Southeast Asian region, an expert said.
Suan Teck Kin, executive director at UOB Global Economics & Market Research, was presenting his views Thursday at the Vietnam Economic Scenarios 2024 conference held in Hanoi.
He noted that Vietnam had a record year in 2023, receiving $36.6 billion worth of FDI, up 32% year-on-year, despite external trade headwinds.
The figures indicate that a lot of companies still see Vietnam as an attractive destination over the next five years as supply chain shifts continue with the ongoing regionalization trend, he said.
Citing UNCTAD data, Suan said ASEAN attracted a record high FDI of $222.3 billion in 2022 thanks to the de-globalization and regionalization of supply chains, with Vietnam ranking third after Singapore and Indonesia.
“Friendshoring” activities will see continued FDI inflows into Vietnam and bring further opportunities to businesses and workers.
Given its stable FDI inflows and a young and dynamic population, Vietnam has potential to compete for inward FDI in Southeast Asia as the Malaysian market is maturing while Thailand’s population is aging.
However, with the population aging, Vietnam needs to look to other factors to maintain competitive, by identifying right sectors and solutions to focus on, the researcher suggested.
Suan said Vietnam pulled through a difficult year in 2023, with growth of 5.05%. The country saw a strong rebound in economic growth in Q4/2023 and the momentum will continue into 2024, with a whole-year expansion of 6-6.5%.
In the mid- to longer-term, Vietnam should raise capital spending to improve productivity and efficiency for further upside ahead, the researcher suggested.
New drivers needed
Speaking at the event, Can Van Luc, chief economist at state-controlled bank BIDV, stressed that external conditions are forecast to remain challenging for Vietnam, including slower global growth, lingering inflation, and high interest rates.
Those factors can exert negative effects on Vietnam’s exports, investment, consumption, foreign tourist arrivals, and financial markets, Luc noted.
However, even against that backdrop, Vietnam will remain a bright spot with better growth prospects and controlled inflation, he added.
To beef up growth, Luc suggested that existing drivers be renewed and economic restructuring be accelerated after a long period of setback due to the pandemic and delayed handling of weak businesses and projects.
The government should promote and exploit new drivers such as institutional transformation, which entails the implementation of amended laws on land, housing, real estate business and credit institutions, as also incentives to offset adverse impacts of the Global Minimum Tax.
“[We] need a new legal corridor for new business models and sandbox pilot schemes for them,” Luc said.
Other recommendations included a project to elevate national labor productivity, with particular focus on training a highly-skilled workforce, creating a more conducive atmosphere for innovation; and promoting green growth.