Vietnam to see new quality US investment wave following relationship upgrade

The recent upgrade of Vietnam-U.S. ties to a comprehensive strategic partnership is expected to ignite a new wave of investment from America in the Southeast Asian country, which has proven its resilience during the Covid-19 pandemic and global economic doldrums, experts have said.

Obvious economic benefits

The Vietnamese economy is poised to benefit a lot from the upgrade of bilateral ties with the U.S. during President Joe Biden’s visit to Hanoi on September 10-11, banking expert Nguyen Tri Hieu told The Investor.

Hieu expected stronger investment flows from the U.S. while Vietnamese goods will likely enjoy wider access to the world’s largest economy.

Bilateral trade has experienced an exponential increase from $450 million in 1994, when the U.S. lifted its trade embargo on Vietnam, to $123 billion last year, Vietnamese official data shows. The U.S. has been Vietnam’s leading trade partners for years, accounting for nearly one third of the latter’s exports.

American businesses have committed to invest $11.8 billion in Vietnam to date, ranking 11th among the largest countries and territories investing here. In the eight-month period through August, the U.S. jumped to eighth position.

Investment from the U.S. will increase, especially in high-tech fields such as semiconductors and artificial intelligence. In addition, the environment will be a magnet for U.S. money, helping the Vietnamese government fulfil its commitment to net zero emissions by 2050, Hieu commented.

Ho Chi Minh City-based economist Dinh The Hien pointed out that the U.S. and China are the biggest buyers of Vietnamese goods. Of the two, Vietnam records massive trade surpluses with the U.S. each year, in contrast to China.

The U.S. market is highly sophisticated and Vietnamese exports need time to conquer it. On the other hand, American businesses are cautious about investing in the country and need government guarantees, but not because Vietnam is unattractive to them. A spate of U.S. corporations are present in Vietnam, but their investments are not significant yet, except for chipmaker Intel, Hien said.

The economist reckoned that the recent upgrade of bilateral relations will boost economic exchanges. In the first place, it will open up export opportunities, especially for those already shipping products to that market, and new staples of higher value.

“As the whole world seeks to market their products to the U.S., the winners will be those that offer goods of high quality and standards. Therefore, we need to take advantage of the upgraded ties,” Hien noted.

Secondly, Vietnam needs big investors from the U.S. and elsewhere in the world as they supposedly create higher value, transfer technologies, and forge connections with Vietnamese companies in their supply chains.

Following the upgrade of diplomatic ties, Vietnam is likely to attract more U.S. investors in the fields of infrastructure and electronics, translating into a new quality foreign direct investment wave, Hien said.

The benefits for Vietnam will be numerous, including an increase in medium and highly skilled workforce with more income and direct integration in supply chains, the economist added.

Improvements in investment climate needed

To accommodate this new investment wave, Vietnam needs to progress in a wide range of areas, Hien said. The first is improved infrastructure, with faster and effective deployment of development plans already in place.

Secondly, Vietnam needs to deal with the lack of skilled laborers, because many universities only care about the number of students. Therefore, they should focus more on training a high-quality labor pool to meet the demands of U.S. investors.

Thirdly, stable financial markets should be prepared, with upgrades to financial systems to seize new opportunities.

Moreover, businesses in Vietnam need to move up in the value chain and pay particular attention to green transition in order to join demanding supply chains.

For his part, Hieu recommended Vietnam make changes to a number of issues as it has already done when joining new trade agreements. Besides institutional reforms, Vietnam’s legal corridor needs to be relaxed and clear of overlaps.

Vietnamese companies need to treasure their credibility when doing business with foreign partners and be consistent when making decisions, Hieu added.