Discovering why foreign companies invest in the Vietnam market is booming and why you should invest in the Vietnam market. Vietnam has made rapid development and the economy is expected to overtake many Southeast Asian countries next few years. When it comes to investing in Vietnam, from the early 90s up until now, the Vietnam market has brought in a strong inflow of foreign investments, with the average GDP surpassing 7% each year. Vietnam is one of the world's fastest developing economies, with several positive tailwinds. Nonetheless, relatively few Western investors have a position in the huge, inventive tiger nation. There are several reasons, as we shall explain in this piece, why is the moment to gain exposure to Vietnam.
Vietnam might be on the verge of a generation-long bull run comparable to the 2000ss’ emerging market bull run. Because the country is still regarded as a "frontier market," it is still in its early stages as an investable market. This is fantastic news for risk-averse investors who trust in the future of the country.
The reason why you should invest in the Vietnam market for many years to come
Attracting foreign direct investment (FDI) has always been a key part of Vietnam’s external economic affairs. Here are some of the many reasons why investing in Vietnam is something you should prioritize.
1. A golden population structure country
Vietnam is the 15th largest country by population with 99 million people, and 75% of its population is working age. By 2030, the population will further grow to 105 million people. When a country’s population is growing, it means that the demand for manufactured goods will rise as well. Vietnam has a golden population structure, the most balanced stage of growth in which the share of the labor force is double the number of dependents. 75% of the population is of working age, contributing to Vietnam's GDP growth, which is the fastest in Southeast Asia.
2. Vietnam’s promising workforce
Vietnam has one of the largest labor markets in ASEAN, with over 60 million people (76% of the total population). This labor force of about 60 million people is rising by over one million people every year.
Generation Y, born between 1976 and 1995, accounts for 35% of the Vietnam worker supply. While Vietnam still needs highly qualified personnel, it has a youthful, vibrant workforce that’s ready to fill the skills gap. Almost 95 percent of the labor force is literate, and more than 88 percent attended secondary school, with 5 percent competent in English and more than 10 percent regarded as highly skilled. 42 percent of this workforce is employed in agriculture, 35 percent in the service sector, and 23 percent in industry.
One of the factors making Vietnam a desirable choice is its competitive minimum wage in comparison to other nations. Minimum wages in Vietnam range from US$140 to US$202 depending on area. So, it’s a very attractive reason for any company to invest in the Vietnam market.
3. Strategically great location in Vietnam
Vietnam's geographic location in Asia and proximity to important regional shipping routes provide excellent conditions for Vietnam-based businesses to be export-focused in general. It has almost 3,200 kilometers of coastline, 114 seaports (January 2022), and various deepwater port choices along its shores. When considering Vietnam as a China +1 destination, these benefits are amplified.
Furthermore, as a China +1 option, Vietnam's closeness to China, across both land and sea borders, has positioned it as a potentially favored alternative manufacturing site for many corporations. Cities like Hai Phong in Vietnam, for example, are only 865 kilometers from China's industrial capital Shenzhen. Manufacturers have been able to minimize costs and avoid creating disruptions or delays to current supply chains by locating manufacturing sites near established hubs in China.
Integration of foreign-invested industries into China supply chains is facilitated by the fact that many Vietnam factories are owned by China, Taiwan, and South Korea, which have developed solid trade channels and conditions. Transferring existing checklists, standards, or other product information from such locations has been done in numerous circumstances.
4. Prospering economy
Vietnam's 2022 economy enjoyed a resurgence with growth reaching 8.0%, beating the 7.1% average pace of 2016 - 2019. This expansion was aided in part by a low base effect. That’s fueled by a rebound in domestic private consumption following COVID-19 and strong performance in export-oriented industries. However, the public sector's contribution to growth has been restricted as a result of poor implementation of public investment initiatives. While employment returned to pre-COVID-19 levels in 2022, weakening global demand slowed orders and exports in the fourth quarter of 2022, resulting in increased labor market challenges. Inflation in the Consumer Price Index (CPI) averaged 3.1 percent. Vietnam's financial sector is expected to be under pressure in 2022, while fiscal balances are expected to be in excess.
GDP growth is predicted to drop to 6.3 percent in 2023, reflecting internal and global constraints. Growth in the services sector will slow as the post-COVID-19 base effects fade. Domestic demand will be the primary engine of growth, which may be hampered by higher-than-expected inflation in 2023. With foreign demand weakening, the contribution of net exports will impact growth. The economy is projected to gain from the partial execution of the 2022-2023 Economic Support Program's capital investment. A flexible monetary policy, closely integrated with fiscal policy goals, would aid in keeping domestic inflation under control.
Therefore, more industrial sectors are appearing, meaning greater business opportunities.
5. Supportive Government Policies
The Vietnamese government is committed to creating a fair and attractive business environment for foreign investors that want to invest in the Vietnam market, and constantly improving its legal framework and institutions related to business and investment. The government has been working hard on restructuring the economy and its growth model, as well as enhancing national competitiveness.
For instance, multinational companies can enjoy tax exemption in the Vietnam market including import duty, corporate tax, and land use tax if they invest in healthcare or high-tech sectors. A foreign investment amount of 27.72 billion USD (2022) was recorded with the implementation of the Vietnamese government’s policies.
6. Ease of doing business
Vietnam is ranked 70th out of 190 economies in the World Bank's Doing Business 2020 survey.
Meanwhile, US News and World Report placed Vietnam seventh out of 78 nations in which to establish a business in 2021, up 5 ranks from the previous year. This indicates Vietnam's successful handling of the epidemic and quick ongoing development.
Vietnam remains a magnet for foreign direct investment (FDI) and economic growth, exceeding 2% GDP growth in 2021 and on track to meet a 6.5% GDP growth objective in 2022.
Vietnam has a very stable government that sets strategic direction and makes important policy decisions. The government has tried to enhance policies, labor legislation, and its standing as a prominent ASEAN area destination for FDI. It continues to emphasize infrastructure investment and is not afraid to turn to nations outside of ASEAN for growth. The government has also invested in industrial zones, which are likely to grow as foreign investment continues to flow in.
7. Favorable Trade Agreements
Vietnam is involved in several trade agreements with many countries, particularly with its Asian neighbors. The country is an important member of ASEAN and one of ASEAN’s objectives is to lower the intra-regional tariffs.
Aside from the obvious benefits of increasing commerce with other nations and making it a more appealing investment location for exporters and importers, there are several strategic advantages for Vietnam's growth.
Free trade agreements will allow Vietnam's economy to continue shifting away from low-tech manufactured items and essential goods. Furthermore, they help Vietnam approach more sophisticated high-tech goods such as electronics, equipment, cars, and medical gadgets.
This can happen initially by increasing the country's export competitiveness by diversifying its sourcing partners through wider trade networks and lower purchases of intermediate products from partner nations. Second, through collaboration with international enterprises providing the necessary expertise and technology to make the transition to greater value-added production.
8. Vietnam has a lot of progressing infrastructure
With the growth of the economy, it is almost certain that Vietnam is experiencing a fast-progressing infrastructure. The Vietnamese government has allocated a big sum of money to invest in the Vietnam market’s infrastructure in recent years: highways, hospitals, international airports, new ports, etc.
The most important infrastructure is the Vietnam North-South Expressway is being built and will be complete next few years. Long Thanh international airport is being constructed and will complete soon.
Those improved infrastructures mean transportation and shipping within Vietnam can be more effortless and efficient. This creates many investment opportunities for foreign companies as the Vietnamese government has been collaborating with multinational companies in developing the new infrastructure here.
Conclusion
Shortly, Vietnam’s strategy for foreign investment will give priority to attracting quality and efficient capital flows to Vietnam’s demand for investment cooperation. So, the Vietnam market is still an engaging place for foreign companies, who are intent to invest in the Vietnam market.
Source: Internet
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