Updated: Aug 17, 2020
Samsung has decided to close its last factory located in China for the benefit of Vietnam. Panasonic is leaving Thailand to produce in Vietnam. Fourteen other Japanese companies have planned to swap China for Vietnam.
The country made headlines for its success in containing the virus. The Vietnamese government's determination to fight the epidemic has received strong support from foreign investors. After 99 days of calm, the first new case has been detected. Should foreigners reconsider their decision to invest in Vietnam?
Vietnam has become an attractive investment destination, mainly due to its competitive advantages, significant reform efforts, and effective anti-COVID-19 measures.
A trade war that benefits Vietnam
The trade war between the United States and China has pushed foreigners to invest and/or relocate to Vietnam. This is the reason why Samsung is closing its factories in China, as the situation is considered too risky and has become too expensive. Over the same period, the volume of U.S. goods imported from Vietnam in 2019 increased by 35.6% while goods imported from China decreased by 16.2%.
Economic forecasts suggest that Vietnam will be the country with the highest economic growth in 2020 among ASEAN countries. The country is forecasting economic growth of 4.8% in 2020, despite the situation, and anticipates a rebound in growth of up to 6.8% in 2021.
A strategic location
Located in the center of the ASEAN zone and bordered to the north by China, to the west by Laos and Cambodia, Vietnam opens to the east and south to the East Sea and the Pacific Ocean.
As a reminder, since its liberation, Vietnam has been trying to open itself to the countries of the world by signing various agreements:
Member of the ASEAN zone since 1995
Signature of AFTA in 1996 and APEC in 1998
Signature of the bilateral trade agreement (BTA) with the United States in 2000, leading to a 120-fold increase in the volume of trade between the two countries in 20 years
Considerable increase in its growth since joining the World Trade Organization (WTO) in 2007
Signature and ratification of the Trans-Pacific Partnership (TPPT) in 2018 creating a free trade area between eleven countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam
European Union Free Trade Agreement (EVFTA) signed in 2019 and ratified in 2020 reducing customs duties between the European Union and Vietnam by 99 points within 7 to 10 years
Opening up to foreign investment
The Vietnamese government is constantly improving and facilitating foreign investment:
Reduction of corporate income tax or tax exemption
Exemption from import duties, e.g. for raw materials
Reduction or exemption of land rent and land use tax
Facilitation or exemption of visa applications
A growing population and a young and dynamic demography
With 95 million inhabitants, the Vietnamese population is one of the largest (14th) worldwide. It is expected to reach 105 million by 2030 (Worldometers). Moreover, 50% of the population is 25 years old or younger and the Vietnamese middle class is growing faster than that of any other country in Southeast Asia.
There is no minimum capital requirement for most industries in Vietnam. The only obligation is to pay in full the amount of capital you have indicated within 90 days of registering your business. Also, labor costs are relatively low, about one and a half times cheaper than in China.
In conclusion, Vietnam remains a leading destination for foreigners wishing to invest despite the current situation.