slowing economic growth and rising labor costs encroaching on the profitability
of traditional Chinese manufacturing operations, Vietnam has a emerged as a destination
of choice for its low costs, receptive governance, and increasing integration
with key trading partners. Conjoined, these factors have and will continue to
grow Vietnam as a hotbed of manufacturing and position the communist nation as
an ideal location for China-plus one oriented production.
light of recent Free Trade Agreements, notably the Trans-Pacific Partnership
and FTA with European Union, Vietnam is well positioned to allow investors to
utilize its cheap workforce and close proximity to existing Asian based supply
recent years, Vietnamese growth has reached record heights, recording a 7.01
percent rate of growth in the fourth quarter of 2015 from a year earlier,
according to data released by the General Statistics Office. Driving these
gains has been a strong uptake in Foreign Direct Investment (FDI), which surged
to a record of US$ 14.5 billion in 2015. According to Nguyen Tan Dung, Prime
Minister of Vietnam, these “figures indicate that Vietnam has become a
destination of choice for foreign investors”.
a number of rising sectors in Vietnam, manufacturing distinguishes itself with
the largest share of the total investment received. In 2014, FDI projects
licensed represented US$ 15.5 billion out of a total amount of US$ 22 billion,
that is to say 70.72 percent of new FDI.
success is sustained by low labor costs and a growing consumer market. The
labor force (over 15 years old) amounts to more than 53 million people and
remains cheap. In 2015, the average monthly wage in the manufacturing sector
was around US$ 190, much lower than Malaysia or China (around US$ 650) and
lower than its neighbors Thailand, the Philippines, and Indonesia.
Vietnam benefits from a favorable political environment. The communist government
has eased restrictions on foreign investment and is slowly opening its borders.
Through incentives, the state has established priority sectors such as
manufacturing of high-tech products, research and development, knowledge-based
services, processing and manufacturing, and infrastructure projects. It has
also created priority geographical regions, with difficult social and economic
conditions, and more than 299 industrial zones (IZs) and export processing
zones (EPZs) as of July 2015.
to these competitive advantages, Vietnam has been considered as a reliable
substitute to China. Nevertheless, some manufacturing sectors are more vigorous
to its central location in Asia and proximity to regional shipping routes, many
manufacturers entering Vietnam are export focused. Foreign investors can
benefit from many incentives and under many circumstances can be exempt from
import duties on goods brought into the country for their own use if they
cannot be procured locally. This includes all equipment, machinery, components,
and spare parts for machinery and equipment, raw materials, inputs for
manufacturing, and construction materials. It should be noted that most export
duties are also exempt.
However, the country is still seen as highly
corrupt, ranking 112th out of 177 countries by the Transparency International
Corruption Perceptions Index in 2015. Furthermore, the legal environment
remains complex, with a slow and bureaucratic government, restrictive labor
policies, and land use limitations. Nevertheless, Vietnam keeps on
restructuring its decision-making process and introducing more laws favorable
to FDI. For instance, it has recently opened its real estate market to
foreigners, as well as ironed out some caps in public companies, allowing
foreign investors to invest in its promising industries.