How US investors’ positive sentiment towards Vietnam grows stronger?

25-Nov-2020 Intellasia | Hanoi Times | 6:51 AM Print This Post

Vietnam has set to be a bright alternative in Asia for US businesses amid the unprecedented challenges.

Vietnam, one of few countries in the world that have controlled the Covid-19 and reopened the economy early amid global uncertainties, has gained positive sentiment among US investors.

Moreover, the closer relationship has resulted in billion-dollar economic deals as part of efforts to balance the bilateral trade that Vietnam has been beneficiary for years.

In terms of trade, the US-Vietnam trade totalled an estimated $81.3 billion in 2019. The US goods and services trade deficit with Vietnam was $54.5 billion in the same year, according to the Office of the United States Trade Representative (USTR).

Vietnam was the US’s seventh largest supplier of goods imports in 2019 with $66.6 billion in 2019, up 35.5 percent on-year, and up 442.2 percent from 2009. US imports from Vietnam account for 2.7 percent of overall US imports in 2019.

Top exports to the US from Vietnam include phones and spare parts; computers, electronic products, and components; garments and textiles; agricultural products; and footwear.

In terms of investment, in 2019, US foreign direct investment (FDI) in Vietnam was $2.6 billion, down 8.2 percent on-year.

In a latest move, US and Vietnamese firms signed a deal worth roughly $1 billion for a power project during the two-day visit by US National Security Advisor Robert C. O’Brien that ended on November 22.

Over the past one month, the US and Vietnam’s businesses signed four liquefied natural gas (LNG)-to-power deals worth at least one billion dollar each to strengthen Vietnam’s energy security strategy.

Vietnam is one of destinations that US businesses seek alternative production locations, according to Dezan Shira & Associates.

Even before the pandemic, furniture businesses such as Lovesac and Wanek Furniture, affiliated to US supplier and retailer Ashley Home began moving production to Vietnam.

US company Nike now makes most of its shoes in Vietnam while US tech giant Google plans to produce its Pixel smartphones from Vietnam instead of China.

Most recently, US chipmaker Intel, which has already invested $1 billion in Vietnam is looking to increase its investment at the Saigon Hi-Tech Park in HCM City.

Universal Alloy Corporation, a US-based global manufacturer of aircraft components for aircraft companies such as Boeing and Airbus, inaugurated its facility in Vietnam’s central city of Danang earlier this year.

All these factors make Vietnam a ‘trade war winner’ and an ideal place to do business and attract investment. Yet, Vietnam’s gains have not been contingent on deteriorating US-China ties alone.

In addition, Vietnam’s skilled and low-cost labour force, infrastructure, stable government, safe environment, and free trade agreements are what US investors are looking for during this unpredictable time.

This trend is likely to continue for the foreseeable future. And Vietnam is also well placed to capitalise on disrupted supply chains elsewhere due to the pandemic.

While the trade war and pandemic have created enough push factors to encourage manufacturing businesses to relocate, Vietnam’s great challenge now will be how to manage its growth sustainably.

Moreover, before sizing up Vietnam as a potential destination for relocation, US investors must do their due diligence and consider several factors, such as identifying a location, raw materials, sourcing partners, and supply chain logistics.

China-US trade war fuels the sentiment

The trade dispute between the US and China has had a cascading effect on Vietnam. Vietnam’s exporters have seen an increasing demand for their products, especially garments and textiles.

Vietnam has emerged as an alternative to China for investors benefitting from the China plus one strategy that involves investors shifting or expanding to other countries to increase market access.

It is important to note that this was already happening, but the trade war accelerated the process. Dustin Daugherty, head of North American Desk for Dezan Shira & Associates, said “Even prior to the start of the US-China trade war and more recently the outbreak of the Covid-19 pandemic, Vietnam offered the most cost-competitive China alternative for general manufacturing in Asia.

Noted advantages such as a relatively efficient and stable governing structure, regulatory and some cultural familiarity for companies accustomed to doing business in China, highly competitive labour costs, business-friendly tax profile along with generous incentives, and proximity to pre-existing Asian supply chains all recommended Vietnam for foreign investors. These advantages have coupled with significant developments this year to further strengthen Vietnam’s competitive allure for FDI, especially for US business.”

Driven by rising labour costs, the need for diversification and the government’s focus shifting from labour-intensive sectors to high-tech industries, US firms operating in China have slowly shifted their manufacturing activities to Southeast Asia, especially Vietnam.

Due to its geographic proximity, lower wages, skilled labour, trade agreements, and regional connectivity, Vietnam has emerged as one of the most preferred alternatives for manufacturers. Major US firms such as Apple, Intel, Qualcomm, Universal Alloy Corporation (UAC), Nike, and Key Tronic EMS have already moved production lines to Vietnam due to costs associated with the trade war.

All these factors have helped increase trade between both countries since the normalisation of diplomatic relations.

Vietnam considered safe shelter

Vietnam’s control of the pandemic and its continued growth has further cemented its position as a safe business environment compared to others. And US businesses have noticed. Apple has planned to shift significant production of its products including its AirPods to Vietnam.

So far, Vietnam has undergone nearly three months with no local transmission with the total cases of 1,307 and 35 deaths while the respective number in the US is nearly 12.5 million and more than 261,000 deaths.

Vietnam has garnered international praise for its swift and effective response to the Covid-19 outbreak. Vietnam fought the pandemic early, closed its border to foreigners, and imposed social distancing measures on April 1. It lifted these measures on April 22, reopening its economy for business. A recent outbreak in Danang showed that Vietnam is not shy and imposed a lockdown on the city to get a grip on additional cases.

Although the country is not immune to the global economic downturn, its prospects for recovery remain positive and are the brightest among Asian countries. This view was also shared by the financial service firm UBS in a research note.

In the first half of 2020, Vietnam’s gross domestic product (GDP) rose 3.82%, a major fall from 6.97 percent recorded in the last quarter of 2019. Its economy is forecast by international institutions to grow 2-3 percent this year.

Despite being modest, these rates are encouraging considering that Vietnam is one of few countries predicted to deliver positive net growth during the pandemic.


Category: Business, Vietnam

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