Will Vietnam be able to absorb FDI flow diverted from China?

03-Jan-2019 Intellasia | Vietnamnet | 6:00 AM Print This Post

Economists believe that Vietnam has learned lessons from the 2007-2008 period when Vietnam officially joined the WTO (World Trade Organisation).

Nikkei news on December 16 reported that more textile & garment companies were relocating to Vietnam and Bangladesh to avoid US sanctions against China.

Recently, GoerTek, which makes AirPod headphones for Apple, has asked vendors to shop materials for production to its facilities in Vietnam.

In addition, 9to5mac and Reuters in early December both reported that Foxconn is considering setting up an iPhone factory in Vietnam amid trade uncertainties.

Pegatron and Cheng Uei Precision Industry, both technology firms, are also reportedly considering other destinations, including Vietnam.

The latest report by PwC showed that Vietnam has surpassed China as the economy with the highest capability of attracting FDI (foreign direct investment) next year.

Nguyen Anh Duong from the Central Institute of Economic Management (CIEM) said that there are reasons to worry if Vietnam can exploit the great opportunity.

Vietnam once witnessed a strong FDI capital flow in 2007-2008. The official WTO membership then triggered a strong wave of FDI into Vietnam.

At that time, the State Bank of Vietnam (SBV) had to pump big amounts of dong into circulation to buy foreign currencies which came in masses.

In principle, after spending big amounts of dong to buy foreign currencies, it is necessary to withdraw dong from circulation, and the lateness in doing was the cause of high inflation.

Another issue that Duong attaches much importance to is the capability of localities to absorb capital.

“Local authorities need to upgrade. They need a good labour force, infrastructure conditions and logistics,” he said, adding that if localities cannot satisfy the investors’ requirements, the investors will leave Vietnam, sooner or later.

Duong also mentioned the need for Vietnam to become more selective in accepting FDI.

“In the current conditions, Vietnam has the right to choose FDI projects which best fit Vietnam’s wishes and conditions, rather than agree to accept everything,” he said.

Meanwhile, Tran Toan Thang from NCIF (National Centre for Socioeconomic Information and Forecast) emphasized the readiness of the labour force.

When more foreign invested enterprises (FIEs) arrive in Vietnam, a high number of workers will be needed, which may lead to a labour shortage in some localities.

“This will be a risk for Vietnam,” he said, adding that there are barriers that restrict the labour movement among regions.



Category: Economy, Vietnam

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