US investments set to continue flowing to Vietnam

Over the years, the US – Vietnam trade relations have been progressing strongly towards greater sustainability. Vietnam has so far received four waves of investment capital from the US since 1991, while experts expected more to come given a number of favorable conditions.

General Electrict plant at Hai Phong city. Photo: Le Sang.

Statistics from the Ministry of Planning and Investment show that the US has been Vietnam’s 11th largest investor with over 1,000 valid projects worth a combined US$10 billion.

However, experts estimated the actual figure could rise to US$14 – 15 billion, due to the fact that multinationals such as Intel, Coca Cola, Procter & Gamble, Chevron, Conoco Phillips, among others, have been investing in Vietnam via their subsidiaries or affiliates in third countries or territories, including British Virgin Islands, Singapore, and Hong Kong.

Additionally, major US tech firms such as Apple, Google, and Dell are investing in Vietnam via original equipment manufacturers or original design manufacturers under their own supply chains.

Foreign direct investment (FDI) inflows, including those from the US, have played a big part in ensuring Vietnam’s economic expansion at a positive rate of 2.62% in the third quarter and 2.12% in the first nine months of 2020.

These rates, despite being Vietnam’s 10- year low GDP growth, are still considered an impressive achievement as the world’s economy is falling into a recession.

While the US presidential election has not reached a final outcome, many mainstream media outlets have predicted Joe Biden to be the President-elect. As such, experts suggested the US under Biden would rejoin the Trans-Pacific Partnership (now renamed the Comprehensive and Progressive Agreement for Trans–Pacific Partnership or CPTPP), while US current trade and investment policies with Vietnam would remain unchanged.

Vietnam, with its large population of over 90 million and strategic location in the Asia – Pacific region, is fast becoming a major part in superpowers' policies, including the US. Meanwhile, a possibility of the US rejoining the CPTPP would continue to help create advantages for foreign-invested firms operating in Vietnam, including those of the US.

As a result, Vietnam is set to continue to be an attractive investment destination for high quality FDI, according to lecturer Nguyen Xuan Thanh at Fulbright University of Vietnam.

Mr. Thanh said 25 years of the Vietnam - US relations have witnessed four US administrations with Democratic and Republican presidents alternately taking office. During this time frame, the bilateral relations have made significant progress under the comprehensive partnership, ranging from politics, foreign policies, economy, trade, among others, regardless of the party in the presidency.

The US under Barack Obama’s pivot to the Asia–Pacific has not been changed since. Therefore, Vietnam will always play a significant role in this new order, Mr. Thanh asserted.

Selective of FDI

The majority of US investment capital is concentrated on Vietnam’s hospitality and beverage industries, which account for 46% of the US’s FDI commitment, followed by manufacturing and processing with 31%.

So far, US investors are still looking for new opportunities in Vietnam, especially in the fields of retail, consumer products, fast food, hi-tech. Notably, there has been growing investment from the US in renewable energy, agriculture, infrastructure, healthcare and education.

To date, major US names such as Intel, Microsoft, Jabil, Microchip, IBM, P&G, Coca-Cola, PepsiCo, or Boeing, Chevron, AIG, Exxon Mobil, General Electric (GE) have all made their presence in Vietnam.

The trend is set to continue, as a representative of the US – ASEAN Business Council said many tech firms in Silicon Valley are exploring opportunities of moving their production chains of electronic products to Vietnam, either via direct investment or a third party.

Besides, US investors often prefer investment under forms of wholly-owned or join-venture, and no project under the form of public-private partnership (PPP) has been carried out to date.

Now with a new PPP law in place, this could pave the way for more US investments into Vietnam.

Expert Pham Thi Thanh Binh from the Institute of World Economics and Politics under the Vietnam Academy of Social Sciences said as US firms have strong expertise on technology and corporate governance, these advantages, combined with Vietnam’s own strengths, would bring substantial benefits for all parties involved.

Vietnam is promoting US investment in major infrastructure and hi-tech projects that are set to bring high-added value and have significant meaning to the country’s science – technological development, added Ms. Binh.

Requirements for changes

Uncertainties surrounding relations among the US, EU and China would accelerate US firms’ relocation to the Southeast Asian region, including Vietnam, said economist Tran Thanh Hai.

However, Mr. Hai suggested US President-elect Biden could adopt a more flexible approach in the US – China relations compared to that of sitting President Donald Trump, which could in turn ease the pressure for US firms to exit China, not to mention fierce competition from other ASEAN countries and India for the global investment capital.

To remain as a front-runner in attracting FDI, Vietnam should focus on developing high quality human resources to master new technologies during the Industry 4.0 era, he noted.

Former World Bank Country Director to Vietnam Victoria Kwakwa stressed one of Vietnam’s attractive points for foreign investors is the country’s strong efforts in improving the business environment, and suggested Vietnam should continue to push for administrative reforms.