New-generation free trade agreements have provided fresh impetus for investors from Europe and developed countries to expand their operation in Vietnam and invest in the country’s hi-tech initiatives, experts said.
Foreign hi-tech investment supports Vietnam’s industrial digitalization
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According to Lindsey Ice, senior economist from economic analysis and forecasts provider Focus Economics, as most of Vietnam’s current FDI largely originates from Asian countries, the presence of investors from Europe and advanced countries like Australia and Canada will grow – and these trade pacts will provide fresh impetus.
Moreover, Ice said, while recent FDI in Vietnam has been primarily channeled into manufacturing or real estate, other emerging sectors represent untapped opportunities for foreign companies to reap profitable returns on investment. Indeed, one sector that has already begun to allure funding is clean energy, particularly natural gas and wind development.
Regarding the EVFTA, according to Nicolas Audier, co-chairman of the European Chamber of Commerce in Vietnam, the trade deal means that Vietnam can become an investment hub for European companies in the wider Southeast Asia region.
“European and Vietnamese markets complement each other, with hi-tech European equipment and know-how in industrial digitalization helping to support the growth of Vietnam’s manufacturing sector over the last few decades, and this will increase even further once the EVFTA comes into effect,” Audier said.
The same trend will also come with the CPTPP, experts forecast, saying Vietnam is certain to see better-quality foreign investment under the deal.
According to Pham Hong Hai, CEO of HSBC Vietnam, the CPTPP gives priority to cross-border investment, meaning Vietnam will be in a more favorable position to attract FDI from other members, especially those that are yet to strike FTAs with the country, like Canada and Mexico.
Echoing Hai, Le Thai Ha, senior lecturer in Economics at RMIT University Vietnam, said the favorable business environment brought about by the CPTPP will attract more foreign investors to Vietnam, especially from CPTPP member countries whose investments in Vietnam are relatively limited, such as Australia, Canada, and New Zealand.
Challenges ahead
However, to capture the high-quality investment inflow, Vietnam must improve its competitiveness significantly as it ranked 77th in the Global Competitiveness Report 2018, a position quite low compared to other regional countries and can be attributed to its high business transaction costs, low-quality human resources, and weak innovation ecosystem.
“The major challenges for Vietnam in attracting more high-quality foreign investment are the low quality of its growth, the poor competitiveness of its economy, the low production capacity of its domestic enterprises, and the shortage of skilled workers,” Ha from RMIT University Vietnam noted.
In the long term, Vietnam’s cheap labor strategy could hamper the national economy and the quality of the workforce. Based on the Asian Productivity Organization (APO)’s Productivity Database 2017, labor productivity in Vietnam is among the lowest in Asia, surpassing only Bangladesh, Nepal, Cambodia, and Myanmar.
The government therefore needs to improve the quality of the country’s workers, with a special focus on enhancing student employability, to allow for higher productivity in the next few years, Ha suggested.
Experts also found that not all foreign companies in Vietnam provide training to improve working skills and instead simply attract workers from their rivals, which they deemed worrisome and suggested that in this context, the government should prioritize high value-added FDI projects and enterprises which are committed to training to promote labor productivity.
