OPPORTUNITIES AND CHALLENGES OF INVESTING IN VIETNAM

For a variety of reasons, Vietnam is attractive to international investors: strategic location, a large workforce with low labor costs, and a relatively open FDI environment, to mention a few. However, due to the pandemic breakout in 2021, which resulted in severe limitations and supply chain disruptions, international investors may be unsure whether 2022 is the proper moment for a big investment.

In fact, in recent years, dozens of international corporations and world-renowned investors turned to Vietnam to seize various business opportunities the country has to offer. Let’s find out what are the top advantages & benefits of investing in Vietnam:

OPPORTUNITIES FOR INVESTING IN VIETNAM

Strategic location 

Vietnam has a lot of geographical upsides that mark it as the epicenter of Indochina. Thus, it is one of the strongest members of the ASEAN council, the coastline of Vietnam is long and it is also close to various international shipping routes as well. Highly convenient for businesses that deal with high amounts of imports and export. 

Steady economic growth

Vietnam’s steady economic growth at over 6% since 2015 makes it one of the fastest-growing markets in the world, buoyed by rising domestic demand, booming foreign direct investment, and the country’s increasing attractiveness as a global export hub. Hence, Vietnam’s economic potential is one of the country’s strongest investment attractions. According to the European Chamber of Commerce in Vietnam, 2021 Q1 GDP growth has seen a promising increase at 4.48%, compared to its 2020 counterpart at 3.68% (EuroCham Business Climate Index, 2021).

Highly beneficial trade agreements

Due to its metro political nature, there are a lot of highly beneficial trade agreements in place that will aid your business, both financially and by increasing trade privileges, these are the most significant ones in the current climate: 

• ASEAN Comprehensive Investment Agreement
• ASEAN Trade Free Area
• EVFTA
• WTO
• RCEP

Infrastructure developments

Vietnam just like any other major city is equipped with a healthy and vast transportation network and is ever improving. In 2019, Vietnam was reported to have spent 5.7% of GDP on infrastructure (ADB) – the highest in Southeast Asia, and the whole infrastructure investment that is projected up to 2030 requires an estimation of $480bn. On top of that, there is also another upcoming highway project to be completed by 2030 from North to South. 

Growing Population & competitive labor cost

The total population of Vietnam reached 96.5 million in 2019 and the estimates are to increase to 98.2 million by 2021. This "Golden Population Structure" with a young and potential labor force provides Vietnam a unique advantage to push the economic growth.  

On trend with industry 4.0, the workforce is gradually changing towards the employment industry, manufacturing, and services from agricultural. Remarkably, the country’s average wage cost is much more competitive than those of neighboring countries like China. 

The aforementioned are only a part of all advantages that the Vietnam market holds. However, there are still some risk factors that need to be assessed before making final investment decisions.

INVESTING CHALLENGES IN VIETNAM 2022

​Limited sub-vendors

Not likely in China, sub-vendors in Vietnam are limited, manufacturers still need to import machines or materials from other countries. The accommodation for workers and experts in the surrounding industrial areas is limited. 

Infrastructure Constraints

Infrastructure for logistics is still developing with high logistics costs, currently accounting for about 20% of the country’s gross domestic product. Transport and information technology infrastructure is still weak and inconsistent, making multimodal transport services difficult. 

Legal Risk Analysis

For big projects, it takes time to obtain an investment certificate. Vietnamese laws are often revised by different agencies within the Vietnamese legal system. It is quite difficult for foreign investors to understand all the provisions of the law. 

About Taxes

Taxes can be confusing sometimes, especially when it comes to foreign investment, there are a few items to keep in mind, enterprise income tax, value-added tax, special consumption tax, and import and export duties. Taxation is one of the most cumbersome business processes in Vietnam as it requires significant time and money from foreign investors. The details of each tax as well as possible tax exemptions are all listed in the Investment Proposal.

Lack of skilled workers

The lack of skilled labor has become an increasingly obvious barrier to economic growth in value-added exports such as high-tech goods. According to The Global Talent Competitiveness Index (GTCI), Vietnam ranks 87th amongst 119 countries in terms of its ability to attract, develop, and retain talent. Currently, around 40% of FDI firms in Vietnam find it difficult to recruit skilled workers.

So far, due to the COVID-19 outbreak, the official Q1 results published by the General Statistics Office of Vietnam appear to confirm the economic slowdown resulting from the COVID-19 outbreak. Although tourism and hospitality have been the most heavily affected sectors, Vietnam’s exports have nonetheless been able to marginally exceed their Q1 2019 levels, growing slightly on a year-over-year basis.

Investor takeaways

Indeed, there are multiple countries to choose from when it comes to foreign investments. However, with the improving international relations with the EU and neighboring countries, Vietnam has become one of the most advantageous countries with impressive growth margins.

VICO LOGISTICS have partnered up with our investment agency to provide complete manual for businesses interested in expanding or relocating to Vietnam. This guide intends to provide complete insight into Vietnam’s economy and development potential, as well as how VICO Logistics service will be able to simplify your process of expansion in Vietnam.
We offer logistics and supply chain solutions for all clients & factories across China and Indochina.    If you are in need of assistance with matters regarding investment in Vietnam, let VICO Logistics be your logistics partner every step of the way to your success.

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