A combination of its low-cost labour base, the raft of incentives Hanoi has introduced to encourage international firms to set up high-tech product manufacturing hubs and the 12 free trade agreements (FTA) it has signed with its trading partners around the world has seen Vietnam emerge as one of Asia’s most important low-cost manufacturing bases. According to a new report from the Economist Intelligence Unit (EIU), Vietnam is now on par with India and China and by some indicators – including foreign direct investment (FDI) policy and foreign trade and exchange controls – is now a better place than either for business to establish a springboard for expansion into Asia.
The EIU’s findings corroborate those of UNCTAD’s 2020 World Investment Report which calculated that 2019 FDI inflows into Vietnam’ amounted to $16.1bn, up from $15.5 bin in 2018. While inward investment has traditionally been directed towards its light industry base, Vietnam’s heavy industries, real estate and tourism sectors are now increasingly attracting overseas capital as well. Businesses and investors from South Korea, Singapore and Japan have been the most active; just this week AI Inside, a Japanese start-up that specialises in converting paper documents into electronic data using artificial intelligence, announced that it was expanding its operations into Vietnam.
The UNCTAD report was compiled too early to take into account the impact of the EVFTA, Vietnam’s FTA with the EU which will eventually remove almost 99% of customs duties between bloc and country on a number of goods including machine and equipment, car parts, alcoholic beverages, meat, chemicals, textiles, milk and dairy products, and pharmaceutical products. Vietnam will lift 49% on tariffs on imported goods from the EU and will phase out the rest over a period of 10 years. For its part, the EU will lift 85% of tariffs applicable to goods originating from Vietnam and will phase out the rest over the course of seven years.The EVFTA will also open up market access for services between Vietnam and the EU.
At the very end of last year days before Brexit officially came into force, Vietnam also signed an FTA with the UK. Trade between the two countries has been rising annually by an average of 12% over the past decade and reached $6.6bn in 2019. The separate deal is expected to boost Vietnam’s exports of garments, footwear products, rice, seafood and wooden furniture.