This is the first of many short insight series on the economic trends and opportunities in some of the most promising emerging markets in Asia. Today's inaugural piece will focus on Vietnam - one of the fastest growing in Asia. The ADB and the World Bank both estimates that the Vietnam's economy grew by 6.8% last year.
Why is the Vietnamese economy outperforming other economies similar in size? Brain gain, from incoming Viet Kieu - returning sons and daughters of earlier Vietnamese emigrants, returning in droves to set up business, invest in properties and resettle, is one of the reason. The strong and rising quality of investments into Vietnam, is probably the most important one.
Foreign Direct Investment in Vietnam declined 15% to US$18 billion in 2018 from US$21 billion in 2017, in part due to the uncertainty brought on by the outbreak of the China-US trade war. However, as the dispute drags on, Vietnam looks poised to become one of the biggest beneficiary of this fallout as data from the Foreign Investment Agency showed that FDI into Vietnam in the first two months of this year registered US$8.47 billion, 2.5 times higher than the same period of last year. Companies such as Lenovo Group from China and Swedish furniture giant have both made plans to set up manufacturing as well as logistics facilities in the country.
FDI Breakdown by Source Country
For 2018, lower inflows from Singapore (-$2.3B), Japan (-$1.2B), and the US (-$473M) accounted for the contraction even as inflows from Taiwan, Hong Kong, France and Thailand rose. By country, Japan (38%), followed by South Korea (21%), Singapore (8%) and China (7%) are Vietnam’s largest source of FDI. Chinese FDI into Vietnam totalled $1.2 billion in 2018, $192 million less than 2017, however Hong Kong FDI rose by $388 million from $740 million in 2017 to $1.1 billion in 2018. This may be due to Chinese companies circumventing the tighter outbound capital controls imposed by the Chinese authorities in 2018, by routing it through Hong Kong.
Despite the fall in registered capital, total number of FDI projects rose for the sixth consecutive year to 2,938. This implies smaller average project quantum of $6 million compared to $8.4 million in 2017. Chinese FDI projects rose sharply from 284 to 389 in 2018, resulting in an average project size of $3.1 million compared to $5 million.