Vietnam passes China to become most attractive destination for FDI

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Vietnam has exceeded China to become the most attractive destination for investment in production while the United Arab Emirates surpasses India to become an ideal place for investment in services, according new survey of emerging markets by Price Waterhouse Coopers.

According to The Sunday Times, the index assesses 20 prominent emerging-market locations on the basis of “reward” factors, including production costs, size of market, taxes, transport costs and tariffs, and “risk” factors, largely defined by bond-market risk premiums.

For manufacturing, where it is assumed that 50 percent of production will be sold in the domestic market and the rest exported, China comes second to Vietnam, followed by Poland, Chile, Malaysia, Thailand, India, South Africa, Hungary and Saudi Arabia. Vietnam is considered highly cost-competitive, according to the index, though with a heightened degree of risk.

Jeremy Gordon at China Business Services offers some anecdotal evidence to support PwC’s findings:

I have not seen the full research, but anecdotal evidence support this finding (at least partially). One of my company’s clients started seeking production of textile products in Vietnam, but ended up sourcing through us in China, despite the costs being higher. The main reason for the move was that doing business, and communicating (in English), in Vietnam was proving too difficult. The higher price in China has been offset by greater efficiency.

Foreign direct investment (FDI) in Vietnam expected to reach US$20 billion this year, double the figure from 2004. In 2006, FDI rose 60 percent year-on-year as savvy international companies moved into the country, looking to buôn bán lớn – do big business. 

All of this sudden growth is helping Vietnam to become a powerhouse in Southeast Asia, and it is likely that it will seek a more active role in trade negotiations as a part of the Association of Southeast Asian Nations (ASEAN).

“No longer will Vietnam be content to bump along with the ASEAN backwaters of Burma, Laos and Cambodia. Their sights are set on closing the gap between themselves an the ASEAN founding members,” British Ambassador to Vietnam Robert Gordon told the Bangkok Post at a recent luncheon talk in the Thai capital.

Vietnam saw a staggering 8.2% increase in its overall GDP last year and is currently the second fastest growing economy in Asia, behind China. And while retailers all over the world are focusing on the potential of China and India – Vietnam is booming, with the country set to post a 20 percent year-on-year growth in the sector.

“While the spotlight has been burning on China and India, Vietnam’s retail sector has kicked into gear and is emerging as the land of unlimited opportunities, with some of the region and world’s largest retailers already setting up shop,” said a spokesman for the International Council of Shopping Centres.

As we reported last month, China and ASEAN are developing an extensive trade network through the China-ASEAN Free Trade Agreement, that when completed, will be the world’s largest, encompassing around 1.7 billion consumers with a total trade estimated at US$1.2 trillion.