High-tech foreign investments will drive Vietnam’s economic growth?

High-tech foreign investments will continue to propel Vietnam’s economic growth for years to come, according to Michael Kokalari, chief economist at investment fund VinaCapital.

Vietnam’s economic growth has been accelerating this year, and so the World Bank (WB), International Monetary Fund (IMF) and others have sharply revised up their GDP growth forecasts for the country, with an increasing number of economists now expecting it to exceed 8% this year. This has prompted investors to ask what is different in Vietnam and why.

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One reason Vietnam is an economic outlier is that FDI is supporting the country’s manufacturing while also driving an increase in the complexity of products produced in Vietnam, Kokalari quoted a research by economists at Harvard University.

An increase in the complexity of the products a country is able to make is the single most powerful growth driver for a developing country’s economy, according to the economist.

“The recent announcements by Samsung, Apple and others make us confident that high-tech foreign investments will continue propelling Vietnam’s economic growth for years to come,” he said.

Samsung, Vietnam’s single largest foreign investor, announced that it would start producing semi-conductor parts in the country.

Apple said it would begin producing watches and MacBooks in Vietnam, the first time they will be made outside China.

Apple has “big plans for Vietnam” according to insiders, who also noted that the Apple Watch is particularly complicated to manufacture because of the challenge of squeezing so many components into such a small case.

FDI is instrumental in helping “developing economies move into higher value-added parts of the value chain,” and high-tech FDI has had a big positive impact on Vietnam’s economy, research by the London School of Economics and the World Bank showed.

Furthermore, Vietnam achieved the biggest jump in Harvard’s Economic Complexity Index ranking in the last two decades, partly because the Samsung and Intel investments attracted a flurry of other high-tech investments from Apple, LG Electronics, Dell, and a number of Japanese firms.

The primary motivations for firms to set up high-tech factories in Vietnam include a high-skill, low-wage workforce and the country’s geographic proximity to high-tech supply chains in Asia, Kokalari said.

Recent US-China trade tensions, especially the Biden administration’s recent announcement it would keep Trump’s tariffs on Chinese imports in place essentially ensures that multinational firms would continue pouring FDI into Vietnam for years to come, according to Kokalari.

Vietnam’s trade surplus with the US more than doubled from 35 billion USD in 2018 to 71 billion USD (20% of GDP) in 2021, during which time its trade deficit with China also more than doubled to 54 billion USD, Vietnam Insider reported.