Vietnam’s FDI Attraction: Tackling Productivity, Logistics, and Legal Challenges

In a recent article, HSBC Vietnam’s CEO, Mr. Tim Evans, discusses vital improvements Vietnam must make to become a more enticing destination for foreign investors. He identifies three primary challenges: enhancing productivity, upgrading logistics, and refining the legal framework.

Mr. Evans notes the fast pace of global economic changes and the importance of keeping up with trends that are reshaping economies on a global and regional scale.

He foresees the continued growth and realignment of supply chains, with a notable trend of economies reducing their trade dependencies on China. Despite China’s role as a major import source for many countries, ASEAN nations, particularly Vietnam, are poised to benefit from this diversification.

Western companies are actively seeking to lessen their dependence on China by diversifying their sourcing to other Asian countries, including Vietnam and India. This has led to a surge in foreign direct investment (FDI) in these countries, outpacing China, especially in the manufacturing sector. Concurrently, China is expanding its supply chains into Vietnam.

Vietnam’s strategy to draw more FDI should involve a thorough understanding of its competitive stance against other ASEAN countries and consider other markets like India and Mexico. While Singapore and Malaysia are at the forefront of the semiconductor industry, Vietnam is slowly entering the electric vehicle and semiconductor markets, aiming to focus on high-value-added products and continue attracting key electronics manufacturers.

Mr. Evans underscores the importance of pinpointing and addressing the “bottlenecks” that hinder foreign investors. He points to three main concerns:

First, Vietnam needs to improve labor quality and access, as well as boost productivity, to climb the quality ladder. Vietnam’s labor productivity trails behind that of other ASEAN countries.

Second, there’s a need to enhance Vietnam’s logistics efficiency, which currently lags behind China, Malaysia, and Thailand. The country faces challenges in logistics capacity, delivery times, and traceability, and its logistics infrastructure isn’t up to international standards. There’s also an excessive reliance on road transport, despite a shift in demand towards sea transport and seaports.

Third, adapting to the legal environment is crucial for investors exploring opportunities in Vietnam. The HSBC Global Connection survey reveals that legal changes are among the top challenges for foreign businesses in Vietnam. Developing a stable and user-friendly legal framework will be a significant step in attracting more investment.

Addressing these issues is essential for Vietnam to solidify its position as a prime location for foreign investment.