A favourable geographic location, lower labour cost and the expansion of investment abroad are three key factors helping Vietnam secure its place as a key foreign direct investment (FDI) destination, according to chief economist of VinaCapital Michael Kokalari. Factory wages in the country are about two-thirds below those in China, but the quality of the workforce is comparable, he said.

VinaCapital is a Vietnam-focused venture capital platform.

Vietnam has close geographic proximity to Asia’s supply chains, especially in the high-tech industry.

A favourable geographic location, lower labour cost and the expansion of investment abroad are three key factors helping Vietnam secure its place as a key FDI destination, said chief economist of VinaCapital Michael Kokalari. Factory wages in the country are about two-thirds below those in China, but the quality of the workforce is comparable, he said.

As Japan and South Korea face structural issues that compel them to invest abroad, Vietnam is the most attractive destination in the region, he said. Further, the first two countries are burdened by ‘secular stagnation’, primarily caused by poor or declining demographics, and other factors, including heavy debt.

In addition to the three factors highlighted above, an increasing number of multinational corporations are seeking to diversify their manufacturing outside China, a news agency reported.

All these factors will help propel FDI in 2022. Three developments will also help support such inflows.

First, the US treasury department and the State Bank of Vietnam reached an agreement in July that removes the risk of Vietnam being labelled a currency manipulator in the future, which will give multinational companies more confidence to invest in Vietnam.

Next, the impressive speed of Vietnam’s vaccination campaign once the Delta variant emerged gives foreign companies confidence that the government is committed to achieving a prudent balance between public health and economic health concerns.

Denmark’s LEGO announcing it would invest $1 billion to build one of its biggest factories in southern Vietnam is the third such development, Kokalari concluded.

Fibre2Fashion News Desk (DS)