All signs point to sustained growth

09:00 | 14/02/2017

Behind Vietnam’s strong economic growth and widespread national development, there is an engine of increasing foreign direct investment.

Its big cities, Ho Chi Minh City and Hanoi, are at the forefront of the transformation, as more people flock there and new high rise buildings change the skylines.

Foreign investors are taking note: They ploughed an estimated $15.8 billion into the country in 2016 – setting a new record. And Vietnam’s policy changes are encouraging them to do so. The country relaxed its foreign ownership rules for real estate in 2015. Vietnam witnessed strong growth in foreign direct investment (FDI) in 2016.

This can be attributed to a strong economy backed by political stability and relatively low labour costs when compared to the region. Manufacturing dominates FDI, accounting for 64 per cent, but 7 per cent of total FDI is attributed to real estate. The sector attracted $1.53 billion in newly registered capital in 2016 with 59 newly registered projects.

Changing ambitions, shifting gears

Vietnam’s upward trajectory looks set to continue, despite the slowdown affecting other Asian countries.

It posted GDP growth of 6.2 per cent last year – a figure which is forecast to rise to 6.7 per cent this year amid growing affluence and higher consumption levels of the country’s middle-class, who are developing a taste for foreign brands such as Starbucks and Louis Vuitton.

Vietnam’s middle-class is expected to double to 33 million people by 2020. Ho Chi Minh City is home to Southeast Asia’s fastest-growing middle-class, according to Boston Consulting Group.

Vietnam is projected to continue to be an optimistic, prospective destination for investment, attracting higher growth in FDI inflows.

According to the Ministry of Planning and Investment’s Foreign Investment Agency, in January 2017 Vietnam welcomed $1.42 billion FDI, an increase of 6.6 per cent year-on-year. The implemented capital was recorded at $850 million, rising 6.3 per cent compared with the same period in 2016, despite changes in trade agreements.

In terms of economic structure, most of the total foreign capital is poured into both the processing and manufacturing sector and real estate sector, bringing in $1.01 billion and $297.36 million  at the beginning of 2017, respectively.

These sectors are expected to remain significant attractors of investment activity in the months to come.

Recently, a large number of multinational companies have entered Vietnam by virtue of the country’s favourable business costs, which are highly competitive when compared with other countries in the region.

Most FDI companies from Asian countries are tending to gravitate towards the potential economic hubs of Binh Duong, Dong Nai, Ba Ria-Vung Tau, and Haiphong.

Investment into these hubs has been on the rise following the successes of Ho Chi Minh City and Hanoi.

Furthermore, the emerging wave of dynamic entrepreneurs and innovation in technology are major drivers in attracting foreign investment expansion in the outsourcing industry, and in lifting the Vietnamese economy as well.

The country has also benefitted from the return of overseas Vietnamese, known as Viet Kieu, who are becoming major players in spurring Vietnam’s economy and growing its thriving startup scene in Ho Chi Minh City and Hanoi.

Such strong economic and population growth factors have led to both cities making the top 10 of JLL’s latest Cities Momentum Index, with Ho Chi Minh City in second place and Hanoi in eighth.

Economic factors indicate Vietnam’s growth trends are sustainable well into the future Photo: Le Toan

Securing longer-term development

However, both Hanoi and Ho Chi Minh City still have work to do to secure their longer-term positions. The transition towards technology-based high-value activities remains at an early stage. Congestion and pollution remain serious impediments to quality of life and increasing productivity. A lack of strong higher-education institutions and technology skills may slow the transition towards a knowledge-based economy.

Such challenges will require planning and investment to overcome, yet are far from insurmountable. Indeed, with the government taking concrete steps to liberalise the business environment and create the right conditions for future growth, the country could well be on its way to becoming another success story in Southeast Asia.

Looking forward a few years, the flow of investment into the country will constantly outperform past levels, thanks to energetic demographics with more than 70 per cent of the total population of working age and well-trained. The business environment is stable and has improved, and the strong demand of the growing middle- and upper-classes, which is forecast to reach the fastest growth rate in Southeast Asia over the 2016-2020 period, can only be beneficial.

Real estate boom

Demand is increasing for office, retail, and hotel stock around the country. In Ho Chi Minh City, the country’s tallest building, the Vincom Landmark 81, is under construction.

Meanwhile, the Thu Thiem New Urban Area, a 657ha site east of the Saigon River, is earmarked to be the new central financial district. And last year, Takashimaya opened its first department store in Vietnam, within Saigon Centre in Ho Chi Minh City, a mixed-use development by Keppel Land from Singapore.

In Hanoi, the office sector is also seeing high levels of development, according to JLL research, while a new urban living project, Starlake Tay Ho Tay, is being constructed by South Korean conglomerate Daewoo. Condotels and villas are also being built in secondary cities such as Danang to woo investors in the second-home market.

Vietnam’s burgeoning tourism industry, which welcomed 10 million visitors last year, is driving hotel developments. The Hoi An South Integrated Resort is currently being constructed, with its first phase to be completed in 2019. Meanwhile, Halong Bay got its first five-star property, Wyndham Legend Halong Bay, last June.

There has been a lot of attention towards major tourist locations such as Danang, Nha Trang, and Phu Quoc in the last two years.

Industrial real estate is also enjoying a boost. Industrial parks in the north, south, and central regions are witnessing strong activity. For instance, Long An province in southern Vietnam is experiencing strong demand for ready-built factories and industrial land. Binh Duong and nearby provinces are witnessing developments of eco-industrial parks and modern townships, invested mainly by Japanese investors.

By Stephen Wyatt - Country head, Vietnam, JLL

Singapore edges South Korea for FDI pole position

With two newly-licensed megaprojects, Singapore overtook South Korea to become Vietnam’s most prodigious foreign investor in January 2017.

Vietnam attracted $477.8 million worth of pledged capital from Singapore during the first month of this year, accounting for 30.1 per cent of the country’s total newly-registered capital, said the Ministry of Planning and Investment’s Foreign Investment Agency (FIA).

With the sum, Singapore surpassed South Korea, which has often taken pole position among foreign investors in Vietnam. In January, South Korea ranked second with $471.2 million.

Singapore’s ranking was attributed to two big projects licensed during the period. The Vietnam-Singapore Industrial Park project in the southern province of Binh Duong was invested at $284.75 million, with the province also hosting a $124 million packaging project invested by Tetra Pak Binh Duong.

According to the FIA, Singaporean direct investment inflows into Vietnam have grown significantly in recent years, with processing and manufacturing the most attractive sector, followed by real estate and services.   

Singapore often came in third or fourth position through 2013-2014, and in 2015 was sixth-ranked among foreign investors in Vietnam. The situation has, however, improved much since early 2016, when the nation surpassed others to become the top foreign investor and then maintained its standing as second-biggest investor during the remaining months of last year.

“With edges in capital and technology, Singaporean investors in Vietnam have many opportunities to boost their presence in Vietnam. As Vietnam is prioritising high-tech and environmentally-friendly projects, more investment opportunities will be available for them in the coming time,” said Dang Xuan Quang, FIA’s deputy director.

Many Singaporean firms have succeeded in Vietnam, such as Sembcorp, Mapletree, Keppel Land, Ascendas, and CapitaLand. On average, Singaporean-invested projects in Vietnam are worth $23 million each, compared to the $13.7 million of other countries’ investors. Industry insiders forecast that Singaporean investors are planning to pump tens of billions of US dollars into Vietnam to tap the benefits of the country’s free trade agreements.

Vietnam’s improved business climate has also served to increase foreign direct investment (FDI) inflows. The country lured $1.42 billion worth of total newly-registered and expanded capital last month, up 6.6 per cent on-year.

Besides the two Singapore-invested projects, a $220 million investment by South Korean Kolon Industries Inc. to develop a factory manufacturing industrial fabric for automobile tyres in Binh Duong also contributed to the month’s total.

In late 2016, Kolon announced a $1 billion future investment plan. $220 million is slated to be disbursed during 2017-2018, along with $600 million in the second phase of the plan, lasting until 2026.      

Also in January, China’s Wenzhou Hendy Mechanism and Plastics Co., Ltd. was licensed to invest in a $150 million project in the northern province of Bac Giang. - By Bich Thuy

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