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Vietnam does relatively well in terms of costs, productivity, product sophistication and business environment. This is helping it to attract manufacturing companies. However, the government has made it very clear that it wants to attract more complex and high-value manufacturing.

Vietnam to Benefit from Increasing Tech Manufacturing FDI Inflows
Photo Credit: Reuters
FDI and supply chain trends
Trends in export growth, export sophistication, and foreign direct investment (FDI) give us a clear idea about the amount of progress Vietnam has made over last few years as a destination for supply chains. China, as expected, is still the leader and is increasing the market share in global exports and FDI. Vietnam comes next.
Vietnam does relatively well in terms of costs, productivity, product sophistication and business environment. This is helping it to attract manufacturing companies. However, the government has made it very clear that it wants to attract more complex and high-value manufacturing. It is not actively courting lower-value-added manufacturers as Vietnam has limited resources. New policies to support SMEs have also helped bridge the supply chain gap.
FDI to support growth, especially in tech manufacturing
Vietnam continues to benefit from increasing FDI inflows, especially in the tech manufacturing segment. 
The government has attracted more investors by providing tax incentives for high tech industries. FDI in total manufacturing increased 80% y-o-y in January 2021, with new manufacturing growth up 199%. Multiple FTAs also make it cheaper for the companies to export from Vietnam.
FDI in the manufacturing segment is the highest – USD13.6bn in 2020 – followed by utilities and real estate. Another attraction is the country’s low cost of doing business. According to the World Bank, Vietnam’s cost of doing business as a percentage of gross national income (GNI) is 5.6%, well below that of upper and lower middle income economies.
Samsung, which accounts for most of the exports from Vietnam, has announced that it will move its PC manufacturing facility to Vietnam from China. Apple also plans to establish production facilities for iPads and MacBooks. Vietnam has been upgraded to eighth position in the emerging market logistics index, the fastest upgrade to date.
Government infrastructure push to benefit industrials
Vietnam still lags behind other ASEAN economies in terms of infrastructure. While many projects were proposed during 2016-20, some were delayed. In response, the government has announced that it will spend USD120bn on infrastructure during 2021-25 (see table below).
Some of the transport projects are already underway we expect most of the others to be completed on schedule. The government has also introduced a new public private partnership (PPP) law to help accelerate investment in high quality infrastructure. Impact of COVID-19 on consumption trends
Vietnam consumer spending has recovered over the past few months. According to Fitch1, spending is on course to rise 7% y-o-y in 2021. Most of the categories are expected to grow by double digits, while growth in food staples will be lower. This is due to higher demand seen in 2020 for food and beverages as households stockpiled goods during lockdowns. 
Retail sales have been recovering since July 2020, and rose 5% y-o-y in January 2021.
Passenger and commercial vehicle sales have also rebounded sharply since October last year.
Most of this growth was due to a 50% reduction in registration fees for domestically produced cars announced in 20202. Domestic car sales jumped 45% y-o-y in December 2020 to 47,865 units (28% rise in passenger cars, 50% for commercial vehicles).
Boom in e-commerce
The economy has also been benefitted from a boom in e-commerce, with online revenues growing 30% y-o-y in January 20213. Many supermarkets and food outlets opened online services to meet demand during the pandemic and also maintain social distancing measures.
Longer term, HSBC believes that the shortage of land and labour in Vietnam will boost local incomes and thereby consumption. HSBC finds that high-margin producers with pricing power move to established industrial clusters while manufacturers of low-margin products prefer cheaper locations. This is boosting demand for labour in rural areas – shifting it away from the established urban clusters – and moving employment from low-value agriculture to higher-value-add industries.
Wages are rising, and growth has a broader base across the country.

DIEP NGUYEN