Foreign investors in Vietnam and the “win-win” situation
Despite the impact of the pandemic in recent months, business results of FDI enterprises in Vietnam in the past eight months show a promising picture.
At the meeting between HCM City officials and representatives of foreign-invested enterprises on August 20, Intel Vietnam raised concerns about difficulties if social distancing measures are extended and warned of long-term risks if the Covid-19 epidemic is not controlled soon.
During a meeting between the EU business community in Vietnam and Prime Minister Pham Minh Chinh, President of EuroCham in Vietnam Alain Cany said that 18% of enterprises in the manufacturing industry had partially shifted their orders or production demand to other countries and 16% of businesses were also considering this. However, he affirmed that no EU enterprises had left Vietnam yet. In fact, moving orders is normal in business and multinational corporations invest in many countries, not only one.
The Vietnamese government has tried its best to support foreign-invested enterprises. The worries and warnings made by these corporations are worth paying attention to for Vietnam to do better, but this is a force majeure situation and only occurring in the short term, so the worry about the bad situation is unlikely to happen. Multinational corporations with global production chains always have measures to join with the countries where they invest to overcome difficulties.
In fact, despite the impact of the pandemic in recent months, business results of FDI enterprises in Vietnam in the past eight months show a promising picture. FDI enterprises mainly produce goods for export, so the data on their import and export activities can partly reveal their business picture.
Vietnam’s total import-export value in January-August 2021 reached over 429 billion USD, up 27.5% over the same period in 2020, including over 297 billion USD from FDI enterprises, an increase of 31.2% year on year.
Vietnam's total export value during this period was 213.5 billion USD, up 21.8% or 38.15 billion USD over the same period of 2020, including 156.6 billion USD from FDI enterprises, up 26.5% or 32.8 billion USD year on year.
Notably, exports of the FDI sector accounted for 73.4% of the country's total export value. In the last two weeks of August, the Vietnam General Department of Customs also recorded an impressive growth in the export value of FDI sector, with an increase of 39.4% or 3.29 billion USD compared to the first two weeks of the month.
For leather and footwear products alone, the items that FDI enterprises account for nearly 80% of export value, the total export turnover in January-July 2021 reached 13.78 billion USD, a growth of 8.3% year on year.
As for the electronics industry, where export revenues mainly come from foreign-invested firms, data from Bac Ninh province, the home to Samsung factories, shows that in the past eight months mobile phones increased by 23%, smart watches 23.7%, and electronic components 45.7% compared to the same period last year.
In Bac Giang province, home to many foreign corporations, production was interrupted by the Covid-19 pandemic in May, but industrial production in August regained the growth momentum after the epidemic was controlled.
In Ho Chi Minh City, the country’s epidemic center, the data of the Management Board of Export Processing Zones and Industrial Parks in Ho Chi Minh City shows that only 637 projects can still operate, accounting for 45.11%, with 53,254 employees while 775 projects have temporarily stopped production (54.89%).
However, exports did not decline. Total export turnover in the first seven months of the year was 3,586 billion USD, 0.92% higher than the same period of 2020. For June alone, the export turnover decreased significantly. In Tan Thuan export processing zone, export turnover in June 2021 reached 203,576 million USD, 111,485 million USD in July 2021, down 45.2% compared to June.
This shows that, when the epidemic is under control, the resilience in this sector will be high, making a strong contribution to growth.
Some difficulties that FDI enterprises are facing include partners not eligible to operate under the three-on-the-site model due to many reasons, disrupting the production chain. The risk of order cancellations is very high due to prolonged suspension.
In addition, they face increased logistics costs due to Covid-19 testing fees and traffic congestion; difficulties in international freight; and narrowed export markets.
However, the "darkest" moment is almost over, and the export figures for the second half of August 2021 show it.
It's also a sign that foreign investors will not easily leave Vietnam. Moving a factory worth hundreds of billions of dollars is not easy, but more importantly, despite the current short-term difficulties, Vietnam is still a stable and potential place to invest in and do business. The fact that orders are moved to other countries is just a temporary solution, as orders will return to Vietnam when the epidemic is gradually controlled.
It should be noted at this time that domestic businesses seem to be much weaker than the FDI sector. The export revenue of the FDI sector accounts for 73.4% of the total export value of the country, which is a warning for local enterprises. Before the Covid-19 epidemic broke out, export turnover of the FDI sector made up less than 70% of the country’s total.
Currently, Vietnam has administered more than 30 million doses of covid-19 vaccines. According to the Ministry of Health, it is expected that more than 20 million doses will arrive in Vietnam in September and 70 million doses will be available in the remaining months of the year.
With the abundant shipments of vaccine, workers at factories and industrial parks should be fully vaccinated with two vaccine doses. Vaccines are the most basic, long-term solution to stabilize production, because with the Delta variant, keeping distance from others is not enough to prevent infection.
Localities need to allow fully vaccinated workers or those who have recovered from the disease and have antibodies to return to work on the basis that they still willstrictly adhere to the 5K recommendations.
Thus, life will return to the "new normal", and with its long-term advantages and efforts, Vietnam will continue to be the destination of foreign investors.
The pandemic is forcing a number of factories to either stop operations or pare down capacity, which has increased pessimism about the short-term outlook of Vietnam’s business environment.
Along with Vietnam’s effective control of the Covid-19 pandemic and the signing of Free Trade Agreements (FTAs), international technology giants have followed the wave of investment shift to Vietnam.