Vietnam’s economic growth relies on high-tech FDI | Company
Hanoi (VNA) – Vietnam’s economic growth accelerated in 2022, with experts seeing foreign investment in high-tech as a driving force.
The World Bank (WB), International Monetary Fund (IMF) and others have sharply upgraded their GDP growth forecasts for the country, with a growing number of economists now expecting it to exceed 8% this year.
Foreign investment in high technology will continue to propel Vietnam’s economic growth for years to come, said Michael Kokalarichief economist at investment funds VinaCapitalsaid.
In a note, Kokalari said, citing recently published research by economists at Harvard University, that one of the reasons Vietnam is an economic exception is that FDI supports the country’s manufacturing while driving a increasing complexity of products made in Vietnam.
According to the economist, an increase in the complexity of the products that a country is able to produce is the most powerful engine of growth for the economy of a developing country.
“Recent announcements from Samsung, Apple and others make us confident that high-tech foreign investment will continue to propel Vietnam’s economic growth for years to come,” he said.
Samsung, Vietnam’s largest foreign investor, has announced that it will start producing semiconductor parts in the country.
Apple has announced that it will start producing Watches and MacBooks in Vietnam, the first time they will be made outside of China.
Apple has “big plans for Vietnam” according to insiders, who also noted that the Apple Watch is particularly complicated to manufacture due to the challenge of squeezing so many components into such a small package.
According to research by the London School of Economics and the World Bank, FDI helps “developing economies move into higher value-added segments of the value chain”, and high-tech FDI has had a significant positive impact on the Vietnamese economy.
In addition, Vietnam has made the biggest jump in Harvard’s Economic Complexity Index rankings in the past two decades, in part because investments from Samsung and Intel have attracted a wave of other investments. tech companies from Apple, LG Electronics, Dell and a number of Japanese companies.
According to Kokalari, the main motivations for companies to set up high-tech factories in Vietnam are a highly skilled, low-wage workforce and the country’s geographic proximity to high-tech supply chains in Asia.
Economists said high-tech FDI boosts Vietnam’s GDP in two ways: by raising incomes and improving the country’s ability to produce complex products.
The former supports short-term GDP growth as domestic consumption accounts for two-thirds of Vietnam’s GDP, while the latter bolsters the country’s long-term economic prospects.
The net result is that the production of smartphones, home electronics, and other products of a relatively high degree of complexity ultimately contributed more than $1,000 of Vietnam’s $3,000 GDP per capita in 2020. .
The revenues and profits of most companies listed on Vietnamese stock exchanges are mainly directly or indirectly related to domestic consumption.
This gives active equity managers plenty of opportunities to outperform the benchmark VN index by pricing in the stock prices of companies that stand to benefit most from their exposure to rising consumer spending by Vietnam’s emerging middle class. which ultimately results from the increase in high-tech FDI. entries.
Kokalari said, “Foreign factories in Vietnam still import most of the production components/inputs they need to make the products they export, especially high-tech products like consumer electronics and smartphones.
“We expect the imported content of Vietnamese exports to fall and the contribution of local content to skyrocket as local companies develop their capacity to supply foreign companies with production inputs in the coming years.
“Secondly, the nascent wave of FDI in the production of some of the most complex products ever made in Vietnam is expected to lead to more ‘ripple effects’ that will lead local manufacturers to diversify into higher value-added segments. of the value chain.”
Apple and Samsung’s plans to produce some of the most technologically advanced products ever made in Vietnam would significantly boost Vietnam’s GDP growth in the coming years and ensure that the economic “decoupling” that Vietnam has achieved this year could be maintained in 2023.
“Our daily interactions with a wide range of Vietnamese companies – from large-cap listed companies to ultra-savvy small tech entrepreneurs – continually make us appreciate the strong parallels between Vietnam’s economy in the 2020s and Japan’s in the 2020s. the 1970s, when this country began its decades-long climb up the global value chain.
“We remain extremely optimistic about Vietnam’s economic outlook and, by extension, the outlook for much higher stock prices in the years to come.”/.