This will contribute to the immense growth of Gross Domestic Product (GDP) in the years to come, even ensuring that economic growth in Vietnam remains stable.
Attracting the high-tech sector
In recent meetings with international investors, the question has arisen whether Vietnam will be able to escape a global recession next year, when most countries are struggling with slow GDP growth. and rising inflation. Vietnam’s economic growth rate has accelerated in 2022. Therefore, the World Bank (WB) and the International Monetary Fund (IMF), as well as some other global organizations, have recently adjusted and strongly expect the growth of the GDP in Vietnam could exceed 8%. This year. This has led investors to question the reasons for this situation compared to other countries in the region.
One of the reasons why the Vietnamese economy excels is that foreign direct investment (FDI) supports the manufacturing sector and increases the complexity of products made in Vietnam. According to a study conducted by Harvard University, this is important because the increasing complexity of a developing country’s products can be the most powerful engine of growth in that country’s economy. Support from Samsung, Apple and other major FDI companies makes us confident that the influx of FDI into the high-tech sector will continue to drive economic growth in Vietnam for many years to come.
Samsung Corporation is Vietnam’s largest foreign investor, which has just announced that it will start manufacturing semiconductor parts in Vietnam. Apple also announced that it would start producing Apple Watches and MacBooks in Vietnam. This will be the first time that these products will be made outside of China. According to some insiders, Apple has big plans for Vietnam, and they also noted that the Apple Watch is particularly complicated to manufacture due to the challenge of fitting many components into a small case.
Impact on economy
According to research by the London School of Economics (LSE) and the World Bank, FDI is a tool that helps developing economies move into higher value-added areas of the supply chain, and FDI technology have had a significant and positive impact. impact on the Vietnamese economy. Both Intel and Samsung ramped up production at their first factories in Vietnam in 2010, and Vietnam’s high-tech exports have since increased nearly twenty-fold. In addition, Vietnam has made the biggest jump in the Harvard Economic Complexity Index (ECI) rankings in the past two decades, partly because investments from Samsung and Intel have attracted other high-tech investments from Apple, LG Electronics, Dell and many Japanese. businesses.
The main attractions for companies setting up high-tech factories in Vietnam include a highly skilled workforce, lower wages, and proximity to high-tech supply chains in Asia. The proof is that the US-China trade tension has favored the displacement of production capacities from China to Vietnam. Vietnam’s trade surplus with the United States more than doubled from $35 billion in 2018 to $71 billion in 2021.
At the same time, the trade deficit with China more than doubled to $54 billion. In a recent announcement, the Biden administration will keep tariffs on Chinese imports unchanged. This essentially ensures that multinational corporations will continue to inject capital into Vietnam for many years to come.
According to research from LSE and other universities, FDI has the greatest impact on modernizing a country’s economy. The immediate impact of recently announced foreign investment will create relatively well-paid jobs for locals. The Economist magazine noted that the relocation of Apple’s production units to Vietnam will foster a talent war. High-tech FDI will boost Vietnam’s GDP in two ways, namely by increasing incomes and also enhancing the country’s ability to manufacture complex products. This will support short-term GDP growth while boosting long-term economic prospects, with domestic consumption accounting for two-thirds of Vietnam’s GDP.
FDI factories in Vietnam still import most of the raw components they need to assemble products for export, especially for high-tech products such as consumer electronics and smartphones. It is expected that raw components imported for Vietnam’s exports will gradually decrease and the contribution of domestic manufacturing units will increase. It is expected that domestic firms will strengthen their capacity to provide production inputs to FDI firms in the coming years. A new wave of FDI investment in manufacturing some of the most complex products will also create a ripple effect that will lead domestic manufacturers to diversify into higher value-added segments of the value chain in the years to come. .