With strong economic growth and a young population, highly competitive labour costs, and new trade deals on the horizon, Vietnam looks set to play a greater role for foreign investment in the Association of South-east Asian Nations (Asean) region in 2015, according to a recent report published by professional services firm, PricewaterhouseCoopers (PwC). 

The south-east Asian country of 89 million has been called a “steady star”, but will need to make banking and state-owned enterprise reforms in order to seal in investor confidence, the report indicates.

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Vietnam is increasingly becoming a target destination for foreign investors after suffering a steady regression in FDI between 2008 and 2013. According to greenfield investment monitor fDi Markets, those four years saw capital expenditure drop significantly, while projects and companies investing also decreased by two-thirds from 2008 to 2013, from 350 to 110 projects and 312 to 103 companies investing, respectively. There was a rebound in 2014, however, with 241 projects launched and total capital investment topping $20.23bn, its highest level since 2010.

PwC’s 2014 Asia Pacific Economic Cooperation region (APEC) CEO survey showed that “a majority of business leaders planned to increase their investment in Vietnam over the next 12 months”, and the firm’s 18th annual global CEO survey ranked Vietnam sixth in a list of non-BRIC (Brazil, Russia, India and China) emerging markets for its growth potential. 

Vietnam has a number of pull factors for investors, particularly its labour costs, which are cheaper than those of China and Thailand. It also offers a young and highly-educated population, with 43% under the age of 25. Vietnam’s middle class is growing, providing a budding market for retailers while maintaining low wages—currently hovering between $100 and $150 per month.

Top sectors for investment are financial services, metals and business services, with manufacturing and sales and marketing comprising the largest share of business activities. Projects in the financial sector increased from seven in 2013 to 33 in 2014.

According to greenfield investment monitor fDi markets, Vietnam’s top foreign investors in terms of project numbers are Japan, the US, South Korea, and Taiwan. In 2014, there were 74 projects sourced from Japan, the highest number from the country in any year.

Atsusuke Kawada, chief of the Japan External Trade Organisation (Jetro) told local media in an interview that “In Vietnam, Japanese can find the things they cannot find in other countries. Vietnamese are very diligent and hard working, which can be reflected in the lower numbers of workers’ days-off than in other countries. Besides, it is easy to recruit workers in Vietnam, while employers do not have to pay too high to employ workers.” Investors also note that while Thailand has better infrastructure, Vietnam offers a more peaceful and politically stable environment.

The PwC report notes that structural reforms in banking and state-owned enterprises are still needed to improve investor confidence and ease of doing business in the country – Vietnam ranked 78th in the World Bank’s 'Doing Business' ranking for 2015, falling six spots from the previous year. Primary areas for reform are its tax-paying procedures, protection for minority investors and procedures for getting electricity, according to the ranking. It is currently undertaking reforms, including improving its credit information system by creating a new credit bureau and reducing its corporate income tax rate.  

Upcoming trade agreements, such as the Trans-Pacific Partnership (TPP) are ones to watch out for in 2015. If signed, the TPP will significantly boost FDI in Vietnam with the help of decreased tariffs for exports. Vietnam also benefits from the 'China Plus One' strategy, whereby foreign investors can offset their risks regarding dependence on Chinese investments by building factories in neighbouring countries, such as Vietnam.