Good Fortune Shifts South
In the Wake of FDI: Automation Arrives in Force
Southeast Asia, especially Vietnam, primed for more automation technology as region’s foreign direct investment (FDI) soars
FDI spawns surge in automation
The causal relationship between foreign direct investment (FDI) in Southeast Asian countries has been followed in depth and well understood now for some time. One study in particular, Foreign Direct Investment and Economic Growth: An Analysis for Selected Asian Countries, reports on how FDI powers up the adoption of new technology and knowledge transfer.
Automating factories and warehouses is an integral part of FDI planning. As such, as FDI rolls in, along with it come the robots and AGVs.
Little wonder why so many automation equipment manufacturers are opening offices all over the 10-nation ASEAN, especially in Singapore.
Between the roiling trade turmoil ongoing with the U.S. and China, and the diminishing returns for China as a low-cost producer: “[much FDI] will migrate to countries such as Vietnam, Cambodia and even Myanmar,” predicts Pushan Dutt, a professor at the INSEAD business school in Singapore.
Yes, Dutt, is correct: “even Myanmar”! Myanmar investment inflows doubled from China as deals surged this year, reaching $2.35 billion in the first six months of 2019.
“Southeast Asia is in a unique position,” added Dutt. “It offers favorable demographics, fast growth, low costs and relatively good governance. Next, all global value chains run through Asia, which makes… Southeast Asia in particular attractive to multinationals.”
Vietnam: Nice place for a factory or two
Vietnam is in prime position to capitalize on this fortunate shift in the geography of global supply chains. Hanoi to Hong Kong is a mere 500 miles away.
Raymond Mallon, senior economic advisor at the Australia-Vietnam Economic Reform Program, having lived in Vietnam for the past three decades, has seen the positive results of FDI: “I have seen FDI help transform Vietnam from a low-income, commodity-based economy to an increasingly more dynamic mixed economy via the transfer of technology, capital, skills, know-how, and access to international markets. This has helped accelerate growth in productivity, incomes and living standards, and resulted in an unprecedented reduction in poverty levels.”
Of the Three Sisters—Malaysia, Vietnam, and Thailand—Malaysia and Thailand have experienced the beneficial effects of the adoption of new technology and knowledge transfer on their economies for nearly two decades. Today, it’s a way of life for both countries, and both have hatched bigger and grander plans for attracting even more FDI.
Vietnam is a relative newbie in experiencing the effects of FDI and technology. The most recent Vietnam Brief is out, and its numbers are stunning. A buildout of major proportions is well underway.
See related 2-Part Series on Malaysia, Vietnam & Thailand: The Three Sisters
Vietnam Brief (excerpts)
VIETNAM BRIEF REPORT (Dezan Shira & Associates): Fueled by continuous growth, Vietnam continues to attract record foreign direct investment (FDI). The latest data from the Foreign Investment Agency (FIA) shows that FDI in Vietnam in the first five months of the year reached a four year high of $16.74 billion.
This inflow represents a year-on-year increase of 69.1 percent.
Around 1,363 new projects were licensed with a total registered capital of $6.46 billion in the January – May period, up 38.7 percent against the same period last year.
Out of 19 sectors receiving capital, manufacturing and processing came on top with $10.5 billion, accounting for 72 percent of total FDI. This was followed by real estate at $1.1 billion and then by retail and wholesale with $742.7 million.
Asian countries: Largest share of FDI into Vietnam
Hong Kong leads all FDI investment at $5.08 billion, accounting for 30.4 percent of total investment in the first five months of the year. South Korea and Singapore come in at second and third, followed by China and Japan.
An important point to note is that China has been increasing its investment in Vietnam rapidly. Over the years, it has become the seventh largest investor in Vietnam. In 2018, it moved up to fifth and is now fourth.
This can partly be attributed to the US-China trade war, but some analysts say that China is also pushing investment through Hong Kong as Vietnam becomes more cautious about Chinese investment.
Hanoi retains its title of being the most attractive destination for foreign investors with $2.78 billion of total FDI registered or 16.6 percent. This is followed by Binh Duong province at $1.25 billion.
North Vietnam is rapidly consolidating its position as a main industrial hub for electronics and heavy industry, thanks to the presence of global conglomerates like Samsung, Canon, and Foxconn, and for the automotive industry (the first Vietnamese carmaker Vingroup established its factory in Haiphong last year), which are stimulating the development of a reliable supply chain in the area.
The first deep-sea port in North Vietnam, Lach Huyen port, opened its first two terminals, which can accommodate big vessels – thus avoiding stops to Hong Kong and Singapore in international freight transport, saving about one week in shipments.
Binh Duong and Ho Chi Minh City, in South Vietnam, are the main industrial hubs, specializing in textile, leather, footwear, mechanics, electricity and electronics, and wood processing.
South Vietnam has also been the main destination for renewable energy investment projects, in particular solar power plants. In the future, while the southern region will maintain its attractiveness, investments in solar plants is expected to gradually shift to the central and northern areas.
During the Jan-May period, the foreign invested sector produced $70.4 billion from exports – a five percent year-on-year increase that accounts for 70 percent of the country’s total export turnover. As of May 20, there were 28,632 FDI projects with a total registered capital of $350.5 billion.
Meanwhile, a recent report by DBS Bank states that Vietnam’s economy could become bigger than Singapore’s by 2029 if it sustains its growth trajectory.