Vietnam is well recognized to have opened its doors since 1986 to become among Asia’s leading exporters. It has then created a more business-friendly environment for foreign investors by minimizing business regulations. Additionally, the growing cost of labour and trade tariffs in China has overwhelmingly benefited Vietnam as a cheaper investment country. Besides, Vietnam’s Ease of Doing Business Index is extremely competitive compared to Indonesia.
Reasons Why Vietnam is Attracting More Foreign Direct Investment Compared to Indonesia
Vietnam is the second country after Singapore that aggressively negotiates Free Trade Areas (FTAs) in the ASEAN bloc.
The FTAs provide preferential tariffs and investment protections, which are incentives to foreign investors. An FTA takes several years to be formalized, and it operates under the principle of ‘first come, first served.’ Additionally, Vietnam is a strategic and proactive country when it comes to negotiating trade agreements. Outside of the FTAs within ASEAN members and ASEAN partner countries, Vietnam has also entered into some attractive FTA agreements.
Free Trade Areas Agreements Entered by Vietnam:
- CPTPP – Progressive and Comprehensive Agreement for Trans-Pacific Partnership.
- Vietnam – EUFTA,
- Vietnam-South KoreaFTA,
- Vietnam -ChileFTA,
- Vietnam-EAEU(Russia, Belarus, Kazakhstan, Armenia, Kyrgyztan) FTA.
Vietnam is currently negotiating an FTA agreement with Israel, and with the European trade bloc of Switzerland, Norway, Iceland, and Liechtenstein.
Exchange Rate Risks.
Vietnam’s currency, dong, is one of the most stable currencies in Asia, and it has a stable exchange rate against the USA currency. This is a requirement for any potential foreign investors as the investors need to be confident that they will not suffer financial losses when converting their profits from the domestic currency to any foreign currency. For instance, Indonesian currency, rupiah, has fluctuated several times in as many years, and this certainly discourages foreign investment.
Vietnam offers cheaper labor and has a reasonably more hard-working workforce. This is mostly influenced by the country’s culture.
According to Money.Kompas.com, The country values education and making an impact in life. This had ingrained in them a culture of working hard and making a change, which will likely not change in the near future.
Vietnam also has the least number of holidays per year among the ASEAN countries.
According to News.ABS-CBN, Compared to Indonesia (20 holidays), Vietnam had 9 holidays less in a year, meaning it has 9 more working days. In line with the point made above, important cultural occasions like Mid-Autumn Festival or Qingming (Thanh Minh) are no days off. Additionally, Vietnamese people do not pray 5 times a day, which cumulatively adds up to more working hours a day than in any ASEAN countries. And even as it stands, there are calls to reduce the days off taken during Lunar New Year.
Compared to its competitors, such as Indonesia, Vietnam’s electricity provision is more stable.
Vietnam is the second biggest electricity generating country in ASEAN, only after Indonesia. However, Vietnam’s electricity consumption per capita is double that of Indonesia. This means that Indonesia has an electricity shortage, as evidenced by the occasional blackouts in the Greater Jakarta area. Unstable electricity provision increases the costs of operation thereby discouraging investors.
Vietnam’s geographical location is strategic.
The country is closer to China and the supply chain of many industries. This position makes it cheaper to acquire raw material, distribution, and access to markets. For countries that want to move from China especially in the midst of the current trade war (2019), Vietnam is the destination in which the lowest relocation costs will be incurred.
Political stability attracts foreign investment.
Vietnam has proven over time to be a politically stable country. Indonesia has had several political unrests in Jakarta and Papua. A stable country offers foreign investors a supportive legal framework, predictability, and assurance of longevity.
Most areas in Asia are prone to natural disasters.
However, Vietnam’s industrial centers are mostly safe from the destruction of natural disasters, saving its economy from the impact and instability caused by these disasters.
Vietnam is also a largely diplomatic country.
It has close partnerships with key members of all economic blocs, including Europe, Africa, the USA, and Latin America. This is because Vietnam remains a neutral country in terms of geopolitical conflicts, making it a trustworthy ally to many countries.