1. General assessment
In recent years, Vietnam has become an important link in the global supply chain. Regarding the total implemented foreign direct investment (FDI) capital in the last 7 years (2013-2019), Vietnam (USD 92.48 billion) surpassed Thailand (USD 60.21 billion), Malaysia (USD 61.51 billion), Philippines (USD 51.45 billion) and Myanmar (USD 17.47 billion) both in terms of absolute value and proportion of FDI value on the size of the economy. Although Vietnam was ranked lower than India (USD 218.74 billion) and Indonesia (USD 126.93 billion) in absolute value, its proportion of FDI value to size of the economy was 3.7 times and 5.7 times greater than that of India and Indonesia, respectively.
The COVID-19 pandemic has created a new turning point for international investment. With the aim of minimizing supply chain disruption and diversifying production portfolios to avoid over dependence on one country, the acceleration of moving production activities from China to other countries will take place more quickly. Many large enterprises such as Pegatron, Amazon and Home Depot have started to recruit labor and develop supply chains in Vietnam, which shows that Vietnam is one of the leading destinations in this move besides other potential regional countries such as Indonesia, Thailand and Malaysia. These countries are the very direct competitors of Vietnam in attracting foreign investments in the region.
Regarding business costs, a comparison of land rents in industrial zones in Southeast Asian countries in the first quarter of 2020 shows that Vietnam is attractive with the average rent is only equivalent to 40-45% of those in some ASEAN countries such as Indonesia, Thailand and Malaysia and 33-47% lower than those for industrial land in some major cities in China . At the time of 2019, the average wage in the manufacturing sector in Vietnam was also lower than those of the above three ASEAN countries and equal to only one third of that of China. Regarding electricity prices for businesses, research as of March 1, 2020, showed that Vietnam imposed a lower rate than China and most of Southeast Asian countries.
In terms of domestic public investment, with the 2020 public investment plan of USD20 billion and with the remaining undisbursed value of USD9.5 billion in 2019, the total expected disbursement of Vietnam in 2020 will value about USD30 billion. This will help push the implementation of the ongoing and upcoming infrastructure development projects in Vietnam, connect the infrastructure and logistics services in industrial zones in satellite provinces with urban and international logistics centers in Vietnam, and from that base, improve the competitive advantage of Vietnam over other regional countries in attracting FDI. Besides, Vietnam has greater advantages in terms of political safety and economic security after the Covid-19 pandemic. The early successful control of this epidemic helped Vietnam to gain an advantage over other countries in attracting foreign investments.
2. Some comparisons in details Vietnam – China
China is the most populous country in the world with a population of over 1.4 billion people with an area of about 9.6 million km² . Since the commencement of the economic reform in 1978, China has become one of the large fastest growing economies. In 2019, the size of the economy of China was USD27.8 trillion - ranked the first in the world by purchasing power parity (PPP), the nominal GDP was USD14.1 trillion - ranked second below the United States (US), the per capita income was USD 10,098/person - ranked 65th in the world by nominal value (2019) or USD 20,984/person - ranked 67th in the world by purchasing power (as estimated for 2019-2020)8. However, China is facing controversial challenges both inside and outside the country such as environmental pollution, income inequality, the gap between urban and rural living standards, corruption, secessionist movements in Xinjiang, Tibet and Hong Kong and commercial, diplomatic and technological sanctions and embargoes imposed by the US. The data of the US Census Bureau shows that the volume of goods imported to the US from Vietnam in 2019 increased by 35.6% in comparison with that of the same period of 2018, which was in contrast to the 16.2% decrease in the volume of goods imported from China to the US. Additionally, the COVID-19 epidemic is pushing the trend to relocate production capacity away from China, which has been further spurred by the earlier US-China trade tensions.
The economic reforms in Vietnam started 10 years later than the reforms in China, however, Vietnam has a number of outstanding advantages over China. Especially: - Labor costs: The chart below shows that the minimum wage set by the Chinese Government for 2020 is 1.94 times higher than that of Vietnam, the average wage in general and the average wage in the manufacturing sector in China are even higher at 3.74 and 3.16 times, respectively, compared to Vietnam. The costs of compulsory insurance (including social insurance, health insurance, unemployment insurance) according to current regulations (in 2020) in China are also much higher than in Vietnam.
 - Land rental: In 2019, the rent for industrial land in some major cities in China was USD180/m² while, in Vietnam, it was about USD100-140/m². The average land rent in industrial parks in Vietnam in 2019 was even lower at about USD91.5/m²/lease cycle. This is clearly a very attractive factor of Vietnam for potential manufacturers.
- Electricity prices: As of March 1, 2020, the electricity price for households in both countries were the same at USD0.081/kwh but the electricity price for business in China (USD0.099/kwh) was higher than that of Vietnam (USD0.076/ kwh) by USD0.023/kwh.
Tax: Vietnam also has an advantage over China in applying a sales tax rate (Value Added Tax or VAT) of 10% compared to 13% in China and a corporate income tax of 20% compared to 25% in China. 10 Source: CBRE, Savills, Colliers, JLL
- Economic growth: For 2 years now, Vietnam has achieved higher GDP growth rates than China. Vietnam's GDP growth rates in 2018 and 2019 were 7.08% and 7.02%, respectively while those of China were 6.6% and 6.1%.
Vietnam - Indonesia
Indonesia is a member of the G20 group and is the biggest economy in Southeast Asia, classified as a newly industrialized country. As of 2019, its was the world’s 16th largest economy by nominal GDP and the 7th in terms of GDP at PPP, estimated to be USD1.122 billion and USD3,470 billion, respectively. However, because of its high population (over 274 million people), its GDP per capita is still below the average. Indonesia has some disadvantages compared to Vietnam in attracting foreign direct investments:
- Politics: Indonesia regularly faces problems of religious tensions and secessionism which lead to violence threatening the economic and political stability of the country. The different ethnic groups on thousands of islands create rifts and difficulty for the management of the central government. On the contrary, as mentioned above, the political situation in Vietnam is stable and is one of its strengths in attracting foreign investment.
- Geographical location and natural disasters: Indonesia is located on the edges of the Pacific, Eurasian and Australia tectonic plates, making the country home for many volcanoes and regular earthquakes and tsunamis. Indonesia is one of the countries most affected by climate change. In 2017, Indonesia suffered from 2,341 natural disasters. The Java Sea level is rising fast, and Jakarta is in danger of sinking faster than other major cities in the world. In addition, as an archipelagic country with certain distances from area to area, the transport and communication connections meet many difficulties and, in many areas, it is even bad. Unlike Indonesia, Vietnam has less danger from earthquakes and tsunamis. Most of Vietnam's area is an S-shaped mainland strip with roads and railways connecting the provinces from North to South, creating favorable conditions for commodity transportation. Vietnam also has the advantage of being close to China, so transportation is more convenient, especially for benefiting from the movement of factories away from China and expanding investments outside the current base in China.
- The high proportion of the poor, the rich-poor disparity and increasing income inequality are big challenges for modern Indonesian society. After many efforts of the Government, in September 2019, the proportion of poor people in Indonesia decreased to 9.22% of the population. However, in 2020, its poverty rate will go back to the 12.49% milestone of 2011, which means that around 37 million Indonesians may face poverty due to the Covid-19 epidemic. Meanwhile, in Vietnam, by the end of 2019, the average poverty rate of the whole country was 3.75%. It is expected that by the end of 2020, this rate will decrease to below 3%14.
- Wages: In Indonesia, the minimum wage is announced monthly by provincial councils. Jakarta is the locality with the highest minimum wage of IDR 4,200,000/month, equivalent to USD 287.16/month, the Central Java province applies the lowest minimum wage of USD 119/month. According to tradingeconomics.com, the average wage in general in Indonesia was USD 192.59/month in Quarter 1/2020, which is much lower than Vietnam. However, according to a report by JETRO in 2019, the average wage in the manufacturing sector in Indonesia was USD 348/month which was 1.47 times higher than the rate of USD 236/month in Vietnam.
- Productivity: The productivity of Indonesia is still quite low. According to JETRO's survey results, the Productivity Index in Indonesian factories is 74.4 points on the 100-point scale while those of the Philippines, Singapore, Thailand and Vietnam respectively are 86.3; 82.7; 80.1 and 80 points.
- Tax: The corporate income tax rate being applied in Indonesia is 22% which is 2% higher than in Vietnam.
- Land rent: The rent for industrial park land in 2019 in Indonesia was USD201/ m²/lease cycle which was 2.19 times higher than the rate of USD91.5/m²/ lease cycle in Vietnam.
- Electricity price: Electricity price for businesses in Vietnam is about 8.5% higher than the rate of USD 0.07/kwh in Indonesia. However, the tariff for households in Vietnam is only 81.8% of the USD 0.099/kwh level in Indonesia. Macroeconomics: Indonesia's GDP growth rates in the last 2 years were lower than those of Vietnam with 5.2% 1 1 in 2018 and 5.0% in 2019. Similar to Thailand, Malaysia and some other Southeast Asian countries, Indonesia is also forecasted by ADB to have a negative GDP growth rate (-1%) for the whole year of 2020. Furthermore, the Vietnamese Dong has recently been very stable compared to the fluctuation of the Indonesian IDR. Vietnam has participated in many free trade agreements (FTAs) such as EVFTA and CPTPP which Indonesia does not join.
Vietnam – Thailand
Thailand is the second largest economy in Southeast Asia, just below Indonesia. Thailand is now a newly industrialized country where manufacturing, assembling, manufacturing industrial goods, exporting agricultural products, tourism and services take key roles in its economy. Thailand is an attractive destination for foreign direct investment and a competitor to Vietnam in this field. However, Vietnam has many advantages over Thailand:
- Politics: While Vietnam is highly appreciated by investors for its stable political and macroeconomic environment, political instability can be seen regularly in Thailand, causing significant impacts on its economy. Recently, in September and October 2020, thousands of Thai people went out to the streets to call for withdrawal of deposits from the Siam Commercial Bank where the Royal family was a major shareholder. The enterprises being advertised on TV channels, which were considered sympathetic to the government, were also boycotted. Shopping malls had to be closed. The Thai tourism industry which contributes about 15% of its GDP and which has seriously been affected by the Covid-19 epidemic continues to be affected
- Land rent: The average land rent in industrial zones in Thailand is USD217/m²/ lease cycle which is 2.37 times higher than the rate of USD91.5/ m2/ lease cycle in Vietnam.
- Electricity prices: Figures as of March 1, 2020 shows that the average electricity prices for households and for businesses in Thailand are both 1.5 times higher than those in Vietnam. The average electricity prices for households and for businesses in Thailand are USD0.122 and USD0.12/kwh, respectively, while these figures in Vietnam are USD0.081 and USD0.076/kwh.
- Market size: In 2019, Vietnam's population was over 96.2 million people while Thailand’s are 66.6 million people. Foreign investors have to think thoroughly when investing in this country. The Securities Index (SET) of Thailand has been steadily decreasing since the large-scale demonstration occurred here.
- Geographical location: Thailand is located in the middle of Southeast Asia, controlling the only route from the Asian mainland to Malaysia and Singapore. However, Vietnam’s location is more advantageous as it is the connection center of the region, a gateway to penetrate the economies in the Western part of the Indochinese peninsula. Vietnam is bordered by China - a big economy and the most populous country in the world. Vietnam has a long coastline, is adjacent to the East Sea and close to the world's main transportation routes. Geologically, Vietnam suffers from much lesser tsunamis and earthquakes than Thailand.
- Labor costs: The chart below shows that Thailand is inferior to Vietnam in terms of low labor costs. The average wage in Vietnam is only two-thirds of that in Thailand. The average wage in the manufacturing sector in Thailand is about 140% of that in Vietnam or about 40% higher than that in Vietnam. (Time of statistics: Quarter 1 of 2020) That means Vietnam has 1.4 times more consumers than Thailand.
- Economic growth: While Vietnam's GDP growth rate has been increasing over the past two years, Thailand's not only went down but also stayed at a much lower level in comparison with Vietnam. In 2018, Thailand's GDP growth rate was 4.2% and, in 2019, it decreased to 2.4%. As forecasted, Thailand's GDP may drop to -8% in the whole year of 2020 while Vietnam may be one of a few countries with positive growth rate (about + 1.8%) this year.
Vietnam – Malaysia
Malaysia is the third biggest economy in Southeast Asia after Thailand and Indonesia and is ranked the 11th in Asia and the 33rd in the world. It’s GDP has grown at an average of 6.5% per annum for nearly 50 years, the Human Development Index (HDI) stands firmly at a very high level. Malaysia's population in 2019 was about 32 million people. Although it is a crowded territory with various religions and races, people here live peacefully and in harmony. Malaysia is a safe country with a low crime rate. The laws and atmosphere are favorable for businesses. Malaysia is always open to foreigners who can even buy real estate in their own name while the ownership of real estate is still impossible in most Southeast Asian countries. Malaysia also has good relations with all countries in the world and is not hostile to any of its neighbors. However, a chain of short-term political crises occurred in Malaysia in 2019 and 2020 that may result in a profound long-term impact on its political and economic stability. Although Malaysia is considered an attractive destination and a successful country in attracting FDI, Vietnam has some advantages over Malaysia in this respect:
- Investment procedures: Malaysian investment procedures are different from those in Vietnam. The Malaysian Investment Development Authority (MIDA) issues a separate investment incentive certificate to an investor. It does not combine the investment incentives (if any) and the business registration in an investment certificate as specified in the investment law of Vietnam. In addition to the business registration, a foreign investor in Malaysia is also required to obtain a production license from MIDA. In Vietnam, only a few conditional businesses are required to have certificates of business eligibility before starting the businesses. Thus, in this regard, Vietnamese regulations are more open than Malaysia.
- Population: Vietnam’s population is 3 times bigger than Malaysia's. Vietnam also has an advantage of a younger population while 70% of its population (about 67 million people) is aged from 15 to 64. In Malaysia, the number of people at this age is about 21 million, accounting for 65.4%.
- Wages: The minimum wage stipulated in Malaysian regulations for 2020 is USD289.81/month which is 1.5 times higher than that stipulated for the same year in Vietnam. The average wage in general in 2019 and the average wage of the manufacturing sector as of August 2020 in Malaysia were both 2.5 times higher than those in Vietnam.
- Macroeconomics: Since 2013, Vietnam's GDP growth rate has generally been on the increase while Malaysia's has been fluctuating up and down. In the past two years, Malaysian GDP grew at quite low rates and tended to decrease (4.8% in 2018, 4.3% in 2019). ADB even forecasts that its GDP would be negative at -5% in 2020. Furthermore, Vietnam is considered an environment with more economic freedom. In Malaysia, there are restrictions, and some products are highly taxed.
- Land rent: The average land rent in industrial zones in Malaysia is USD224/m²/lease cycle which is 2.44 times higher than the rate of USD91.5/m²/lease cycle in Vietnam.
- Electricity price: The electricity price for businesses in Malaysia is USD0.103/kwh which is 1.35 times higher than the price of USD0.076/kwh in Vietnam, but the electricity tariff for households in Malaysia is only USD0.059/kwh - the lowest rate in Southeast Asia and equal to only 72.8% of the level of USD0.081/kwh in Vietnam[1].