By the Blouin News Business staff

Record FDI drives Vietnam’s region-leading growth

by in Asia-Pacific.

Source: Andy Le/flickr

Source: Andy Le/flickr

Vietnam’s economy is booming, pushed along by a surge in FDI that will continue into next year. On Tuesday the government approved Samsung Asia’s proposal to raise its investment in the Saigon Hi-Tech Park (SHTP) from $1.4 billion to $2 billion. This builds on Samsung’s announcement in August that it would invest an additional $3 billion through 2020 in Vietnam to boost production of smartphones’ display modules.

Vietnam has the fastest-growing economy in Southeast Asia, with nearly 7% expected for 2015. One demonstration of the country’s rising prosperity is the 60% jump in domestic auto sales this year. Among the increasing number of Vietnamese people with greater disposable income, many are switching from motorbikes (the typical means of transport) to cars. And the imported luxury vehicle market, while still small, is also experiencing massive growth.

FDI is a powerful driver of Vietnam’s economic growth, with inflows reaching $14.5 billion in 2015 — up 17.4% from the year before. The Samsung group, Vietnam’s largest foreign investor, has pledged more than $12 billion of investments in the country. According to SHTP chief Le Hoai Quoc, Samsung’s production will start in late February or early March. Other tech firms already operating at the SHTP include Microsoft, Intel, Rockwell Automation, and Vietnam’s FPT Corp.

Additionally, other major global firms like LG, Panasonic, Toshiba, and Sony are increasingly relying on factories in Vietnam to produce TVs, mobile phones, and electrical appliances. All told, Vietnam is estimated to export over $46 billion worth of mobile phones and electronics this year, up 33% from 2014 and comprising nearly a third of total exports.

By diversifying its economy towards electronics and garment manufacturing, Vietnam has avoided much of the economic malaise that the drop in commodities prices has caused for other Southeast Asian countries dependent on exporting raw materials. Furthermore, besides the country’s favorable geography (near busy international shipping routes, and with several key ports), and its low labor and operating costs, soon its forward-thinking trade diplomacy will bear fruit.

As a major exporter, Vietnam will be one of the biggest beneficiaries of the Trans-Pacific Partnership (TPP), which will slash an estimated 18,000 tariffs among the 12 participating countries. According to Eurasia Group, in 2025 Vietnam’s GDP will be boosted 11 %, or $36 billion, as a result of the TPP, the world’s largest trade pact. The country’s exports are expected to rise 28% in that period, as firms build additional factories there. Likewise, Vietnam’s forthcoming FTA with the E.U. will also boost growth by cutting tariffs.

Granted, China remains Vietnam’s top trading partner for both imports and exports. But Hanoi’s skillful economic management has decoupled the country from slowing down in tandem with China, since it is now more connected than ever with the global economy. That is no small accomplishment.