Vietnam Still Hot for American Investors

Posted on August 31, 2012


Vietnam’s economy is still at the starting gate 37 years after unification and 67 years after communists’ takeover

Though Vietnam has struggled to recapture the supercharged growth rates it once enjoyed – and countries like Indonesia and the Philippines are increasingly seen as more attractive for investors – it is still a prime market that American companies are seeking to expand in.

That’s another of the more surprising conclusions from a recent surveyconducted by the American Chamber of Commerce in Singapore (AmCham Singapore) and the U.S. Chamber of Commerce, which was reported earlier by The Wall Street Journal.

The survey, which polled more than 350 leaders of U.S. companies operating in the region, not only found that more American employees are asking to relocate to Southeast Asia – a surprise to analysts who have long assumed China and India were the hot spots – but also found that 57% of the companies polled intended to expand their operations in Vietnam, compared to a mere 6% in Indonesia and 11% in Thailand.

For American companies already operating in Vietnam, 82% expect an increase of profits next near and more than half are planning an expansion of their workforce. Such results are a sign that sentiment around the country among some companies remains positive, despite a significant slowdown in gross domestic product growth in Vietnam over the past few years, as well as other signs of macroeconomic instability, including a series of currency devaluations and a sharp rise in non-performing loans in the Vietnamese banking system.

Analysts have widely argued that Vietnam needs to pursue more aggressive economic overhauls, including steps to privatize state companies, if it wants to start attracting new rounds of big foreign investment.

The survey did indicate that many American businesses in Vietnam remain skeptical about efforts to stamp out corruption there, with 77% of those polled perceiving bribes and kickbacks as a concern. This figure was only higher in Cambodia, where 81% of companies expressed such concerns, and Indonesia, where 87% are still worried about corruption in the country.

The survey didn’t explain the apparent disconnect between Americans’ desire to expand their operations in Vietnam even as they worry about corruption and other issues. But the country continues to offer some appeal for Western investors, despite the recent economic problems there.

Its sizable consumer market of 91 million and relatively low-cost labor pool are still attractive for many companies, and some may be betting that the country will grow out of its economic problems eventually. Some economists have argued that steps to tighten credit and rein in inflation have positioned Vietnam to rebound once the global economy recovers from its recent slump, though that remains to be seen in the coming years.

Political relations between Vietnam and the U.S. have also continued to improve, especially as Hanoi locks horns with the region’s other economic power, China, over territorial rights in the South China Sea – all of which could make American companies feel even more welcome in Vietnam than before.

Meanwhile, the survey also polled U.S. companies on their perceptions around the much-hyped market of Myanmar. Many American businesses have spent the year searching for opportunities in the country – once virtually inaccessible thanks to years of long-standing sanctions on the country – but many are still hesitant to place big bets until they know more about the nascent market.

Still, more than 53% of companies polled are planning to start exporting to Myanmar, with another 52% aiming to invest in the country. Overwhelmingly, American companies in Southeast Asia – almost three-quarters of them – were in favor of the U.S. government’s recent decision to suspend some sanctions on Myanmar, even if they are not yet planning to leap into the market.

Finally, the survey yielded yet another sign that Southeast Asia is climbing higher on the priority list for investors and companies: 21% of them are planning to divest from China and reinvest in countries in the Southeast Asian, compared to just 15% last year.