These figures stand as a testament to Vietnam's resilience and attractiveness in the face of a complex global geopolitical landscape, where efforts to repatriate investment capital and foster relationships with friendly nations are gaining momentum.
Five New Trends Shaping the Global Investment Landscape
The world is undergoing a transformative phase, characterized by evident shifts in supply chains, international investment dynamics, and geopolitical interactions. Richard Hass, a former government advisor and director of policy planning for the US State Department, has aptly described the current global milieu as "a world of overturned orders." Alongside this geopolitical uncertainty, the global financial market is undergoing intricate changes, dismantling old paradigms while shaping new, enduring trends. Presently, five pivotal trends are shaping the landscape of global investment.
Firstly, there is a growing inclination to relocate supply chains closer to home or to friendly countries.
Secondly, investments are increasingly driven by geopolitical priorities rather than traditional economic factors, as evidenced by the imposition of approximately 2,500 restrictions and barriers in 2022, a threefold increase compared to 2019.
Thirdly, there exists the looming risk of supply shocks triggering significant price and financing cost hikes. Recent examples, such as India's rice export ban and oil supply constraints by the Arab bloc, have propelled rice and oil prices to new highs. Oil prices have surged from over USD 70 per barrel to nearly USD 100 per barrel in a short span, engendering concerns about a resurgence of inflation.
Fourthly, global interest rates are trending upward, with many experts suggesting that a return to pre-Covid-19 interest rate levels will be challenging over the next decade.
Lastly, there is mounting pressure to adopt environmentally sustainable practices, mitigate climate risks, and transition toward more sustainable modes of production and investment.
Geopolitical risks have intensified since 2020, necessitating a reevaluation of investment strategies.
A New Medium-Term Macroeconomic Landscape for Vietnam
In the medium term, Vietnam faces a shifting macroeconomic context characterized by a confluence of factors. Notably, the US dollar is poised to maintain high interest rates for an extended duration, potentially posing challenges for Vietnam's monetary policy if continued reliance on easing measures to stimulate credit persists. Additionally, the nation confronts a landscape marked by geopolitical fragmentation, intensified by competition and mutual sanctions. This dynamic compels domestic companies to expedite the shift toward agile and diversified supply chains, reducing dependence on any single country. Within this evolving backdrop, Vietnam encounters a series of both challenges and opportunities.
On the positive side, Vietnam's political stability assumes a pivotal role in instilling confidence among foreign investors, positioning the nation for a phase of sustained amicability and fostering enduring investment cooperation. Vietnam's geopolitical profile is characterized by a lack of significant threats to major global powers, bolstering its appeal as a stable investment destination. Moreover, the previous emphasis on low-cost production is giving way to a focus on supply chain diversification, and Vietnam stands as an attractive option in this regard.
Consequently, the "production pie" is now being divvied up among numerous countries, alleviating the price competition pressure that Vietnam once faced as the world's primary manufacturing hub. This transformation is significant, as low prices are no longer the sole or dominant competitive edge, especially with emerging low-cost economies in South Asia and Latin America.
Nonetheless, Vietnam grapples with several challenges in this evolving landscape. Firstly, the nation confronts an investment environment where high USD interest rates are set to persist, exerting pressure on the exchange rate. A stable domestic currency is essential for preserving investor confidence, safeguarding purchasing power, and contributing to overall socio-economic stability. However, this stability conflicts with the imperative of maintaining a "comfortable" interest rate level for domestic businesses.
The second challenge revolves around mitigating risks stemming from the intricate geopolitical situation and circumventing stringent investment licensing procedures. Some foreign capital flows may opt for indirect investment routes, involving the acquisition of Vietnamese domestic companies to establish new supply chains within the country. Ensuring that these capital flows do not introduce outdated and polluting technologies into Vietnam, thus avoiding the country's transformation into a foreign production base or a "technology dumping ground," necessitates sustainable solutions.
In this complex milieu, the prominence of "geopolitical risks" and "interest in shifting production to the domestic market" has surged since 2020, rising by nearly 60% compared to the average during the period from 1985 to 2019.
