Vietnam has great potential to attract more investments due to its cheap labor and increasing productivity as Direct Investment (FDI) is shifting away from China to its neighboring countries, said a report by HSBC.
According to the report, "The great migration - How FDI is moving to ASEAN and India," China has received the most FDI since the early 90s thanks to its surplus of labor, but investors have been seeking out its neighbors over the past two years because of rising costs in China due to increasing wages there.
Vietnam, which, relative to economic growth, attracts second-largest FDI investment in the region, along with Indonesia, is likely to benefit further in the migration due to "cheaper labor" and "large consumer markets", it said.
Vietnam's labor cost is the "cheapest" among major countries in the bloc, and its business environment is more competitive those found in India, the Philippines, and Indonesia though it trails behind Thailand and Malaysia.
The urbanization rate is still low at 30 percent, but is expected to continue rising in the near future, which means the Vietnamese labor force is set to expand, as people continue to shift from agriculture to manufacturing, it said.
HSBC estimated that over 60 percent of the population, currently below the age of 35, will provide an ample supply of labor over the next two decades.
Japan's increased investment in Vietnam is a "positive" regarding the latter's productivity and potential to expand its manufacturing.
Japan remains the biggest investor in Vietnam with FDI reaching US$5.13 billion to make up 40 percent of inflows into the country last year, while the figure was 25 percent in 2011.
HSBC suggests that Vietnam continue improving its economic framework so that FDI can accelerate its inflow.
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