PwC EM20 Index shows that Vietnam remains attractive for foreign investment

Ho Chi Minh City 20 August 2008 – The second annual PricewaterhouseCoopers (PwC) Emerging Market 20 Index shows that the BRIC countries (Brazil, Russia, India and China) continue to offer good opportunities for investment. However, the results of PwC’s innovative country risk and reward model also indicate a range of other locations that can offer attractive alternatives. Based on an Index Value of 85, Vietnam is now ranked 5 ^th most attractive emerging market destination for investments in manufacturing, compared to its number one position in 2007. The change in rank reflects mostly changes in the selection of the countries PwC considered for the update. Based on macroeconomic data, a number of countries studied last year, for example the Czech Republic, Hungary and Saudi Arabia no longer meet the criteria for inclusion in the Model. On the other hand, three of the four countries preceding Vietnam, namely Egypt (Index Value 95), Bulgaria (93) and Serbia (88) did not qualify for inclusion to the index calculations in 2007.

For manufacturing companies seeking to invest in emerging markets, low production costs are, of course, essential but other facts then come into play, including a country’s risk premium, its distance from key export markets, and local taxes. Amongst the Asian countries in the PwC EM20 Index, India tops the Manufacturing Index (ranked fourth overall), whilst Thailand (11 ^th /Index value 82), Malaysia (13 ^th /81) and China (14 ^th /81) are ranked below Vietnam. Whilst neighbouring Cambodia did not qualify for inclusion in the top 20 of the Manufacturing Index, largely due to the small size of its current manufacturing base, the country has been identified as a location with a promising future for manufacturing investment due to the wide availability of low-cost labour and its falling country risk premium.

Although countries like Vietnam and Cambodia are still relatively small economies, their low-cost bases can sometimes offer higher margins to manufacturers. Despite China being an attractive investment location, it may be surprising to many that it is not one of the top ten most attractive destinations for manufacturing investment as measured by the Manufacturing Index. Its 14 ^th place may even seem counterintuitive, given the high prominence of China as a recipient of manufacturing-based foreign direct investment (FDI). It is worth noting, however, that as the incomes of Chinese workers rise, they will become more attractive consumers for service providers such as retailers and hoteliers in the coming years.

Ian Coleman, UK head of emerging markets, PricewaterhouseCoopers LLP, commented: “The main reason why China trails countries such as India and Vietnam is that the EM20 risk-reward index is a ratio measure which does not take into account the absolute size of a country’s market. If a company was looking to develop a very large-scale manufacturing facility, the labour capacity and physical infrastructure required would arguably rule out some of the countries at the top of the Manufacturing Index and would increase China’s relative attractiveness.”