FDI

FDI in Vietnam: Policies & Prospects

Trường Lăng

November 24, 2023

FDI

FDI in Vietnam: Policies & Prospects

Trường Lăng

November 24, 2023

FDI in Vietnam is the driving force behind the nation’s economic expansion. As an attractive destination for foreign investment, Vietnam’s growth is propelled by a strategic approach to welcoming investors. In this article, we explore the dynamics of foreign direct investment in Vietnam and recommend steps for further enhancing its investment landscape. By examining key sectors for investment and emerging trends, we aim to provide valuable insights into how the country can continue to attract investors and diversify its sources of FDI. As Vietnam continues to evolve, understanding its FDI landscape is essential for investors, businesses, and policymakers alike.

Current Landscape of FDI in Vietnam

Overview of the Current State of FDI in Vietnam

As of September 20, 2023, Vietnam continues to be a shining star in the realm of Foreign Direct Investment (FDI). The country has registered a staggering increase in foreign investment, with the total capital reaching nearly 20.21 billion USD, a substantial 7.7% growth compared to the previous year. Particularly noteworthy is the realized FDI capital, which in the first nine months of 2023 amounted to an estimated 15.91 billion USD, marking a remarkable 2.2% increase over the same period in the previous year. This remarkable achievement represents the highest amount of realized FDI in a nine-month period over the past five years. Vietnam’s robust economic environment and favorable investment climate continue to make it a top choice for foreign investors.

Accumulating to September 20, 2023, Vietnam boasts a total of 38,379 valid projects, backed by an impressive registered capital of 455.06 billion USD. Notably, the accumulated realized capital from these foreign investment projects has surged to nearly 289.9 billion USD, a figure equivalent to a remarkable 63.7% of the total valid registered investment capital. This data reinforces Vietnam’s status as a premier investment destination in the Southeast Asian region.

Analysis of Significant Sectors and Industries Attracting Foreign Investment in Vietnam

Foreign investors are placing their bets on a diverse array of sectors within Vietnam’s thriving economy. Out of the 21 sectors classified under the national economic system, foreign capital has flowed into 18, with the processing and manufacturing industry leading the way, accounting for over 14 billion USD. This sector dominates the FDI landscape, making up 69.3% of the total investment and experiencing a robust 15.5% year-on-year growth. Real estate follows with an investment totaling about 1.94 billion USD, contributing 9.6% of the total, despite experiencing a 45% decline compared to the same period last year. Banking and finance and wholesale and retail sectors also experienced significant growth, with investments of 1.54 billion USD (a staggering 63.8-fold increase compared to the previous year) and nearly 734 million USD (an 18.7% annual increase), respectively.

Significant Sectors and Industries Attracting Foreign Investment in Vietnam
Foreign investors are placing their bets on a diverse array of sectors within Vietnam’s thriving economy.

An intriguing highlight is the processing and manufacturing sector, which not only attracted the most newly registered projects (accounting for 32.6%) and capital-adjusted projects (56.3%) but also showcased exceptional performance. Wholesale and retail also led in the number of capital contributions and share purchases, accounting for 41.4%.

Examples of Successful FDI Projects in Vietnam

Vietnam’s attractiveness to foreign investors is underscored by several successful ventures. One prominent example is Samsung, which has invested a staggering 20 billion USD in the country, reflecting the scale of foreign interest in Vietnam. LG is another key player with an impressive investment of 7.5 billion USD over the past five years, continuously expanding its presence through capital injections into its factories. Notably, Lego Group of Denmark initiated a momentous project worth over 1.3 billion USD last year. Recognized as the first global carbon-neutral project in Vietnam, this investment aligns with the nation’s commitment to achieving net-zero emissions by 2050, signifying a significant shift toward green investments in the region.

Examples of Successful FDI Projects in Vietnam
LEGO builds biggest foreign-invested factory in Binh Duong, Vietnam. Source: Lego

Vietnam’s Policies and Initiatives to Attract FDI

Vietnam’s Robust Free Trade Agreements: Catalysts for Foreign Capital Inflow

Vietnam actively engages in a series of free trade agreements (FTAs), forming a strong foundation for foreign capital inflow. Notably, the country is part of a new generation of FTAs, including the European Union-Vietnam Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP). These agreements open doors to 55 countries, including 15 G20 members, facilitating exports and enhancing Vietnam’s appeal for FDI.

Vietnam's Policies and Initiatives to Attract FDI
 CPTPP member countries. Source: VGP

The Vietnam-EU Investment Protection Agreement (EVIPA) within the EVFTA framework further entices FDI, particularly from European and preferential tax-seeking countries. The Vietnamese government’s proactive stance, in alignment with these FTAs, reinforces the nation’s potential to attract foreign investment.

Highlighting the Legal and Administrative Framework Supporting FDI to Vietnam

Vietnam’s legal and administrative framework underpins its commitment to attracting and safeguarding foreign investments. It offers a transparent, predictable, and favorable environment for investors. The one-stop-shop system streamlines administrative processes, while mechanisms for dispute resolution instill trust in foreign investors.

Moreover, Vietnam has implemented a range of policies, including Resolution No. 50-NQ/TW, the Law on Technology Transfer 2017, the Law on Investment 2020, and other regulatory decisions, to bolster its investment climate. Recent government decisions, such as Decision No. 29/2021 and Decision No. 667, emphasize special investment incentives and the Foreign Investment Cooperation Strategy for 2021-2030, respectively.

Decision 667 aims to increase the share of foreign investment capital from Asian, European, and U.S. sources to over 70% of total capital disbursed in Vietnam by 2025 and 75% by 2030. The strategy specifically targets leading investors like Singapore, South Korea, Japan, China, Taiwan, as well as countries such as Malaysia, Thailand, India, Indonesia, and the Philippines. Simultaneously, the plan strives to elevate investment from EU partners, including France, Germany, Italy, Spain, Russia, the UK, and the United States.

Additionally, Decision 667 sets an objective to position Vietnam among ASEAN’s top three and the world’s top 60 in terms of the business environment, according to the World Bank classification. These concerted efforts underscore Vietnam’s unwavering commitment to attracting foreign investments and fostering a thriving business environment.

Recommendations for Attracting More FDI to Vietnam

Certainly, attracting more FDI to Vietnam demands a multifaceted approach. To achieve this, the Vietnamese government must employ several strategies:

Firstly, the government should persist in promoting investments. By actively seeking out and enticing multinational corporations and globally recognized brands to invest in Vietnam, particularly from regions renowned for their technological prowess, capital strength, and managerial acumen, such as the US, the European Union (EU), and Japan, Vietnam can continue to bolster its investment landscape.

Secondly, a selective approach to investment attraction is crucial. FDI must prioritize quality over quantity, with stringent assessments ensuring projects adhere to criteria that drive rapid and sustainable economic development. Vietnam’s ongoing efforts to enhance its institutions and policies will enable it to focus on selectively attracting foreign investments, emphasizing quality, efficiency, technology, and environmental sustainability as evaluation benchmarks.

Thirdly, the government should enhance the business investment environment. In addition to ongoing administrative procedure reform and investment environment improvements, Vietnam should cater to the demands of multinational corporations concerning negotiation timelines, agreement signing, and implementation declarations. Prioritizing strategic investors and establishing a global production chain will strengthen the country’s appeal to high-tech enterprises and encourage technology transfer to domestic firms.

Fourth, offering investment support incentives is crucial. Vietnam should not only provide a favorable business environment but also introduce compelling support packages. Recent amendments to the Investment Law and related legislation have incorporated competitive incentives, making it more attractive for investors. Establishing mechanisms that support domestic enterprises in collaborating with FDI firms through interest rate subsidies, financial assistance, and access to investment resources will upgrade local supporting industries, allowing them to actively participate in the global supply chain.

By adopting these recommendations, Vietnam can pave the way for more FDI, strengthening its economy and boosting its global standing.

Final Thoughts

In summary, FDI in Vietnam serves as the driving engine behind the nation’s economic development. The nation’s strategic approach to attracting foreign direct investment has borne remarkable results, evident in the substantial increase in registered and realized capital. With the potent combination of favorable policies, a diverse range of sectors, and strategic initiatives, Vietnam has become a magnet for foreign investment. As the country charts its course for the future, the potential for attracting even more foreign direct investment is substantial. To embark on this journey of growth and opportunity, we invite you to explore Viettonkin, where our expertise in facilitating FDI in Vietnam can be your guiding light. Together, we can shape a brighter and more prosperous future.

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