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FDI continues to play a pivotal role in driving Vietnam’s economic growth in 2023, reaffirming its significance as a key pillar of development. While the first quarter witnessed sluggish growth in FDI capital, the month of May brought promising improvements. As the global economy grapples with downturns and geopolitical tensions, the Vietnamese government remains committed to stabilizing the economy and attracting more FDI. These concerted efforts not only instill confidence but also facilitate the much-needed economic recovery. By fostering an investor-friendly environment, Vietnam is well-positioned to capitalize on the potential of foreign investment and propel its economic resurgence.
Overview of Vietnam’s FDI Performance in the First 5 Months of 2023
Highlights of Total FDI Value in the First 5 Months of 2023
On May 20, 2023, the Department of Foreign Investment (DFI), under the Ministry of Planning and Investment, released the latest information regarding the total foreign direct investment (FDI) in Vietnam. The figures for the first 5 months of 2023 demonstrate significant improvement, with a total registered FDI of approximately US$10.86 billion. The breakdown of this value reveals that newly registered capital amounted to over US$5.26 billion, marking a notable increase of 27.8% compared to the same period in 2022. Adjusted capital stood at US$2.28 billion, indicating a decline of 59.4% in comparison to the same period in 2022. Additionally, investment capital through capital contribution and share purchase reached nearly US$3.32 billion, reflecting a substantial growth of 67.2% compared to the same period in 2022.
By comparing the statistics with that of April 20, 2023, it becomes evident that FDI attraction in May 2023 has experienced some improvement, with a 10.6 percentage point increase. Although the total registered FDI in the first five months of 2023 remains lower than the previous year, the number of registered projects has risen by 17.9% during the same period. This increase in projects is driven by a significant rise in newly granted projects and the projects with a capital increase, which have grown by 66.4% and 22.8% respectively. However, the number of projects contributing capital and buying shares experienced a slight decrease of 4.6%, declining from 1,339 to 1,278.
The Foreign Investment Agency suggests that the growth rate of new projects surpasses that of total investment capital, indicating that small and medium-sized foreign investors continue to express interest in and confidence in Vietnam’s investment environment. Meanwhile, it’s also important to note that large corporations are cautiously evaluating the prospects of making substantial investments in Vietnam due to the potential impact of the global minimum tax policy.
Key Sectors Attracting FDI
According to the DFI, in the first five months of 2023, out of the 21 national economic sectors that received foreign investment capital, the processing and manufacturing industry continues to be the most attractive, with an impressive investment capital of over US$6.64 billion, accounting for 61.2% of the total registered investment capital.
The financial and banking sector, although ranking second, experienced remarkable growth of more than 12 times during the same period in 2022. The total investment capital in this sector reached over US$1.53 billion, representing more than 14.1% of the total FDI investment. The trading real estate and science & technology sectors secured the third and fourth positions, with a total registered capital of nearly US$1.16 billion and US$481 million respectively.
Major FDI Investors
The first five months of 2023 have seen Vietnam attract investment from a diverse range of countries and territories, with 82 of them recognizing the immense potential of this thriving nation. Among these investors, Singapore emerges as the frontrunner, injecting over US$2.53 billion into Vietnam, representing a significant share of more than 23.3% of the total investment capital. Japan secures the second position with a substantial investment of nearly US$2.1 billion, accounting for approximately 19.1% of the total investment capital—an impressive 2.2 times higher than the same period last year. China claims the third spot with a registered investment capital nearing US$1.61 billion, constituting 14.8% of the total investment capital. Other major contributors to Vietnam’s growth also include Taiwan, Hong Kong, and South Korea, among others.
Thriving Investment Destinations
Across Vietnam’s diverse provinces and cities, foreign investors have found fertile ground to sow their capital, with a total of 50 locations witnessing significant investment. Figures for the first 5 months of 2023 showing that leading the charge is the vibrant capital city of Hanoi, which has attracted a substantial registered investment capital of nearly 1.87 billion USD, accounting for almost 17.2% of the total registered investment capital, marking an impressive growth of nearly 2.7 times compared to the same period in 2022. Bac Giang claims the second spot with a total registered investment capital exceeding 1 billion USD, representing more than 9.4% of the country’s total investment capital. These figures are followed by the vibrant economic hub of Ho Chi Minh City, Binh Duong, Dong Nai, etc.
Vietnam’s FDI Outlook for 2023: A Beacon of Growth
Factors contributing to the improvement of FDI in the first 5 months of 2023
Foreign Direct Investment (FDI) remains a cornerstone of Vietnam’s economic growth in 2023, positioning the country as a shining example of swift integration into the global value chain.
According to economic experts and policymakers, Vietnam’s FDI growth prospects are bolstered by three key factors.
First, the positive economic growth achieved in 2022 establishes a solid foundation for further investments. Second, the government’s continuous efforts to stabilize and enhance the business and investment environment amidst the global geopolitical risks and economic recession, instill trust and confidence in potential investors. Specifically, to tackle those challenges, the government has been implementing flexible monetary policies and is actively engaged in guiding; offering policies to encourage and support enterprises, especially about taxes and also organizing the effective implementation of various laws such as the amended versions of the Law on Enterprises, the Law on Investment, etc. Finally, Vietnam’s effective utilization of the advantages presented by free trade agreements further enhances its attractiveness as an investment destination.
Even in the face of global financial tightening, stable FDI inflows have been instrumental in sustaining Vietnam’s growth momentum. In 2022, Vietnam and Malaysia emerged as regional powerhouses in FDI attraction, and this trend is set to continue in the current year. Notably, Vietnam holds a competitive advantage over other regional countries in securing foreign capital for green projects, thanks to its robust trade agreements with the UK and Europe.
Ms. Yun Liu – an economist specializing in the ASEAN market at HSBC Bank
A survey conducted by the Ministry of Planning and Investment, in collaboration with the Vietnam Business Forum Alliance, revealed that 76% of enterprises rated production support policies as effective, with value-added tax (VAT) exemptions and reductions, policies on stabilizing fuel prices, improved work permit and customs clearance procedures, and import/export policies garnering particular acclaim. These policies have played a crucial role in attracting FDI and supporting business growth.
FDI growth prospects and trends
Mr. Do Van Su, Deputy Director of the Foreign Investment Department, expresses high optimism regarding FDI attraction in 2023, forecasting an increase of 37% compared to 2022, with projected investments ranging from US$36-38 billion.
On June 2, 2022, the Government issued Decision No. 667/QD-TTg approved the Strategy for Foreign Investment Cooperation in the 2021 – 2030 period. According to Deputy Minister of Planning and Investment, Do Thanh Trung, the Foreign Investment Cooperation Strategy for the period 2021-2030 has set a clear objective of enhancing efficiency and comprehensive quality in attracting and utilizing foreign investment capital. The strategy emphasizes the importance of projects focusing on high technology, clean technology, renewable energy, and modern management. These projects aim to reduce labor, energy, land, and natural resource usage while generating high-added value, promoting green growth, and fostering inclusive and sustainable economic development.
The energy sector is also developing and has the potential to attract investment. Mr. Bui Trung Kien, Vice President of CME Solar Investment Company, highlighted the growing global interest in rooftop solar power as an investment opportunity. Technological advancements have significantly reduced the production and installation costs of rooftop solar power systems, thereby creating favorable conditions for both domestic and foreign investors to tap into this sector.
To attract high-quality investments in rooftop solar power, Vietnam is actively increasing investments in research and development. The country aims to diversify projects and enhance the quality of existing ones. Furthermore, Vietnam is fostering collaborations between businesses and research institutions to facilitate the emergence of innovative solutions that improve performance and reduce investment costs in the sector.
Challenges remain
However, despite its potential in improving FDI attraction, experts emphasize the need for Vietnam to proactively manage macroeconomic policies with flexibility and prudence. The ongoing risks posed by the global economy and political turmoil demand an agile approach to ensure Vietnam’s attractiveness and competitiveness in the eyes of international investors. In addition, the issues of protection for local domestic markets and enterprises; ensuring state budget revenue… also need to be considered carefully in the process of promulgating policies to attract foreign investment.
As Vietnam navigates the evolving landscape of global investments, its steadfast commitment to a conducive business environment, supportive policies, and leveraging trade agreements is poised to yield significant dividends. The country’s resilience and strategic approach position it as a beacon of growth in the region, beckoning investors to partake in its thriving economy and contribute to its remarkable journey toward prosperity.
The Bottom Line
While global uncertainties persist, Vietnam’s steadfast determination, strategic location, skilled workforce, and robust infrastructure position it as a reliable investment destination. Its ability to weather economic challenges and sustain growth makes Vietnam an attractive choice for forward-thinking investors seeking stable returns and long-term prosperity.
As investors seek promising ventures amidst the volatile global landscape, Vietnam stands out as a promising market with immense potential for growth. The country’s proactive measures, robust trade agreements, and favorable investment climate contribute to its allure as a strategic choice for investors.
To fully capitalize on the abundant opportunities Vietnam presents, it is crucial for investors to make informed decisions and leverage expert guidance. Viettonkin’s FDI consulting service stands ready to support and guide investors toward successful ventures in Vietnam’s promising market. With a deep understanding of the local business landscape, regulations, and market dynamics, we are confident to provide investors with invaluable insights and tailored strategies to maximize investment success.
Contact Viettonkin’s FDI consulting service today and position yourself for investment success.