After being afflicted by the Covid-19 pandemic for two years, in the wake of the new normal, the investment environment in Vietnam is expected to become a long-term hub for international investors, with promising potential for new projects. With favorable market circumstances, a comprehensive strategic partnership between the two countries, and policy support from the Vietnamese government, Russian investors now have the chance to seize the opportunities and begin investing in Vietnam immediately.

Despite the fact that the world economy has been severely impacted by the COVID-19 epidemic, Vietnam’s selective investment attraction policy of lowering quantity, enhancing quality, and removing small-scale enterprises that provide little value has begun to bear fruit.

According to the Ministry of Planning and Investment, Vietnam received $4.42 billion in foreign direct investment (FDI) in the first quarter of 2022, up 7.8% from a year earlier. The year 2022 is expected to be advantageous for drawing foreign capital flows. And Vietnam remains a secure, appealing, and potentially profitable investment destination for foreign investors, including Russian enterprises.

However, as comprehensive strategic partners, the potential for cooperation between the two countries is still great. Speaking at the end of 2021, President Nguyen Xuan Phuc assessed that Vietnam and Russia have a very good traditional relationship and mutual trust, but the two-way turnover was still low, reaching just over 5 billion USD. The number of investment projects was small, with 150 projects with a total investment of 150 billion USD.

Tough decision for Russian investors

Russia has only recently begun to provide political support to outflow investments, and then mainly to large energy companies whose investments in developing or transitioning economies have both commercial and geostrategic significance. Other companies (including small and medium enterprises) still receive little support. This stance of the Russian government, however, has accidentally put Russian investors into a tight spot.

It is not advised to make global investment decisions based on economic data without knowing the political context. The impact of politics on markets, now known as political risk, cannot be underestimated. Both political stance and political stability are, in fact, major factors that foreign investors have to take into account when choosing an investment destination. As the world becomes more volatile than ever, Russian investors will have a difficult time locating the ideal destination for their ventures. 

Suitable macro factors for Russian investments

In recent years, Vietnam has been considered by investors as a bright spot in ASEAN thanks to its stable politics, sustainable economic growth, abundant labor force, large market, growing per capita income, extensive international integration, competitive incentives, plus geographical location in the heart of Southeast Asia.

Located in a region where some countries are still vulnerable to political and economic instability, Vietnam has benefited from a stable government and social structure, making it an ideal location for capital investment. Due to its stability and political consistency, after 40 years of peace and development, Vietnam has become one of the most reliable investment destinations. One of the most important factors for FDI enterprises choosing to invest in Vietnam is security.

Vietnam has one of the fastest-growing economies in the APAC region. According to FocusEconomics, the country will have the fastest growing economy in the region in 2022, and this momentum is expected to continue into 2023.

The country has a beautiful sea route with a length of 3,444 km, which is an ideal condition to develop the maritime industry, trade, and tourism in particular, and rise to become a major shipping center in the world in general.

Vietnam also possesses young, highly skilled workers with a good work ethic and a literacy rate of more than 90%. The Vietnamese are well-educated and ready to serve in skill-demanding industries such as information technology, pharmaceuticals, and financial services at a more competitive cost than other countries in the region. Moreover, while English is increasingly preferred as a second language, Vietnamese are also interested in speaking other languages such as French, Russian, Chinese, Korean, and Japanese.

Moreover, Russian businesses will enjoy many other opportunities when they come to do business in Vietnam as Vietnam has joined 15 trade agreements, including many large-scale, high-standard agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Vietnam – EU Free Trade Agreement (EVFTA) and the Vietnam – Eurasian Economic Union (EAEU) Free Trade Agreement.

Science, technology, and innovation are always regarded as the most significant foundations for fast and sustainable growth in the country’s process of accelerating industrialization and modernization. Currently, as the Fourth Industrial Revolution and the process of international integration pose obstacles, the role of science, technology, and innovation has grown bigger than ever, becoming one of the breakthroughs in the country’s development strategy in the coming period.

Vietnam has set a target to speed up the development of science and technology for the 2021-30 period, with the establishment of modern research and development centers in both public and private sectors as a core mission objective. The trend will definitely create favorable conditions for foreign investors to renew their projects in Vietnam as well as bring in advanced technologies to this vibrant market.

Significantly improved legal environment 

In parallel with Vietnam’s considerable efforts to improve economic growth throughout the years, Vietnam’s legal and institutional framework has also witnessed significant improvements. 

Vietnam’s administrative system is highly appreciated for its open business environment, transparent investment policies, and favorable profit-based incentives for businesses.

Improvements in Vietnam’s policy mechanisms related to the business investment environment have made an important contribution to Vietnam’s ranking in the international period. Notably, Vietnam is ranked 70 out of 190 economies in the World Bank’s Doing Business 2020 report.

The National Assembly of Vietnam passed the Investment Law and the Enterprise Law (Amendment), which came into effect on January 1, 2021. The updates and changes in the respective laws are expected to make the operation easier. The private and FDI sectors, among others, have been made more favorable for doing business in Vietnam.

Vietnam’s stance on FDI

Attracting FDI has always been an important part of Vietnam’s external economic activities. Vietnam already has many comparative advantages and a strong investment environment, but is also working to become even more attractive to foreign investors, by drastically reforming the while recognizing that the FDI sector is an integral part of the economy – essential for restructuring the economy and improving national competitiveness.

Vietnam considers the success of FDI enterprises to be its own success. Therefore, the Government is committed to ensuring a stable socio-political environment, protecting the legitimate rights and interests of investors, and creating a favorable environment for domestic FDI enterprises.

In the medium and long term, Vietnam will continue to make efforts to attract and effectively use FDI inflows to promote socio-economic development. Vietnam will move towards “high-quality” FDI inflows by focusing on FDI projects with advanced technologies that are both environmental friendly and sustainable. The country will also target projects with competitive products that could be part of a global production network and value chain.

Conclusion

Vietnam remains an attractive destination for FDI, which is likely to experience a surge in 2022 after a long hiatus due to the pandemic. As the country is ready to move into a new normal, now is the time for foreign investors to act fast and take advantage of the advantages and opportunities that the Vietnamese market has to offer. Thanks to the government’s favorable policies for foreign investment as well as several trade agreements, such as the EAEU Free Trade Agreement, Russian businesses can now feel more secure and confident in participating in the region’s most potential market.

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