With 9.265 valid projects, Korean FDI remains one of the largest foreign investment in Vietnam. Total registered capital accumulated by $78.6 billion by the end of March 2022, almost doubled that of 2015 ($43.7 billion) when the Vietnam – Korea Free Trade Agreement (VKFTA) first started. Evidently, Vietnam is still Korea’s favorite investment destination despite the spread of COVID-19.
Korean FDI dominating fields in the past and now
In Vietnam, Korean companies mainly focus on investing in specific fields such as the processing and manufacturing industry, electronics, technology, logistics, and construction. In 2017 and earlier, manufacturing was the leading industry with the highest balance of FDI capital from Korea, with a percentage of over 70%. Yet, the share of investment in the manufacturing industry gradually fell to 62% in 2018, 57% in 2019, and 61% in 2020.
On the other hand, sectors like construction, real estate, distribution and retail, finance, and insurance have been increasingly attracting FDI from South Korea in recent years. Despite dropping below 4% in 2019, the proportion of Korean investors’ investment in construction and real estate has increased to more than 10% in 2020, reaching approximately 11% in the first half of 2021.
Collaboration on a strategic level between Korea and Vietnam
With all the mentioned efforts, Vietnam and Korea are planning to elevate to a strategic partnership. To exemplify, Vietnam’s measures in preventing COVID 19 have been bolstered by the Korean government and enterprises operating in Vietnam. Vietnam has also removed obstacles and created a favorable environment for Korean firms in the supply chain. Particularly, during the visit of the President of the National Assembly Vuong Dinh Hue to Korea, the two governments signed a bilateral agreement on social insurance, ensuring better conditions for Vietnamese workers working abroad in Korea and vice versa. The Vietnamese National Assembly has also implemented laws to secure new development requirements and support new sectors of the digital economy.
Moreover, Mr. Vuong Dinh Hue affirmed that sustainability and digitization are major trends globally as well as in Vietnam. Regarding investment in clean energy, Hue also stated that the Assembly will allow private investors to invest in the field of conditional power transmission, welcoming Hanwha Group to invest in this sector. In the field of finance, Mr. President suggests that Korean banks and financial groups increase their investment in Vietnam to develop the banking services in this country. To support Korean banks, the Vietnamese National Assembly will amend the Securities Law to form non-voting shares.
Vietnamese Government policies in attracting Korean FDI
Hanoi has been creating great incentives for Korean investors interested in the Vietnamese economy. In 2021, Vietnam and South Korea revised their Agreement on Double Taxation Avoidance, contributing to the improvement of the tax administration. Likewise, in 2022, the two countries are continuing to amend their cooperation and mutual administrative assistance agreement in the customs field, forming a faster and more efficient customs clearance process.
On top of that, in June 2021, the Government issued Decision No. 29/2021/QD-TTG on special investment incentives. According to this amendment, aside from the corporate income tax incentives, investment projects that meet certain conditions are also exempted from land and water surface rent for 18-20 years. Land and water surface costs are furtherly reduced by 55-75% throughout the project lifecycle. Correspondingly, large investors, namely Samsung and LG, are also enjoying investment stimuli at this level.
In addition, Decision 29/2021/QD-TTG has set forth transparent and clear bars on the technology transfer level, R&D investment, added value increase, and enterprises’ participation in the chain. Classification of firms into different levels with specific criteria was also applied. Samsung has benefited considerably from this decision in its $220 million R&D center construction in Hanoi.
Overall, the Vietnamese government’s orientation of including high technology and R&D in FDI investment attraction has been decidedly suitable for Korea’s demand to expand electronics and semiconductor sections.
Upcoming trends of Korean FDI in Vietnam
The year 2022 is the 30th anniversary of diplomatic cooperation between Vietnam and Korea Therefore, meetings, exchanges, and investment promotion activities have been held, expecting to open new investment opportunities for over 200 Korean businesses in Vietnam. Provinces like Thanh Hoa, Hai Phong, and Nam Dinh are also opening up considerable chances for Korean ventures, attracting numerous investors.
These efforts have been proved to be effective as Hai Phong province, for example, has managed to attract 171 FDI projects from Korea with a total registered capital of about $9.56 billion, accounting for 36.6% of total FDI invested in the city. The industrial and economic zone particularly attracts 102 projects with a total capital of $8.5 billion. For instance, LG Group has invested $7.24 billion in Trang Due Industrial Zone, providing jobs for nearly 25,000 workers, bringing an estimated revenue of $14.5 billion in 2021, and paying more than $95 billion to the state budget.
Le Trung Kien, the manager of the Hai Phong Economic Zone, stated that the city has built 13 industrial parks with a total area of 5,694 hectares. All industrial parks have modern infrastructure and are synchronously connected to the national transportation system via sea, railway, road, air, and inland waterways. According to the plan, by 2025, Hai Phong will open 15 more industrial parks with a total area of about 6,200 hectares while committing to improving the business investment environment. Resources on infrastructure development in terms of traffic, urban areas, and tourism – services will additionally be a focus.
In conclusion, thanks to the supportive policies from the two governments, Korean investment in Vietnam has been experiencing a blossoming trend. Positive impacts on the Vietnamese economy through economic growth promotion, new job opportunities, and technology transfer were also brought about. However, the growth in Korean investment inflows also carries setbacks such as site clearance issues and management and use of labor problems. Hence, Korean investors should research and prepare carefully before entering into the Vietnamese dynamic market.
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