A rapidly developing country, Vietnam FDI grew in 2019 to join the top destinations for FDI in both the ASEAN region and the whole world. The country is, as reported by UNCTAD, the third largest recipient within ASEAN, taking up a 60% share of flows to the CLMV countries. In other words, Vietnam has been remarkably successful in its attempt to attract foreign investors as well as showing a lot of prospects for growth in the years to come.
According to Viet Nam News 2019, Viet Nam has attracted USD$29.11 billion in FDI within the first 10 months alone, surpassing 2018’s total FDI investment by about USD$10 billlion. Vietnam Investment Review estimates total FDI in Viet Nam to be at a total of USD$38.02 billion for the whole of 2019, indicating that November and December accounted for almost 25% of the in-flows for the entire year. Processing and manufacturing remained the most attractive sector, in part due to the on-going trade war between the USA and China, which has caused various manufacturers to shift out of China in a bid to avoid the increased tariffs upon Chinese manufactured goods. This sector alone drew USD$18.83 billion, which was around 68.1% of total FDI flows. Real estate took second place with USD$2.98 billion (10.2% of total) followed by the other sectors: wholesale, retail, science and technology.
The largest investor into Viet Nam for 2019 would be the Republic of Korea, having overtaken Hong Kong within November and December with a total of USD$7.92 billion. Hong Kong remains close behind however, with just a USD$50 million difference, indicated that interest from both countries remains equally strong.
Strong trends in favor for Vietnam FDI maintained in 2019
Asian Development Bank forecasts that Vietnam’s economy will remain strong at 6.7% in 2020, ahead of China by 0.6%. This news in addition to the increasing number of FTA’s signed by Vietnam have strengthened investor confidence in the country, leading to increased number of FDI and exports moving into the country.
Real estate investments in particular have been picking up, having become the second most popular sector for FDI inflows. This may in part have been attributed to Comprehensive and Progressive Agreement for Trans-Pacific Partnership Treaty (CPTPP) which was signed by Vietnam in 2018. This agreement is expected to provide protection for investors due to the Investor State Dispute Settlement, allowing individual investors to sue nation states for discriminatory practices.
Vietnam has become one of the more attractive regions for manufacturers to relocate to with the advent of the trade war. This has facilitated Vietnam’s move to becoming a manufacturing powerhouse in the region. Exports for the country has increased by about 11% as compared to 2018. However, in lieu of the global economic slowdown, exports are not expected to grow in 2020 as much as it did in 2019. This however, is a positive thing as it allows Vietnam time for its infrastructure to catch up with its rapidly expanding economy. The government has been expected to invest in new transportation infrastructure such as expressways, ports, airports and railways which will prove invaluable to easing the supply chains of the various manufacturers who have decided to set up facilities in the country.
On top of this, various countries are taking advantage of the various FTA’s to consider investing in Vietnam. Australia in particular has begun to take notice of the country citing cheap labour, young population, high education standards, and government policies which offer tax breaks and other incentives for foreign firms as reasons for their investments into the country.
Within the country itself, Hanoi has outpaced Ho Chi Minh as the top destination for FDI flows in part due to its Public Administrative Reforms (PAR), which aims to implement a centralized state management framework, making it easier for businesses to go through business administration within the country.
Regulations keep getting optimized to attract FDI in Vietnam in 2019 and beyond
Vietnam is a socialist country operating under the single-party leadership of the Communist Party. As will be discussed in the Legal section, investors should expect a great deal of governmental interference while carrying out business operations in the country. Overall, Vietnam is a fairly “open” environment regarding statutory restrictions and obligations among investors from around the world. A major contributor to the attractiveness of Vietnam as an investment destination is the availability of incentives granted by the government.
2018 is said to be a key milestone to ensure the completion of the 2016–2020 Socio-Economic Development Plan: numerous laws are coming into effect, largely focusing on sectors such as banking, technology transfer and trade. Deputy Minister of Planning and Investment Vu Dai Thang emphasized the importance of streamlining legal institutions and policies as well as improving the business investment environment in line with market standards and international rules, which are key to the success of attracting FDI resources (Viet Nam News). This proves the Government’s awareness and active engagement in the development of a more business-friendly regulatory environment. What’s more, the National Assembly is considering issuing a Law on Special Administrative-Economic Zones: based on the draft law, foreigners would be allowed to buy houses, transfer real estate and other rights to real estate similar to Vietnamese citizens (PwC’s Doing Business in Vietnam 2018). The policy would likely result in tangible benefits for foreign investors who are interested in the Vietnamese market.
Chamber of Commerce and Industry of Vietnam (VCCI)
|VCCI is a nationwide organisation that brings together and represents the business community, employers and business associations in Vietnam. The organization’s goals include accelerating the socio-economic development of the country as well as promoting commercial, economic, scientific and technological cooperation between Vietnam and other economies in the world. Key activities, such as Government – Business Dialogue, Small and Medium Enterprise (SME), Vietnam Business Annual Report…, are closely oriented towards VCCI’s goals, playing a major role in the continuous growth of Vietnam’s FDI inflows (PwC’s Doing Business in Vietnam 2018).|
Japan International Cooperation Agency (JICA)
|JICA is a governmental agency that is in charge of administering all Official Development Assistance (ODA) such as technical cooperation, ODA loans and grant aid for the government of Japan. The organization has been thoroughly involved in and implemented numerous projects in various fields, such as Education/HR Development, Health, Governance/Judicial Reform, Transportation, Natural Resources and Energy… JICA’s active engagement is a major factor in how Japan became the leading investor in Vietnam (https://www.jica.go.jp/).|
American Chamber of Commerce (AmCham) Vietnam
|AmCham Vietnam is a not-for-profit, non-governmental, and non-political voluntary membership association of American businesses in Vietnam. The organization’s primary objectives are to promote the development of trade and investment between the US and Vietnam, working in accordance with the mutual interests of American and Vietnamese businesses.|
European Chamber of Commerce (EuroCham) Vietnam
|EuroCham is a members-based, independent, not-for-profit organisation of European companies who are investing in Vietnam, for the benefit of all. The organization has over one thousand members and represents various sectors and sizes ranging from SMEs to MNCs.|
Vietnam Trade Promotion Agency (VIETRADE)
|VIETRADE is a governmental organization of Vietnam responsible for national regulation of trade and investment promotion for development of industry and trade. The organization provides a wide spectrum of services to assist Vietnamese and foreign enterprises in their business development and expansion.|
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