Foreign direct investment (FDI) in Vietnam

FDI in Figures

Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated USD 1.65 trillion, from 929 billion in 2020, surpassing their pre-COVID19 level. FDI flows in developing countries increased by 30% but almost three quarters of the total increase in global FDI (USD 500 billion) was recorder in developed economies, with developing economies showing a more modest recovery growth. FDI inflows in South-East Asia increased by 35% in 2021 to 184 billion USD (UNCTAD, January 2022).

Vietnam's FDI inflows in 2020 amounted to USD 16 billion, unchanged from the previous year, while the total stock of FDI reached USD 177 billion in 2020, according to the UNCTAD's 2021 World Investment Report. FDI was therefore not affected by the global economic crisis triggered by the Covid-19 pandemic. While there were significant contractions in investment in manufacturing and real estate (the two largest recipients last year), an increase in investment in electricity projects offset FDI inflows. In 2020, the most important projects in Vietnam include a USD 5 billion gas-fired power plant proposed by ExxonMobil (USA) and a USD 2.2 billion coal-fired power plant developed by Thai multinationals in the Quang Tri economic zone. Traditionally directed towards the light industry, FDI inflows quickly turn towards heavy industry, real estate and tourism. Inflows are expected to continue, confirming the country's position as one of the most attractive countries in terms of FDI in Asia. The main investor countries are Japan, South Korea and Singapore, with the manufacturing and processing sectors attracting the most FDI followed by real estate and professional activities/science/technology (Trading Economics). However, inflows from major Asian economies (e.g. China, Hong Kong (China), Japan, Republic of Korea), traditionally the largest sources of FDI in Vietnam, declined in 2020.

Vietnam’s FDI and GDP figures suffered and dropped slightly in 2021, due to stringent lockdowns and movement restrictions caused by the pandemic.The latest figures by Vietnam’s Ministry of Planning and Investment (MPI) give an overview of Vietnam’s FDI for 2021. As of December 20, 2021, foreign investment projects disbursed US$19.74 billion a slight decrease by 1.2 percent over the same period in 2020. However, the total newly registered, adjusted, and paid-in capital for share purchase by foreign investors reached US$31.15 billion or 9.2 percent higher than the same period last year.

Vietnam was ranked 70th out of 190 countries in the last World Bank's 2020 Doing Business Report, having fallen one spot in a year. This was despite the country making some progress on the ease of doing business, particularly with regards to paying taxes. Vietnam expects disbursed foreign direct investment to continue to rise as the government steps up efforts to attract factories into the country. There are 19 key sectors attracting FDI inflows. Among them, the processing and manufacturing sector accounted for the highest proportion with $13.6 billion, accounting for 47.7 per cent of total investment capital. Electricity production and distribution ranked second with investment capital of over $5.1 billion, accounting for 18 per cent of the total registered investment capital. It is followed by real estate, wholesale and retail with the total registered capital of nearly $4.2 billion and $1.6 billion. The Ministry of Planning and Investment aims to draw more FDI into areas including export-oriented, energy and high-technology by building a more business-friendly environment.

What to consider if you invest in Vietnam

Strong Points

The main strengths of the country's economy are:

• Steady and stable growth estimated at around 7-8% over the next ten years (Business France, 2021) with a positive economic outlook
• A young, inexpensive, skilled and fast-growing workforce
• Socio-political stability
• A regional hub of competitive and attractive industrial production
• A government that seeks to liberalise the economy and introduce free-market reforms
• Agricultural and energy production sectors that can rely on abundant resources but are still largely under-exploited
• A strategic location (sharing borders with China, located in the centre of Southeast Asia and a long coastline)

Weak Points

The main obstacles to the development of the country are:

• Weak health and transport infrastructure
• Weak financial structures and in particular the banking sector: the regulation of the financial sector has many shortcomings and its lack of independence vis-à-vis the government makes it opaque.
• A complex business environment: financial investments are subject to a whole series of opaque regulations that can not be legally guaranteed and intellectual property rights are not systematically respected
• A non-transparent legal framework: the judicial system is subject to political influences, and commercial disputes often take years to resolve
• High risks of corruption
• Great disparities of development and poverty in many regions
• Recurring tensions with China on the subject of sovereignty in the South China Sea
• Partial public sector reforms, with high levels of SOE debt and declining returns on equity
• Limited foreign exchange reserves

Government Measures to Motivate or Restrict FDI

The promotion of foreign investments is part of Vietnam's development strategy. To that end, the government is improving its judicial system, creating more incentives and taxation policies for foreign investors and trying to respect its commitments with regard to the international community. "Business Forums", opportunities for foreign investors to establish fruitful dialogue and to assert their interests, are frequently organised between the Vietnamese government and the private sector. Additionally, Vietnamese efforts to maintain socio-political stability and set up and professionalise investment promotion activities also play a crucial role in increasing the FDI flow. Recent moves to diversify the economy and shift to high value-added industries also demonstrate the country's desire to attract new types of FDI.

In 2019, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) went into effect, and Vietnamese officials approved the EU-Vietnam Free Trade Agreement (EVFTA) in late 2020. Such agreements ease FDI inflows into the country, offer better market entry for Vietnamese exports, and promote reforms that assist all foreign investors.