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Attracting foreign direct investment (FDI) has always been a key part of Vietnam’s external economic affairs. Vietnam already has many comparative advantages and a strong investment climate, but we are working hard to become even more appealing to foreign investors. We are doing so by vigorously renovating the business and investment climate, and by recognizing that the FDI sector is an integral part of the economy – essential to restructuring the economy and raising national competitiveness.
As of last month, there were more than 16,300 active FDI projects in Vietnam that have collectively pulled in a total of $238 billion. These investors came from 100 countries and territories, and many of them are some of the world’s leading multinational corporations. In 2013, FDI inflow exceeded $22 billion, an increase of more than 35% from 2012. The figures indicate that Vietnam has become a destination of choice for foreign investors.
So what explains this Vietnamese success story?
First, Vietnam has been securing socio-political stability, and is known to be one of the most dynamic economies. Economic growth between 1991 and 2010 averaged 7.5% each year and, despite the many difficulties the country faced between 2011 and 2013, GDP growth still rose by 5.6%. Several international forecasts suggest that this trend will continue in 2014-2015 and beyond.
Second, Vietnam is now in a period of golden population structure – 60% of its population are working age. It also has a favourable geographical location right at the heart of East Asia – home to a number of large and vibrant economies. Furthermore, the country is a market economy, a member of the WTO, and a party to multiple frameworks for international economic integration, including free trade agreements with partners both within and outside the region. In particular, the country is part of the Trans-Pacific Partnership negotiations. These factors all go some way to explaining why so many choose to invest in Vietnam – and should draw in more foreign investors.
Third, the Vietnamese government is committed to creating a fair and attractive business environment for foreign investors, and constantly improving its legal framework and institutions related to business and investment. The government has been working hard on restructuring the economy and its model for growth, as well as enhancing national competitiveness.
To add new chapters to this success story, the Vietnamese government is continuing to revitalize its business and investment climate. One way it is doing this is its work on three “strategic breakthroughs”: putting in place market economy institutions and a legal framework; building an advanced and integrated infrastructure, particularly transport; and developing a quality workforce. These should all be completed by 2020.
The government remains determined to fulfil its treaty obligations and promote the negotiation and conclusion of a new generation of free trade agreements. Vietnam views the success of FDI enterprises as its own success. As such, the government is committed to ensuring a stable socio-political environment, protecting the legitimate rights and interests of investors, and creating an enabling environment for FDI enterprises in the country.
In the medium and long term, Vietnam will continue in its efforts to attract and efficiently use FDI inflows to advance socio-economic development. The country will target “high quality” FDI inflows, focusing on FDI projects that use advanced and environmentally friendly technologies, and use natural resources in a sustainable way. It will also target projects with competitive products that could be part of the global production network and value chain.
International forecasts suggest that as the world economy recovers, FDI flows are returning to dynamic economies. Given the positive prospects for both global and regional economies, we are confident Vietnam will continue to find success in this area.
FDI in Figures
Vietnam was ranked 70th out of 190 countries by the World Bank’s 2020 Doing Business Report, having fallen one spot on the 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. 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.
Country Comparison For the Protection of Investors
|Foreign Direct Investment||2016||2017||2018|
|FDI Inward Flow (million USD)||12,600||14,100||15,500|
|FDI Stock (million USD)||115,391||129,491||144,991|
|Number of Greenfield Investments***||277||247||290|
|FDI Inwards (in % of GFCF****)||27.5||n/a||n/a|
|FDI Stock (in % of GDP)||57.3||n/a||n/a|
Source: UNCTAD – Latest available data.
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country’s Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
What to consider if you invest in Vietnam
The main strengths of the country’s economy are:
- Steady and stable growth of 6.3% in 2017 (Business France, 2018) with 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
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
- A high level 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
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.