Vietnam has gone through three waves of FDI and is at the foot of the fourth wave after Vietnam-U.S. relations were upgraded to a Comprehensive Strategic Partnership in September 2023.
Shifts in FDI flows
After joining the World Trade Organization (WTO) in 2007, registered FDI inflows into Vietnam decreased for nearly a decade from 2008 and only bounced back in 2017. Due to the impact of the Covid-19 pandemic, FDI declined in the 2020-2022 period. However, FDI commitments increased by 32.1% year-on-year to $36.6 billion in 2023, only below the $38 billion recorded in 2019 - the highest figure in the past decade.
The processing and manufacturing sector remained the most appealing, accounting for over 50% of the registered FDI tally in the 2021-2023 period. In 2023, this sector maintained its leading position, attracting more than $23.5 billion, accounting for 64% of total registered FDI and increasing nearly 40% compared to the previous year. Of this, newly registered capital reached nearly $15.85 billion, more than twice the corresponding figure in 2022.
The clear difference in FDI into Vietnam in recent years is its increased quality. Since the Politburo, the country’s highest decision-making body, issued Resolution 50 in August 2019 on improving the quality and effectiveness of foreign investment until 2030, FDI inflows have been more selective toward prioritizing projects applying high, emerging technologies, and with greater spillover effects.
Thanks to its competitive advantages, Vietnam has attracted a series of FDI projects in the phone manufacturing, electronic components, and chip industries. Among them are Amkor investing $1.6 billion to build a factory for manufacturing, assembling and testing semiconductors in Bac Ninh province; Foxconn investing $1.5 billion in Thanh Hoa and $300 million to produce iPads and AirPods in Bac Giang; Luxshare-ICT pouring an additional $330 million to expand its production factory in Bac Giang; Hana Micron recently inaugurating a $600-million semiconductor factory in Bac Giang and planning to increase investment in Vietnam to $1 billion by 2025.
Another trend is that some foreign investors are focused on tapping Vietnam's domestic market instead of targeting exports. Among them, Japanese retailers such as Uniqlo, Muji, Sakuko and Aeon have announced expansion plans. Most recently, Aeon announced a plan to invest an additional $500 million to build two new commercial centers in Can Tho and Bac Giang.
Ryotaro Hagiwara, head of research at the Japan External Trade Organization (JETRO), told The Investor said that in the past, FDI from Japan focused mainly processing and manufacturing for export, while Japanese firms are now more interested in real estate and retail to exploit the growth potential of the Vietnamese market. In addition, Japanese investors are also interested in digital transformation and green economy.
Another notable shift is that investment capital flows from mainland China have risen steadily in the past few years, especially after U.S.-China trade tensions escalated under President Donald Trump’s administration. Chinese companies have focused on the fields of electronic components, renewable energy cells, and supporting industries, among others. At the same time, the shift of Apple's supply chain to Vietnam is increasingly clear.
Boost from integration and relationship upgrades
To date, Vietnam has negotiated, signed and implemented 19 free trade agreements (FTAs), of which 16 FTAs have taken effect with more than 60 partners, covering all continents, accounting for nearly 90% of global GDP, making Vietnam one of the leading countries in the region actively joining international trade blocs. This open position towards global integration has helped the country attract sustainable FDI inflows in recent years despite lackluster investment activities globally.
With political diplomacy playing a role in paving the way for economic diplomacy, upgraded relations with a number of economic powers such as South Korea, the U.S. and Japan in the past year and high-level visit exchanges have created new impetus for economic, trade and investment cooperation. During the official visits to Vietnam by heads of state as well as foreign business trips of Vietnamese leaders, a great number of investment agreements and cooperation documents have been signed.
Strengthened relations with major economic partners pin hope for a new wave of high-quality investment in Vietnam. During U.S. President Joe Biden’s Hanoi visit in September 2023, the two countries agreed on comprehensive cooperation and development of the high tech and semiconductor sectors.
Meanwhile, Prime Minister Pham Minh Chinh's trip to Japan in mid-December opened up opportunities for cooperation between the two countries in new fields such as energy transition, digital transformation, and innovation. With a series of agreements announced, the trip was considered the first stone laid for a new wave of investment by Japanese businesses in new fields in Vietnam in the near future.
Minister of Foreign Affairs Bui Thanh Son assessed that economic cooperation, market access expansion and attracting quality investment capital are central contents in foreign affairs, especially high-level diplomacy. Vietnam’s upgrading of relations with major partners in the past year has created a breakthrough in economic cooperation, opened up many opportunities for localities and Vietnamese businesses.
The country signed an FTA with Israel in 2023 and is actively negotiating FTAs with other partners such as Mercosur and the UAE; signed over 70 cooperation documents of government agencies, nearly 100 cooperation agreements with localities, and hundreds of agreements with businesses.
Ready for high quality investment flows
According to analysts and international organizations, many foreign investors may continue to favor Vietnam as an investment destination in the time ahead when shifting supply chains. Global geopolitical risks and China's economic transition also prompt investors, including American businesses, to pick Vietnam as a new market to set up factories, or consider the “China+1” strategy.
In particular, President Biden's recent visit to Hanoi is believed to have stimulated U.S. investments in Vietnam and open up the fourth wave of FDI, focusing on high-tech. Many cooperation agreements were inked between businesses and government agencies of the two countries in the fields of artificial intelligence and semiconductors. During a trip to the U.S. at the end of September, Prime Minister Pham Minh Chinh met with leaders of leading American tech giants such as Nvidia, Tesla, and Microsoft. As a result, president and CEO of Nvidia, Jensen Huang, committed to turning Vietnam into a “second home" and establishing a legal entity here.
Speaking to The Investor, Hong Sun, chairman of the Korean Business Association (KoCham) in Vietnam, recalled that Korean President Yoon Suk Yeol was accompanied by the strongest-ever business delegation during his Hanoi visit in June. Hong Sun emphasized that Korean investors will continue to expand their investments in Vietnam, focusing on high-tech industries such as semiconductors to meet Vietnam's development needs.
Amid concerns about the country’s capacity to accommodate new capital flows, Minister of Planning and Investment Nguyen Chi Dung has emphasized that Vietnam has prepared elements such as hard infrastructure, soft infrastructure, policy mechanisms, research and development, strategy, and human resources to master and welcome the wave of investment in the semiconductor industry.
Vietnam has outlined plans to have between 50,000 and 100,000 semiconductor engineers by 2030 to meet investors’ manpower demands.