President Biden’s visit set to catalyze high-quality investment in Vietnam

The upcoming state visit by U.S. President Joe Biden to Hanoi is poised to beef up American investment in Vietnam as the two former war foes seek to elevate their diplomatic ties.

Positive signals from U.S. giants

Vietnam’s government data shows that U.S. companies had committed to invest in 1,274 projects worth $11.73 billion as of June 20, making the world’s No.1 economy the 11th largest foreign investor in the country.

Former U.S. Ambassador to Vietnam Ted Osius set a goal that his country would become the biggest investor here, and it was already the case if investments from third countries were taken into account. Investment flows from the U.S. have not seen big movements since, although Vietnam has been reckoned to be one of the biggest beneficiaries of U.S.-China trade clash and a shift of investment away from China to neighboring countries.

Direct investment from the U.S. reached $748 million in 2022, the second largest amount only to $868.8 in 2017. In the first half of this year, the U.S. was the eight-largest investor in Vietnam with $405 million.

After Vietnam opened up its economy more than three decades ago, a significant number of American companies made inroads into this populous market. Giants such as Cargill, Coca-Cola, Intel, Ford, Apple, and Nike have built up major ecosystems and become popular brands in the Southeast Asian country. As innovation-driven sectors emerge, American companies do not want to miss those opportunities here.

Amid a peak of the Covid-19 pandemic, plane manufacturer Boeing opened a representative office in Hanoi in August 2021, the first of its kind in Vietnam. In March, consumer giant Procter & Gamble (P&G) announced an addition of $100 million to its operations in the southern province of Binh Duong. Meanwhile, 11 suppliers of Apple Inc. are present in Vietnam.

Notably, a delegation of more than 50 American corporations, including Abbott, AES, Boeing, Coca-Cola, CitiBank, Meta, Netflix, and SpaceX with operations ranging from technology and semiconductors to finance, health, pharmaceuticals and energy visited Vietnam in March to explore fresh business opportunities in the 100 million strong consumer market.

In a meeting with them, Vietnamese Minister of Planning and Investment Nguyen Chi Dung urged them to make the U.S. the biggest investor in the country, a goal that has not been achieved over the past three decades.

Aligned interests

Since Vietnam and the U.S. normalized diplomatic ties in 1995 and established a comprehensive partnership in 2013, their relations have thrived and deepened in all fields. U.S. officials have repeatedly stated that America supports Vietnam to become strong, prosperous, independent and resilient.

To fulfill that commitment, economic cooperation, especially in the sectors that are of U.S. strengths and Vietnam’s interests, is obvious. Vietnam needs to make economic breakthroughs by making progress in green energy transition, digital economy, health, an semiconductors, among others.

Political openness between the two has paved the path for economic engagement. Since the start of this year, numerous cabinet members, businesspeople, congressmen, senators, and state governors have visited Vietnam.

Among them, Secretary of Treasury Janet Yellen touted the “friend-shoring” strategy, giving priority to the recovery of the U.S. semiconductor supply chain, and Vietnam was deemed to be an important part of it.

During her visit, Secretary Yellen tipped that Arizona-based Amkor would soon fully open a mega factory for semiconductor assembly and testing in Bac Ninh. Down in the southern province of Dong Nai, Onsemi, produces chips that are used in cars halfway around the world.

After nearly two decades in Vietnam, Intel has poured some $1.5 billion into the country, making it its largest assembly and testing facility in the world. The chipmaker is rumored to be adding another $1 billion to its thriving operations here.

Meanwhile, American chip software firm Synopsys last year announced plans to help establish a chip design center in Ho Chi Minh City’s Saigon Hi-tech Park.

Eminent Vietnam expert Carl Thayer said trade and investment are the core of the bilateral relationship. “The U.S. seeks a secure and resilient semiconductor supply chain from Vietnam. Vietnam seeks greater investment and market access to the U.S. given the downturn in the global economy and China’s economic difficulties.”

U.S. businessmen have begun to relocate some of their commercial investments and production from China to Vietnam. At the same time, they also see economic opportunities in Vietnam because of its political stability and young, productive work force, he added.

During President Biden’s visit, “we expect announcements and progress on a number of pending business deals and projects,” Adam Sitkoff, executive director of AmCham Hanoi, told The Investor.

Hurdles remain

Vietnam is increasing its attractiveness as a destination for American investment as many companies seek to diversify their global supply chains, said Adam Sitkoff. “There is no doubt that existing investors expanding operations is the best advertisement to attract new investment.”

However, a number of challenges need to be dealt with for further foreign investment. Sitkoff noted that some regulations continue to introduce new administrative procedures such as licensing, approvals, and heavy reporting requirements. One example is a lack of clarity regarding the requirements to obtain work permits for foreigners.

Ready access to renewable power is crucial to many U.S. manufacturers choosing Vietnam. Any plans for expansion of current facilities or supply relocations should include green energy solutions, he added.

The Vietnamese government should take a holistic approach and global view in developing a digital regulatory framework, and further improve infrastructure development, protection of intellectual property, education reform, health and wellness policies, and legal and tax policy certainty, the executive suggested.