Report on FDI in Vietnam: challenges, opportunities in green growth, digitalization

The annual report on FDI in Vietnam 2022 published by the Vietnam Association of Foreign-Invested Enterprises (VAFIE) highlights the need to lure FDI into green growth and digital transformation.

Vietnam will struggle to rank third in Southeast Asia by 2030 in terms of digitalization as it targets if the country does not rapidly adapt to the global trends, according to the report, released by VAFIE in Hanoi on Friday

The report seeks to analyze the potential and opportunities for FDI in Vietnam, and recommends policies and solutions to enhance FDI attraction and efficiency.

VAFIE chairman Prof. Nguyen Mai talks to The Investor about the main points in the report.

Following the success of the first report on FDI in Vietnam in 2021, VAFIE has published the 2022 report. You are the main author, please talk about the main points and its objectives.

The 2022 report is based on three sources of data. The first includes reports from the Ministry of Planning and Investment and General Statistics Office on FDI inflow and usage in 2022.

The second is world experiences through foreign reports on global and ASEAN investments to compare with Vietnam’s performance.

The third is a survey of large FDI enterprises in 12 provinces, cities and industrial parks to assess the strengths and weaknesses of Vietnam's investment environment.

It has 350 pages in both Vietnamese and English. The report's theme is FDI associated with green growth and digital transformation.

The government has since 2014 realized that it is necessary to improve FDI policies to increase both quality and quantity. In quality, there are measures to properly evaluate FDI efficiency in terms of contributing to economic growth toward a circular economy and green growth. In particular, the government has recently focused on digital transformation, specifically digital government, digital businesses and digital society. Vietnam eyes a regional third ranking by 2030 in terms of digital transformation.

In 2021-2022, Vietnam initially achieved the set goals, making a transition in implementing its circular economy policy in many industries. Economic zones have gradually shifted to ecological economic zones and there appear ecological urban-service-industrial parks. Vietnam is already home to high-tech plants of many leading MNCs like Samsung, LG, Intel, and Toyota.

Lego has recently invested $1 billion in Binh Duong province to build a carbon-neutral smart factory with an on-site solar power system. This is Lego’s first carbon-neutral facility and sixth plant worldwide. Just before Lego, another Danish company, Pandora, started to invest $100 million into a new jewelry plant in the southern province. This is also a green production model which will create jobs for more than 6,000 craftspeople.

Vietnam attaches great importance to investing in factories with digital technology, like upstream semiconductors. In 2022, the nation attracted $5.2 billion from large corporations like Samsung, Intel, and LG to turn Vietnam into a production base for smartphones, tablets, laptops, and chips.

Intel has plans to put another investment of about $1.5 billion into Vietnam for chip manufacturing. This is Intel's third factory outside the U.S., with the two others in Scotland and Israel. These are encouraging results. Potential foreign investors said Vietnam has advantages in renewable energy, logistics, port clusters, and others.

VAFIE's assessments in the report clearly show the importance of the positive changes in FDI in recent years. With a summary of 30 years of FDI attraction in 2019, the Politburo in 2020 issued Resolution 50 on improving the quality and efficiency of FDI in line with the 2021-2030 orientation of sustainable green growth and digital transformation. Therefore, this 2022 FDI report focuses on green growth and digital transformation.

What are the specific recommendations made in the report for Vietnam in the coming time?

The report addresses both opportunities and challenges in attracting efficient FDI for green growth and the digital economy.

Previously, we considered China as the largest market in the world and it was very difficult for Vietnam to compete with China in terms of technology as the latter was superior in high-quality human resources, market size, and income per capita. That country has an attractive strategy for international investors. However, more opportunities have recently come to Vietnam. Due to the U.S.-China trade war and China's conflicts with the EU and some G20 countries, the Chinese government attaches importance to the domestic market, encouraging local enterprises to invest at home.

Then came global supply chain diversification as part of the “China plus one” trend. The U.S., Japan, and the EU encourage businesses to move production out of China back home or to neighboring countries like Vietnam and Indonesia. Thus, we see good opportunities. Chinese enterprises may come to invest in Vietnam, which has good relations with the U.S., EU, OECD, and 15 free trade agreements. Vietnam should take advantage of these opportunities.

However, there are two major competitors - India and Indonesia. India's population is about to surpass China's and India’s technology is generally of very high quality. India also has abundant human resources, training the most engineers in the world, while wages are much lower, at about 60-70% compared to Vietnam. Indian Prime Minister Narendra Modi's policy is to attach great importance to global integration, and strongly promote investment ties with the U.S. and the EU.

In ASEAN, Vietnam's competitor is Indonesia, whose population and GDP are three times higher than Vietnam. The Indonesian president also attaches great importance to foreign investment and the country has good relations, receiving a lot of investment from the EU and the U.S. For the “China plus one” trend, Indonesia offers many attractive policies to lure FDI.

Vietnam has its own challenges domestically in attracting new-generation FDI, including an incomplete legal system, loose law enforcement, and inadequate incentives for MNCs. That is to say, it’s hard to retain tech giants if changes are not made.

In addition, high-quality personnel is another challenge. And it is still not very convenient for foreign experts to enter Vietnam.

Next is technology. Vietnam attaches great importance to technology and has made great achievements in research and development. Major Vietnamese companies like Hoa Phat, Sungroup, and Vingroup have set up R&D centers, but this is still not enough to promote our transition to the digital economy.

Finally, there are complicated administrative procedures and many types of sub-licenses. They have harmed investor confidence in Vietnam. The country's infrastructure has already developed, but more modern infrastructure facilities are still needed like high-speed railways. Our waterways are still undeveloped, and our seaports are not yet part of a complete logistics system. We’re still weak in digital technology and big data, while better policies are needed to encourage residents and businesses to join the digital transformation.

Above are the main problems and recommendations in the report, and VAFIE expects them to be able to help Vietnam make its investment environment more attractive to quickly turn challenges into opportunities as the world rapidly develops.