Vietnam foreign investors upbeat, minor niggles remain: report

Foreign investors in Vietnam have better sentiments and are optimistic about the future, according to a report released Tuesday by the Vietnam's Association of Foreign Invested Enterprises (VAFIE).

The "Annual Report of Foreign Investment in Vietnam - 2023" says national and regional associations like Jetro, Kocham, AmCham and EuroCham have remarked on improvements in Vietnam’s foreign direct investment (FDI) environment.

The associations suggested the Vietnamese government utilize the global minimum tax (GMT), especially Pillar 2 of the initiative, to research impacts and provide solutions in order to encourage investments in key sectors.

The four associations lauded Vietnam's push to advance the semiconductor industry.

They also highlighted the “urgent” issue of ensuring enough electricity supply for businesses.

Among the “minor” issues they mentioned were lackluster transparency and time-consuming administrative procedures, underdeveloped infrastructure and electricity supply, shortage of high-quality workforce and slow green transition progress.

VAFIE chairman and report author Prof. Nguyen Mai emphasized that global FDI rose 3% year-on-year to $1,370 billion in 2023, after a sharp drop of 12% in 2022. In line with this, FDI into the green growth sector rose by a dramatic 37% in 2023, he said.

Vietnam Energy Association

At the report launching event, the Vietnam Energy Association (VEA) proposed that authorities update the legal framework and simplify/remove administrative procedures in order to facilitate investors; ensure transparency in power prices; and issue policies to attract more FDI into the energy sector.

It also called on the authorities to support cooperation between state utility Vietnam Electricity (EVN) and foreign partners in storage technologies and clean energy sources.

Another VEA recommendation was the establishment of a fund to prepare for public-private partnership (PPP) projects and provision of detailed legal framework for build-operate-transfer (BOT) contracts.

Vietnam should speed up drafting an implementation guide for the eighth National Power Development Plan (PDP8), and move from incentivized feed-in-tariff (FiT) to direct power purchase agreement (DPPA) and later to bidding mechanisms as FiT mechanisms have weaknesses, said a VEA representative.

Le Truong Thuy, CEO of Mai Chau hydropower plant, said that while Vietnam had high potential for renewable energy, it is not easy to harvest it as the storage technology is underdeveloped at the moment. Meanwhile, the potential for hydropower as an affordable source is limited and Vietnam is likely to continue facing power shortages similar to 2023.

Vietnam Textile and Apparel Association

The Vietnam Textile and Apparel Association (VITAS) suggested that authorities facilitate large businesses in building more factories with modern and eco-friendly technologies, in line with the global supply chain.

Commercial banks should closely follow the central bank's direction of reducing loan interest rates and loan requirements to provide more preferential credit packages to businesses, it said.

The Ministry of Planning and Investment should help underdeveloped localities attract more FDI in the apparel-textile sector, particularly in building several industrial clusters for the industry, VITAS said.

Vietnam Electronic Industries Association (VEIA)

The Vietnam Electronic Industries Association (VEIA) proposed that authorities improve the business environment further to attract more investors. It recommended that Vietnamese enterprises should make investments on their own by importing or self-developing technologies and training the needed workforce.

Vietnam should have better policies to encourage FDI businesses to carry out technology transfers and for Vietnamese firms to connect to the global supply chain.

Challenges, opportunities, recommendations

The VAFIE report identified several ongoing and upcoming challenges for FDI attraction in Vietnam. Political tensions in the world will continue, affecting global economic recovery amidst high inflation. Vietnam would face fierce competition from regional peers like Thailand, Indonesia and Malaysia, who have better support systems for investors.

While Vietnam aimed to attract FDI into future technologies, the country was yet to establish suitable mechanisms, the VAFIE report noted.

The report cautioned that application of GMT would reduce the effectiveness of traditional support,

Furthermore, administrative procedures in Vietnam remained complicated despite several simplification moves, it said

Despite the challenges, Vietnam also enjoyed the advantages of an affordable workforce, large market of 100 million people with high potential for economic recovery, political stability, and strong relations with top partners like the U.S., China, Russia, India, Europe, Japan, South Korea and the ASEAN.

The report recommended relevant updates to the legal framework and quick ratification of some laws and resolutions, including one related to the GMT; attracting more FDI in high technology and the semiconductor sector; improving linkages between Vietnamese and FDI businesses; developing the energy, digital, and transport infrastructure; boosting reform of administrative procedures; and enhancing training to produce a high-quality workforce.

In 2023, Vietnam attracted $36.61 billion in registered FDI, up 32.1% year-on-year. Disbursement reached $23.18 billion, up 3.5%.

Ho Chi Minh City was the biggest FDI recipient with $5.85 billion, followed by the northern localities of Haiphong city and the provinces of Quang Ninh, Bac Giang and Thai Binh.

Singapore was the largest investor with $6.8 billion, or 18.6% of the total; followed by Japan with $6.6 billion, or 17.9%; Hong Kong with $4.7 billion; and mainland China with $4.5 billion. The top 10 FDI partners of Vietnam accounted for 90.3% of FDI in Vietnam last year, or $33 billion.

As of end 2023, Vietnam had 39,140 valid FDI projects with a total registered capital of $468.9 billion. Its FDI disbursement reached $297.2 billion, or 63.4% of the total.