Vietnam’s semiconductor investments a shortcut to economic breakthrough: HSBC exec

Total registered foreign direct investment (FDI) in Vietnam in the first half of the year topped $13.43 billion. Of this, the figure for American investors was around $405 million, making the U.S. the eighth largest foreign investor in Vietnam. This country is also Vietnam’s second-largest trading partner. Do you think this is commensurate with existing potential?

As you note, while being Vietnam’s second-largest trading partner, the U.S. was only the eighth largest source of foreign investment in the first half of 2023.

However, we can also consider that U.S. companies have been investing in Vietnam through their foreign subsidiaries or guiding suppliers, for example Taiwanese firm Foxconn, a major Apple supplier, to Vietnam. If investments from third countries are included, the US would become one of the biggest investors in Vietnam, as former U.S. Ambassador to Vietnam Ted Osius has noted.

That said, we can expect an increase in FDI by U.S. firms following the upgrade of Vietnam-U.S. ties. Increased support to U.S. firms from their government to guide investments in Vietnam will facilitate decisions in board rooms to allocate capital and other resources to Vietnam.

What can Vietnam do to facilitate U.S. investment in the country?

I can see that Vietnam has been well aware of the obstacles to economic growth of the country, and they have been working hard to remove them. In order to enhance its competitiveness and elevate its position in the global value chain, Vietnam needs to continue improving the market economy mechanism, streamlining administrative procedures, developing infrastructure and building up a strong workforce.

In particular, Vietnam also needs to consider other incentives rather than tax to lure FDI investors to the hi-tech sector, especially after the Global Minimum Tax policy takes effect in the country from January 1, 2024.

Education and training play a more important role than ever before. A private university, FPT University, has recently announced the establishment of the Faculty of Semiconductor Circuits, which is a good example of the positive integration of the local economy into the global value chain. The country needs more educational institutions that are capable of providing a high-skilled labour force to the market.

One of the industries getting a lot of attention these days is semiconductor. Why is this happening, in your opinion?

Vietnam has fully realized the importance of the semiconductor industry in the country’s transition to digital economy, green economy and knowledge-based economy. During his trip to the U.S. in September 2023, Prime Minister Pham Minh Chinh emphasized that developing the semiconductor industry matches the current global trend as well as the potential and resources of Vietnam while generating benefits for people. Therefore, “Vietnamese people will take an active and effective part in this process,” he’d said.

The semiconductor industry is very attractive because global demand for it still very high. Vietnam’s significant participation in FTAs, political stability and investment in the semiconductor sector will provide a shortcut to achieving a breakthrough in economic development. I believe that foreign investors, not only from the U.S. but also other countries, not to mention Vietnamese enterprises, see this as an exciting investment opportunity, though challenging.

What are the industries that will generate long-term business interest in Vietnam from U.S investors?

The framework of the comprehensive strategic partnership encompasses 10 key areas, and one of them is strengthening cooperation in science, technology and digital innovation cooperation as key areas.

Also, acknowledging Vietnam’s tremendous potential as a major player in the semiconductor industry, the leaders of both countries (U.S. President Joe Biden and Vietnam’s Party General Secretary Nguyen Phu Trong) pledged to support the rapid development of the nation’s semiconductor ecosystem and work together proactively to improve Vietnam’s position in the global semiconductor supply chain.

It is important to note that senior executives from Google, Intel, Amkor, Marvell, GlobalFoundries and Boeing joined a U.S.-Vietnam Innovation and Investment Summit following the announcement of the comprehensive strategic partnership. The business roundtable was also attended by executives from numerous large Vietnamese companies. We expect that the upgrade will help US firms boost their investment plans in semiconductor manufacturing, offshore wind generation and liquefied natural gas (LNG).

Vietnam-U.S. relations were upgraded to that of a comprehensive strategic partnership during the visit by President Biden in September. How do you expect this will play out, especially in terms of U.S FDI into Vietnam?

The elevation of the U.S.-Vietnam relationship to a comprehensive strategic partnership signifies a deeper commitment to further boost trade and economic ties, enhance technological collaboration, and promote political trust between the two nations. We expect an increasing share of U.S. foreign direct investment in the near future, indicating that this commitment is substantive, and growing US confidence in Vietnam's business environment and potential for economic growth.

Science, technology, and digital innovation, semiconductor manufacturing, etc. would be key focus areas in the coming years.

With special regard to prospects of high-quality FDI in technology, energy and innovation, this can be considered as a new breakthrough. Given that the U.S. economy is based on innovation and is widely regarded as the leader in hi-tech industries, Vietnam can expect very strong FDI investments, driven by favorable government policies.