Vietnam has rapidly become one of ASEAN’s most attractive host countries for Foreign Direct Investment (FDI), but the era of measuring success by volume of investment alone is coming to an end. The real challenge for the country is improving the quality of foreign direct investment to foster sustainable, long-term growth. The goal of attracting […]
Vietnam has rapidly become one of ASEAN’s most attractive host countries for Foreign Direct Investment (FDI), but the era of measuring success by volume of investment alone is coming to an end. The real challenge for the country is improving the quality of foreign direct investment to foster sustainable, long-term growth. The goal of attracting foreign direct investment must now focus on quality over quantity.
According to VietnamPlus (2025), a concerning trend emerged where nearly 22% of FDI enterprises reported losses, prompting the government to shift its focus on FDI attraction. This move signals a critical pivot, as high-value investment is the engine that drives innovation, enhances global supply chains, and builds the resilience the Vietnamese economy needs. This shift is crucial for the development of the economy.
Key Takeaways:
- Vietnam is shifting its FDI strategy to prioritize quality investment, focusing on sustainable development and high-value FDI projects.
- The government has introduced a four-pillar framework to evaluate foreign direct investment:: economic growth, technology transfer, human resources development, and environmental protection.
- A reliance on tax incentives is no longer a sustainable model for the economy, as evidenced by a rising number of loss-making FDI enterprises.
- High-priority sectors for high quality FDI include high tech industries, which are crucial for moving the country up the value chain.
- Integrating Environmental, Social, and Governance (ESG) standards is becoming essential for attracting foreign investment and ensuring long-term growth.
Understanding What “Quality FDI” Means For Vietnam
The definition of "quality FDI" has been formalized through a strategic government framework designed to align foreign investment with national development goals. This approach to investment moves beyond simple investment capital injection to assess the holistic impact of direct investment on the economy and society of the country.
The Four Pillars Of Quality Foreign Investment
Vietnam's new evaluation criteria for foreign direct investment rest on four foundational pillars. This framework for investment guides the nation's economics and prioritizes FDI projects that excel in the following areas:
- Economic Growth: Investment must generate substantial revenue and contribute to export growth, driving the overall economic development of the country.
- Technology Transfer: FDI projects are expected to introduce advanced technologies, promoting R&D and knowledge sharing with domestic firms.
- Human Resource Development: Quality foreign direct investment should create skilled jobs and invest in training to improve the local labour market.
- Environmental Protection: Adherence to sustainable development practices, a focus of the World Bank, is non-negotiable for new direct investment.
The Prime Minister has issued Decision No. 315/QD-TTg promulgating a set of criteria for evaluating the effectiveness of foreign investment in Vietnam, including 42 indicators: 29 economic indicators, 8 social indicators and 5 environmental indicators.
Why Quantity Alone No Longer Works
The previous FDI model for developing economies, heavily reliant on incentives, has shown its limitations. The report from VietnamPlus (2025) highlighting loss-making firms underscores this issue, as noted in a recent annual report on the economy.
This suggests some multinational enterprises may have leveraged incentives without creating local value. Today’s challenge for the FDI sector is to move from an assembly-based economy to one centered on value retention and innovation, ensuring that foreign direct investment (FDI) genuinely strengthens the domestic economy and supporting industries.
The focus must be on the quality of FDI inflows, not just the total newly registered capital.
For Policymakers: Aligning National Strategy With Investment Quality
To implement this shift, government agencies must refine administrative procedures to prioritize attracting FDI based on long-term impact. This requires institutional reforms and clear performance indicators for every direct investment.
This framework will help attract investors truly committed to a sustainable partnership, a challenge faced by many developing countries. In a recent brief, officials stated "the authors declare that this new direction is critical for the future of our economy."
Drivers And Barriers To Improving FDI Quality
While the vision for high-quality FDI is clear, execution requires addressing challenges. Investors, local firms, and the government each have a role.
- For Foreign Investors: The primary barriers for investors remain infrastructure gaps and bureaucracy. To overcome these, multinational corporations must adopt robust compliance strategies and build strong local partnerships to align their investment with the country's long-term goals for economic growth.
- For Domestic Firms: A significant challenge is the technology absorption gap and improving competitiveness. Bridging this requires investment in skills training and fostering stronger linkages between SMEs and multinational enterprises for every new direct investment while continuing to improve the competitiveness of domestic firms.
- For the Government: The government must continue policy reform. While the Law amending and supplementing a number of articles of the Law on Planning, the Law on Investment, the Law on Investment under the public-private partnership method and the Law on Bidding 2024 is a positive step for attracting FDI, developing a national FDI quality scorecard would create a more transparent mechanism for managing FDI inflows. The policy implications of this shift are a major topic in international economics.
Pathways To Attract High-Quality And Sustainable FDI
To successfully manage FDI attraction, Vietnam must focus on creating an ecosystem that supports innovation and development. This involves targeting priority sectors for investment aligned with global standards, a strategy discussed at institutions like the Harvard Business School.
Innovation And High-Tech Priority Sectors
The country is actively working to move up the value chain by targeting strategic foreign investment. According to the Vietnam Investment Review (2025), the country is prioritizing high-tech and green investment, with a focus on semiconductors and renewable energy. This is a key driver for the economy.
These sectors, including those focused on artificial intelligence and digital transformation, are critical as they promise significant economic growth and technology diffusion. By attracting anchor investors, Vietnam can create innovation clusters that spur growth across the entire economy, a different path than some developing economies in Latin America.
Promoting ESG And Sustainable Business Models
The global investment landscape is shaped by sustainability criteria, with both the World Bank and the International Labour Organization emphasizing its importance. A report from Conventus Law (2025) emphasizes that integrating ESG standards has become a key factor for Vietnam to attract sustainable direct investment. International investors now view strong ESG performance as an indicator of effective risk management for their capital.
For companies, implementing measurable ESG frameworks is a strategic imperative for any investment. This is becoming an expectation in international markets and for the modern world economy.
Human Capital Development And Local Supply Chains
The foundation of a high-tech economy is a skilled workforce. Continued investment in talent upskilling is crucial for economic development. Public-private partnerships can foster vibrant R&D ecosystems where the private sector and academia collaborate to strengthen the country's capacity for high-quality foreign direct investment.
Toward A Sustainable And Competitive FDI Ecosystem
Transforming the FDI landscape requires translating policy into practice to boost FDI inflows. This involves strengthening governance and enhancing transparency to build a world-class environment for foreign direct investment (FDI).
From Policy To Practice: The Role Of Advisory And Governance
Navigating the country's dynamic regulatory environment can be complex for foreign investors. Professional advisory services are critical to bridge the gap between understanding and execution, ensuring each foreign direct investment (FDI) contributes positively to Vietnam’s development goals.
Building Investor Trust Through Transparency And Data
Transparency is the bedrock of investor confidence. A national FDI database tracking project performance and socio-environmental impact would provide clear data to investors. Data from the General Statistics Office shows that when registered capital compared to the same period last year is transparent, it boosts confidence in FDI inflows. This is a lesson learned from both emerging economies and established ones.
Conclusion: Shaping Vietnam’s Next Decade Of FDI
Improving the quality of foreign direct investment is the essential foundation for building a sustainable, innovation-led economy. The shift from a volume-based to a value-based attraction strategy for direct investment will secure the nation’s long-term competitiveness and growth. This commitment to quality investment will define the success of foreign direct investment (FDI) in the next decade.
Frequently Asked Questions
What does "quality FDI" mean in the Vietnamese context?
In Vietnam, "quality FDI" refers to investment that aligns with the country's sustainable development goals. This foreign investment is evaluated based on its contribution to economic growth, technology transfer, and development of the local economy.
How long does it typically take to establish a foreign-invested entity in Vietnam?
The timeline for this type of direct investment can vary, but it typically ranges from three to six months. Experience with large investors shows that thorough preparation is key to streamlining the process and getting the registered capital approved.
Should I prioritize ESG compliance when investing in Vietnam?
Absolutely. ESG is rapidly becoming a core requirement for attracting FDI and maintaining market access. We advise clients to integrate ESG principles into their core investment strategy to mitigate risks and align with the government's long-term vision for the economy.
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