Vietnam's data center market is undergoing a historic transformation. It is rapidly emerging as one of Southeast Asia's most attractive destinations for investment in digital infrastructure. The nation's Law on Telecommunications (Law No. 24/2023/QH15) allows 100% foreign investment in data center services; however, market access restrictions will apply if the data center service provider provides […]
Recently, the Prime Minister has announced Decision 667/QD-TTg on authorizing the Foreign Investment Cooperation Strategy (FICS) for the period 2021-2030. The plan is considered to have created several new opportunities for foreign investors.
Current FDI inflows into Vietnam
According to the assessment of the IMF, Vietnam is an economy that has and will have positive growth by the end of 2022, compared to other countries in Asia. Vietnam’s low inflation is also an exception to the general rule of the entire region.
In the World Bank's most recent study, Vietnam's GDP growth rate has increased from about 2.6% in 2021 to 7.5% in 2022. And in the first 9 months of 2022, this rate was 8.83%, the highest since 2011. Meanwhile, average annual inflation is kept under control at 3.8%. The promising growth Vietnam experienced has partly been attributed to the intensive FDI the country received.
As FDI accounts for over 20.17% of Vietnam’s GDP and 70% of export volume, it has become one of the main pillars contributing to the economic growth of Vietnam. The Secretary-General of the Organization for Economic Cooperation and Development (OECD) - Mr. Mathias Cormann also emphasized the important role of FDI inflows in the potential growth of the Vietnamese economy on his recent visit to the country.
The Foreign Investment Agency (Ministry of Planning and Investment) has just announced that the total foreign investment capital landed at over 25.1 billion USD, equivalent to 95% over the same period last year, and up 0.4% compared to 10 months ago.
At the same time, 994 projects registered to adjust investment capital, increasing by 13.3% over 2021. The total additional registered capital reached nearly 9.54 billion USD, up 23.3% over the same period in 2021. The steady growth momentum of adjusted capital shows a signal of foreign investors' confidence in Vietnam's economy and investment environment.
Out of 21 national economic sectors, foreign investors invested in 19 industries in the first 11 months of 2022. The processing and manufacturing industry maintained its lead with a total investment of more than 14.96 billion USD, accounting for 59.5% of the total registered investment capital. Recording a 4.19 billion USD investment, the real estate business ranked second, consisting of 16.7% of total registered capital. Thus, these figures provided the strongest evidence for the attractiveness and efficiency of FDI inflows into Vietnam.
Opportunities for investors from government goals in the FICS
The FICS reflects the priority of the government to attract foreign investment projects with high-level application of advanced and innovative technology, which aligns with the national plans to promote, support, and advance the Fourth Industrial Revolution. The goal is viewed as fresh and updated compared to previous tactics since the government pays more attention to the growth and development of high-tech sectors. With an emphasis on technologies and innovations, Vietnam is calling for new investment in high-tech FDI projects and offering special incentives for any comer. Prior to the new investment strategy, many high-tech firms have already selected Vietnam as their worldwide manufacturing base. Japanese investors are pioneering this activity, with the involvement of top global manufacturers namely Sanyo, Matsushita, Sony, Fujitsu, Toshiba, Panasonic, and Nidec, among others. These firms have established manufacturing bases, using cutting-edge technologies for production and distribution, and continuing to expand their investment scale.
Another highlighted example is Samsung - one of the leading smartphone and electrical appliances manufacturers in the world. Samsung Group’s cumulative investment capital in Vietnam is expected to exceed US$ 21.5 billion by the end of 2022. In 2022, the giant corp aims to achieve US$ 69 billion in export turnover while investing an additional US$ 3.3 billion. According to Mr. Roh Tae-moon, General Director of Samsung, the group will continue to further invest in Vietnam.
In addition, Jabil has pledged to invest an additional US$ 500 million in HCMC. Plus both Microsoft and LG are relocating production facilities to Vietnam.
Lego Group (Denmark) recently agreed to invest US$1 billion USD in the construction of a facility at Vietnam-Singapore Industrial Park (VSIP) 3 (Binh Duong) after careful consideration This demonstrated the extensive research and well-prepared resources of the firm before its final decision to locate the sixth production in Vietnam. Notably, this is Lego's first carbon-neutral factory, with solar energy used for associated operations.
Aside from foreign investors, domestic manufacturers with high-tech industrial products are also eligible for investment incentives in accordance with the Prime Minister's Decision No. 2457/QD-TTg, which approves the National High-tech Development Program until 2020. They are, for example, supported by high-tech research and trial manufacturing, as well as investments in expenses related to creating technical bases, training, and utilizing high-tech human resources. According to the High Technology Law 2019, the Government will prioritize investment in hi-tech development in the following technology sectors: Information technology; Biotechnology; New material technology; Automation technology.
Furthermore, the Foreign Investment Cooperation Strategy also increases the share of registered out-of-total foreign investment capital in particular countries and territories to more than 70% in 2021-2025 and 75% in 2026-2030.
In particular, the following countries are included:
(i) Asia: Korea, Japan, Singapore, China, Taiwan (China), Malaysia, Thailand, India, Indonesia, and the Philippines;
(ii) Europe: France, Germany, Italy, Spain, Russia, and the United Kingdom; and
(iii) Americas: the United States of America.
At the same time, the Government aims to increase the number of multinational corporations in the Global Fortune 500 list to have a presence and operation in Vietnam by 50%. The rise in investment capital from these nations into Vietnam will provide a chance to further strengthen bilateral economic connections while also opening up development opportunities for other industries. As a result, investors have additional options and assistance in the investment process. The big countries on the preceding list will also gain from Vietnam's policies encouraging collaboration, taking advantage of plentiful and favorable human resources in their geographical position.
FTAs play a critical part in achieving this goal. When new-generation FTAs enter into force, the elimination of restrictions on investment and services, the opening of the government procurement market, financial services, and other areas would provide significant possibilities for investment in Vietnam. So far, Vietnam has entered and signed 17 FTAs at both the bilateral and multilateral levels, enabling free trade relations with many of the world's trade partners. In such FTAs, reducing import and export tax on goods and services and limiting non-tariff barriers are considered important factors. Investors can see this as a good sign to invest in Vietnam given the improved tax and tariff advantages.
The strategy has also set a target that by 2030, Vietnam will be among the group of 3 leading countries in ASEAN and the group of 60 leading countries in the world according to the World Bank's business environment ranking. The Government prioritizes the development of innovation ecosystems in industries, agriculture, and services associated with domestic and global value chains and clusters of industry linkages. Large enterprises play a central role in leading innovation activities, while state management agencies assume the role of creating favorable policies, and promoting linkages between enterprises, research institutes, and universities. This plan intends to strengthen Vietnam's worldwide standing which leads to attracting new investment opportunities for both domestic and foreign investors.
Challenges for investors
While Vietnam's investment environment and competitiveness have improved, they still fall short of fully meeting the needs of foreign investors. Some of the current outstanding problems include cumbersome administrative procedures, inadequate infrastructure and support areas, among others. For now, the Investment Law 2020 has undergone major modifications that address some of the challenges that investors face.
Legally, Vietnam has a variety of supporting documents for innovation and high-tech initiatives, but they are not particularly clear or practical, causing implementation difficulties. There is still a lack of knowledge about policies and types of state support for innovation. Therefore, investors will find it difficult to face legal problems without the support of experts in this field.
Currently, Vietnam must pick more high-quality investment projects with high added value and minimal environmental damage, which means that FDI inflows are likely to be reduced.
Simultaneously, in the context of the Fourth Industrial Revolution, technology plays a vital role in both economic development and attracting international investment. However, limits in the industrialization and modernization processes provide a significant obstacle for Vietnam in meeting its FDI attractiveness targets. Vietnam still lacks several technological grounds to support industrial growth and expand international collaboration. Furthermore, high-quality resources have not been effectively invested to achieve high efficiency in this process. As a result, Vietnam investors require a partner's assistance in the investing process.
The Strategy for Foreign Investment Cooperation 2021-2030 demonstrates the Vietnamese leader's goal of attracting foreign investment. Investors must carefully analyze both possibilities and obstacles to make informed investment decisions in the future. Viettokin is willing to provide investors with the most reliable and up-to-date information about the Vietnamese government's policies. Contact us right now to improve your chances!
