INVESTMENT CLIMATE IN VIETNAM

Vietnam continues to work to improve its business climate in order to attract foreign direct investment (FDI), and has sustained registered FDI of roughly $18.5 billion per year over the last five years. In 2015 Vietnam successfully attracted new and additional investment in the IT sector and energy. Investors commonly cite Vietnam’s geographic proximity to global supply chains, political and economic stability, expected benefits from the Trans-Pacific Partnership (TPP) and other recently signed free trade agreements (FTA’s), and an increasing desire to diversify their manufacturing base in Asia away from China as reasons for investing in Vietnam. Vietnam is one of the few counties in Asia that has been able to sustain manufacturing growth. Fueled by a growing economy with a young, increasingly urbanized population and inexpensive labor, Vietnam could become the next manufacturing powerhouse of Asia. Last year was an important year for Vietnam as it made great strides in integrating into the global economy. In 2016 signed the Trans-Pacific Partnership (TPP) and in 2015 Vietnam signed the European Union FTA (EV-FTA), the Korea FTA, Eurasian Economic Union (EAEU), is a part of the newly formed ASEAN Economic Community (AEC).

Manufacturing dominated FDI inflows last year as investors continue to move large scale operations from other developing countries to Vietnam. In 2015, the investment influx to the textiles and apparel industries continued in anticipation of the conclusion of the Trans-Pacific Partnership. Information technology (IT) also attracted major investments from Samsung ($3 billion), LG ($1.5 billion), and Microsoft ($500 million). The FDI inflows to the IT sector are in line with Vietnam’s strategic efforts to shift FDI from low-end manufacturing to the high tech sector. Vietnam also continued to attract investment in infrastructure projects such as power generation, roads, railways and water treatment. Vietnam needs an estimated $170 billion in additional infrastructure development in order to meet growing economic demand. In energy alone, the Vietnam's General Statistics Office (GSO) estimates that electricity demand will continue to grow at a rate of 10 percent to 12 percent per year, rising from 169.8 terawatt hours in 2015 to 615.2 terawatt hours by 2030.

In 2015, Vietnam issued the underlying decrees to implement several key laws, including the Enterprise Law, the Investment Law, the Bankruptcy Law, Housing Law and Real Estate Business Law. The State Bank of Vietnam (SBV) executed its plan to strengthen the banking sector last year, and was successful in maintaining stability of the Vietnamese Dong (VND) despite a challenging global currency environment in the latter part of the year.

However, the new Investment Law failed to create a clearer licensing process, and reforms allowing foreigners access to property have failed to attract large-scale foreign investment in real estate. The state-owned enterprises (SOE) reforms also fell short of the Government of Vietnam’s (GVN) ambitious goal of equitizing over 500 SOEs by the end of 2015.

While Vietnam continues to attract increasing amounts of FDI, several challenges in the business climate remain, including: corruption and weak legal infrastructure, a shortage of skilled labor that can meet the demands of an increasingly sophisticated global market, low labor productivity, a weak judicial system, the need for better infrastructure, and a cumbersome bureaucracy that still focuses on monitoring and control rather than business facilitation.

If you want to see more about FDI opportunities in Vietnam, contact us: info@fdi-vietnam.com

Source: U.S. Department of State Diplomacy in Action