Experts discuss new wave of foreign investment into Vietnam

The first panel discussion of the Vietnam Industrial Property Forum 2023 heard the latest trends of foreign investment flows into Vietnam and how the country should prepare to lure foreign investors amid the rising competition in foreign direct investment (FDI) attraction. A series of experts gave their opinions on the market.

There are many factors driving the trend of FDI into Vietnam. The China+1 strategy is just one factor behind the relocation wave in recent times. Another trend is that many countries with large capital exports have changed their policies, which has prompted investors in those countries to reposition their capital flows to make the most of the opportunities. Typically, investors have restructured their operations to avoid high taxes since the US-China trade war.

Other factors are the supply chain disruptions caused by the COVID-19 pandemic, the Russia-Ukraine war, and other fluctuations. In their efforts to restructure the supply chain, investors have considered the Southeast Asian region as a potential destination to share the challenges of supply chain disruptions.

More than 60 per cent of foreign investment in Vietnam will focus on the fields of processing and manufacturing. Investors are looking for industrial parks (IPs) with available infrastructure, clean sites, and wastewater treatment systems to support their expansion. Industrial property has become an increasingly hot segment.

Despite the growing foreign investments, Ho Chi Minh City is dealing with a shortage of industrial land funds, planning problems, and compensation and clearance challenges. Many investors want to invest in Ho Chi Minh City, but they can't find enough land in the city.

Therefore, they have to move to neighbouring provinces like Dong Nai and Binh Duong to set up the manufacturing projects. The municipal authorities have sought many solutions to solve these challenges. Most recently, we proposed that the prime minister add Pham Van Hai IP, which has an area of more than 600 hectares, to the city's industrial land fund.

After gaining approval, we are conducting bidding and planning for the IP. Currently, compensation and site clearance work are also underway for other land plots to ensure the growth of the city in the future.

In addition, there are 18 years left until the land lease term of Tan Thuan Export Processing Zone expires. Many investors have raised concerns about this timeline. Some want to expand their investment, but it is impossible for them to get a return on investment with only 18 years left. New investors wonder if they can deploy their projects in such a short time.

To address this issue, the city has formulated a plan for the development of IPs, and export processing zones (EPZs) in the city towards 2030. The goal is to review the development of IPs and EPZs in the past 30 years. In particular, we look to adapt to new concepts such as eco-industrial parks, digital transformation, green transformation, and environmental, social, and governance (ESG).

In the first few months of this year, South Korea ranked second in the list of foreign countries and territories investing in Vietnam. As of the second quarter of this year, there are dozens of South Korean investment projects waiting to be invested in Vietnam.

These projects have an investment capital range of $700 million to $1 billion. However, we will need to wait another few years for new large-scale ventures to develop in Vietnam on the back of the recovery of the global economy. Vietnam is a vital country since the pandemic, so more capital flows are expected to come in.

Indeed, Vietnam is home to many South Korean investors, such as Samsung, LG, SK Group, and others. At the Vietnam-South Korea business forums and the meetings between the government and investors, we see that major South Korean companies have confirmed their long-term investment in the country. In particular, they will develop large-scale manufacturing and business projects in Vietnam.

Vietnam has become an attractive investment destination thanks to several advantages, such as its geographical location, attractive investment environment, political stability, and strong economic growth. However, the supportive policies of the government make it vital for investors to take advantage of these better conditions.

However, Vietnam's investment environment will face two major problems in the future, including labour and energy. Vietnam has begun to enter a period of an ageing population. The number of people in the working age bracket is decreasing. In the future, Vietnam will have fewer workers, and it is possible that many people will not agree to work for low wages. Therefore, Vietnam needs to be selective when investors propose labour-intensive projects.

The second problem is energy. It is predicted that within the next five years, there will be a shortage of electricity generation. Therefore, Vietnam needs to build its energy infrastructure today. I expect there will be a large wave of investment in Vietnam, especially in the energy sector because many foreign investors are keenly interested in using renewable energy to protect the environment. There's a lot of room for investors to tap into this field.

Each investor will have their own criteria when choosing a location to invest. There are three areas where Vietnam can improve to lure investors.

The first is infrastructure development. Investors not only want to see the roads under construction but also want to see the government's commitment to completing the infrastructure projects on time. When key infrastructure projects are guaranteed on schedule, it will have very positive effects on the business community. Currently, there are many key infrastructure projects delayed, such as Long Thanh International Airport. The government needs to accelerate the progress of these projects to increase the confidence of international investors in Vietnam.

The second is energy supply. Investors will not accept that they only get notice of a power outage three days in advance. It is necessary to provide stable services to investors.

The third point is that Vietnam is developing and attracting many investors in the technology field. Therefore, Vietnam should focus on education and training to equip the workforce for high-tech industries.

Many localities want to expand high-tech industrial parks to resolve the overload of existing parks and simultaneously welcome new high-quality capital.

Core5 Industrial Partners is counting up the successes after a year in Vietnam.

On the morning of August 24, VIR is holding the Vietnam Industrial Property Forum 2023 in Ho Chi Minh City, attracting the participation of experts, investors, and policymakers.