Geopolitical ramifications for Vietnam’s FDI attraction

Vietnam has set a target to attract $39-40 billion in foreign direct investment (FDI) in 2024. By the end of October, $27.26 billion had been secured. What factors will help Vietnam achieve this goal?

Despite many global and domestic challenges, Vietnam achieved impressive FDI results last year. The global economy faced competition between major powers, while domestically, the financial, monetary, and real estate sectors encountered various risks. Nevertheless, foreign investment into Vietnam in 2023 reached $36.6 billion, a 32.1 per cent on-year increase.

If we compare the overseas funding attracted in the first nine months of 2024 with the annual target, the figure might seem lower. However, we have reasons to believe that the goal of $39-40 billion is still attainable. The $25 billion secured in the first three quarters represents an 11.6 per cent on-year increase, and the disbursed capital of $17.3 billion is the highest level in the past five years.

Moreover, Vietnam’s socioeconomic conditions from January to October have shown a positive recovery. Macroeconomic stability, controlled inflation, and a trade surplus of $23.31 billion have all contributed to this growth. The state budget revenue reached 97.2 per cent of the annual estimate, a 17.3 per cent rise compared to the same period last year. Additionally, Vietnam’s international integration efforts have enhanced the country’s global standing and reputation.

Furthermore, several factors are favourable for attracting foreign investment in the final months of the year. Foreign investors maintain strong confidence in Vietnam’s investment environment, with major partners such as Taiwan, Europe, the United States, Singapore, China, and Hong Kong looking to expand their investments here.

According to domestic and international financial institutions, Vietnam’s outlook for attracting foreign investment remains positive. We expect stable FDI inflows in the coming months, bringing the total to $39-40 billion by year-end, with disbursed capital reaching $23-24 billion.

Given the global political and economic context, do you foresee more opportunities or challenges for Vietnam in attracting FDI in 2024 and beyond?

We are witnessing a complex global situation, but cooperation and development will remain major trends moving forward. Regional and bilateral links will continue to be strengthened, and while the global economy faces ongoing difficulties, emerging economies like China and India are rising, presenting both challenges and opportunities for Vietnam.

There are several challenges. The global economic outlook for all of 2024 shows weak recovery and continued risks due to geopolitical instability and ongoing competition between major powers. These issues will likely impact the global economy in the medium-long term.

Major economies, many of which are key trade and investment partners for Vietnam, are recovering slowly and unsustainably, with low growth rates. For instance, the South Korean won depreciated by 7 per cent against the US dollar in the first four months of 2024, the largest drop since 1990. Similarly, the Japanese yen has weakened to its lowest level in 34 years.

This trend suggests that some major foreign investors from Japan and South Korea are reducing their overseas investments, with their governments offering incentives to draw in businesses back home.

The global FDI outlook remains uncertain. According to the UNCTAD’s 2024 International Investment Report, global investment flows fell by 2 per cent to $1.3 trillion in 2023, marking the second consecutive year of decline.

On the other hand, Vietnam’s prospects for attracting investment remain positive. The recovery of Asian economies, bolstered by free trade deals, can provide momentum to retain existing investors and engage new ones. Investment in the Asian region, particularly in ASEAN countries, is on the rise, as countries focus on strengthening supply chains.

Despite the challenges, European countries are keen to diversify their supply chains by cooperating with ASEAN countries. European investors are particularly interested in sectors such as clean energy, renewable energy, green hydrogen production, semiconductor manufacturing, and AI – key areas that align with Vietnam’s overseas funding strategy.

The manufacturing sector, especially industries linked to global value chains such as automobiles, textiles, machinery, and electronics, as well as green investments and sustainable development, continues to grow. These sectors are becoming the main drivers of foreign investment.

What do you see as the most enduring obstacle to unlocking FDI?

There are several issues that need to be addressed. Firstly, the proportion of high-tech projects remains limited, and most of the investments are small-scale. Investors still face difficulties in navigating Vietnam’s investment procedures, particularly in areas such as land, construction, environmental regulations, and fire safety.

Additionally, Vietnam lacks sufficiently attractive incentive policies to support investments in priority sectors like high technology, innovation, and renewable energy – areas where breakthroughs are needed.

The shortage of high-quality labour, however, is the most significant barrier. Resolving this issue could create a major breakthrough for inflows, as investors increasingly seek skilled workers to support high-tech projects.

More than 11.07 billion USD in foreign direct investment (FDI) was funneled into Vietnam during January-May, up 2 per cent against the same time last year, according to the Ministry of Industry and Trade (MoIT)’s Foreign Investment Agency.

The central city of Danang will have opportunities to draw in more investment following approval to establish a free trade zone, with pilot preferential mechanisms to woo high-tech projects.

The southern province of Ba Ria-Vung Tau is emerging as a prime investment destination in Vietnam, driven by a favourable investment climate and ambitious development plans.

Over the past decade, Vietnam has seen a steady increase in foreign direct investment, which has significantly contributed to its economic development. Rizwan Khan, partner at Acclime Vietnam, looks at the reality of such investment moving forward in Vietnam.

Bac Ninh province continued topping the nation for foreign direct investment (FDI) influx with a total of over 4.2 billion USD during January-September on the back of its sound investment climate, modern infrastructure, and abundant labour force.