Bright 2020 prospects for foreign investment in Vietnam

Processing and manufacturing industries attract foreign investors

New milestones

US$38.02 billion is the total amount of registered capital of new FDI projects, increases in the capital of ongoing projects and stock purchases by foreign investors in 2019 - the highest annual result in the past 10 years. Investment registration certificates were granted for 3,883 new projects with total capital of US$16.75 billion, equivalent to 93.2 percent of 2018’s result.

Foreign investment in Vietnam is concentrated in 19 economic sectors. In 2019, processing and manufacturing industries topped the list with US$24.56 billion, accounting for 64.6 percent of total registered capital, followed by the real estate sector with US$3.88 billion (10.2 percent), wholesale, retail, science and technology.

The 2019 export value of FDI businesses reached US$181.35 billion, a year-on-year increase of 4.2 percent, accounting for 68.8 percent of Vietnam’s total export value. Their import value reached VND145.5 billion, up 2.5 percent compared with 2018 and accounting for 57.4 percent of Vietnam’s total import value.

Among 126 countries and territories having investment projects in Vietnam, the Republic of Korea took the lead with registered capital of US$7.92 billion. Hong Kong (China) ranked second with US$7.87 billion, followed by Singapore with US$4.18 billion.

In 2019, Vietnam disbursed a record US$20.38 billion of FDI capital. The Ministry of Planning and Investment’s Foreign Investment Agency said this was an encouraging achievement in the context of declining global FDI.

Stronger Vietnamese firms and the opening of the securities market to foreign investors have spawned a vibrant mergers and acquisitions (M&A) market in recent years, accounting for a growing percentage of total registered FDI capital in Vietnam. In the opinion of economists, however, the quality and effectiveness of FDI in 2019 is yet to meet Vietnam’s requirements in the process of building a digital economy and taking advantage of Industry 4.0.

Prospects for 2020

Improvements in the business and investment environment, as rated by foreign investors and international organizations, along with the entry into force of new-generation free trade agreements, augur well for FDI attraction in 2020.

FDI disbursement is forecast to grow 7-8 percent in 2020 and account for 22-23 percent of total investment in development. FDI from the Republic of Korea, Singapore, Japan and other Asian countries is predicted to continue increasing. Investment from the US, Germany, France, the UK and some other European countries in the fields of modern technology, education and training, research and development is also forecast to flow to Vietnam through large-scale projects.

According to economists, the number of foreign small and medium-sized companies investing in Vietnam keeps increasing in labor-intensive sectors, high-tech agriculture, organic farming and consulting services. World-leading economic groups are also expected to have large-scale investment projects in Vietnam in the fields of high-tech agriculture, future technology, smart city development, technical and social infrastructure construction.

Notably, the 25-percent tax rate imposed by the US government on imports from China requires Chinese companies to seek other export markets and increase overseas investment to cope with US measures. In this context, Chinese companies will seek opportunities to increase trade with Vietnam and boost direct investment in the neighboring market. Therefore, Vietnam needs to identify new challenges and opportunities so that it can take suitable action to ensure national interests in trade and investment cooperation with China.

Vietnam must also effectively implement Politburo Resolution 50 regarding institutional improvements and policies that offer preferences to foreign investors in accordance with international standards and commitments. The consistency, publicity and transparency of policies should be ensured to encourage strategic investors and multinational groups to set up research and development and creative innovation centers in Vietnam. The linkage between domestic and foreign investors should be promoted. Foreign companies should be encouraged to transfer technology and management skills to Vietnamese businesses.