Vietnam is among the many locations receiving big funding shifts from China and has taken the lead within the race for FDI capital in opposition to potential opponents corresponding to China, Indonesia, India, and Mexico. Nevertheless, the nation nonetheless finds it tough to draw FDI because of worldwide political instability and home funding limitations.
International funding in Vietnam reached US$27.72 billion in 2022, with year-on-year will increase of 12.2% in newly-registered tasks and 12.4% in adjusted funding capital, in accordance with the International Funding Company underneath the Ministry of Planning and Funding. Notably, many large-scale manufacturing and high-tech electronics tasks acquired giant extra capital, corresponding to Samsung’s enlargement in Thai Nguyen and LEGO’s US$1 billion funding in a Binh Duong manufacturing unit.
These have reaffirmed international buyers’ confidence in Vietnam’s economic system and funding surroundings. Nevertheless, there are nonetheless many issues to be performed to make FDI inflows sustainable, as acknowledged in Vietnam’s current financial and social growth technique.
Much less engaging
“Vietnam: Rising star within the international provide chain” and “Vietnam: New vacation spot in provide chain diversification” are what Ngo Van Giang, deputy director of the Academy of Coverage and Improvement, underlined at a current workshop on connecting industries within the northern area.
Vietnam’s bilateral financial relations with over 230 international locations and territories, the signing of 17 free commerce agreements (FTAs), and approval of the EVIPA helped create a stable authorized foundation and platform for Vietnam’s deep and large integration into the world economic system and participation in international worth chains. With its geographical location as a bridge between the maritime and continental economies of Southeast Asian and Asian international locations, Vietnam has turn out to be a vivid spot in attracting FDI inflows and for the primary time, entered the group of 20 main international locations on this planet for FDI attraction in 2020.
Moreover, Vietnam is among the many locations receiving big funding shifts from China and has taken the lead within the race for FDI capital in opposition to potential opponents corresponding to China, Indonesia, India, and Mexico. Nevertheless, Vietnam nonetheless finds it tough to draw FDI because of international geopolitical tensions and home funding limitations.
Nguyen Dinh Nam, chairman of Vietnam Funding Promotion and Associates Company (IPA Vietnam), acknowledged that almost all of the US$12.45 billion in newly registered capital in 2022 got here from large-scale present FDI enterprises and their actions, corresponding to capital enlargement, capital contribution and manufacturing enlargement.
In different phrases, the massive FDI inflows Vietnam has acquired lately primarily come from the restoration and enlargement of long-term buyers within the nation as an alternative of latest ones, Nam stated.
The overall registered FDI in Vietnam, together with newly registered capital, adjusted registered capital, capital contribution and the share buy worth of international buyers, reached US$1.69 billion from the start of 2023 to January 20, 2023, down 19.8% in comparison with the identical interval final 12 months, in accordance with the Basic Statistics Workplace.
Realized FDI in Vietnam was estimated to succeed in US$1.35 billion in January 2023, down 16.3% year-on-year. As well as, many FDI companies have introduced mass layoffs. “It exhibits the unfavourable impacts of the worldwide financial downturn on funding exercise in Vietnam,” Nam stated.
The slowing FDI restoration was attributed to the Russia-Ukraine battle, the shortage of enterprise and funding confidence, manufacturing and commerce disruptions, excessive inflation and the unfavourable impacts of the Covid-19 pandemic, Nam defined.
Furthermore, a number of outstanding economies are actively incentivizing and facilitating the return of manufacturing and international funding to their residence international locations. One such instance is the U.S., which has applied measures corresponding to slashing the earnings tax price from 25% to 21%, simplifying funding licensing procedures and implementing extra adaptable requirements to spice up the competitiveness of key industries corresponding to vitality, automotive, aluminum and metal.
The EU international locations have pursued a “strategic autonomy” by regulating outbound funding capital. For example, Germany and Italy have applied stricter controls on FDI in strategic sectors. In Asia, Japan has earmarked a price range of US$2.2 billion to help Japanese companies in transferring their manufacturing networks from China again to Japan and different third international locations, specializing in sectors corresponding to medical tools, auto elements and electronics.
Furthermore, the competitors to draw FDI amongst international locations within the Southeast Asia area is step by step heating up since Indonesia issued new incentives to welcome international buyers, together with decreasing company earnings tax to about 22-25% in 2020 and additional decreasing it to twenty% in 2022. The nation additionally put aside a 4,000-hectare space to develop new industrial parks.
In the meantime, Thailand has additionally aggressively attracted funding within the medical tools sector. It prioritizes high-tech tasks with a 50% discount in company earnings tax for 3 years and guarantees to help them in growing human assets.
“Given the excessive competitiveness between international locations in Southeast Asia, whether or not Vietnam can retain giant corporations corresponding to Samsung in Vietnam for the long run relies upon closely on its funding incentives, which assist cut back manufacturing and enterprise prices,” Nam stated.
International buyers encounter difficulties when visiting Vietnam. One instance is that residents of sure international locations holding a Vietnam enterprise visa are entitled to a keep of 15-20 days. This quick keep will not be sufficient for buyers to survey the funding and enterprise surroundings in several elements of Vietnam.
“Some buyers should return residence to use for a visa after surveying the northern area as they need one other survey in southern provinces. This wastes loads of their time,” Nam defined.
Furthermore, the fast escalation of business park land costs lately has additionally influenced the funding selections of international buyers. In keeping with a CBRE survey, the common rental worth for industrial land in first-tier markets within the north was round US$120 per sq. meter per time period on the finish of 2022, up 11% over the determine in 2021.
Notably, sure industrial parks in Bac Ninh and Hung Yen noticed a big improve in rental costs because the leased capability improved, ensuing within the highest rental worth development available in the market within the final 5 years, with an annual improve of round 6-7%.
By the tip of 2022, the common land rental worth within the first-tier markets of the southern area surged to US$166 per sq. meter per time period, representing a year-on-year improve of 8-13% and about 38% greater than the common price within the northern area.
“One among our shoppers surveyed the Vietnamese market fastidiously, then ended up selecting Indonesia because of its giant areas of accessible land at industrial parks and sluggish lease rises,” Nam stated. Funding promotion companies should spend effort and time to steer buyers.
Lawyer Bui Van Thanh, head of New Solar Legislation Agency’s Workplace, acknowledged {that a} group of shoppers from Singapore, Taiwan and China, primarily Mandarin-speaking individuals, confronted important challenges because of inconsistent explanations and software of legal guidelines and insurance policies throughout totally different localities.
For example, a international firm can simply develop a US$250-million venture in Hai Phong however has issue implementing one other with US$200,000 in Hanoi because of a scarcity of funding registration paperwork.
Moreover, there stay variations within the interpretation and software of rules relating to customs supervision, taxation and the registration of export processing enterprises throughout varied areas.
For offering electrical energy to export processing enterprises, Celebration B (the export processing enterprise) can get pleasure from a 0% value-added tax coverage, whereas Celebration A (the service supplier) is required to adjust to the authorized provisions primarily based on the written affirmation of the tax company. Celebration B has to ship it to Celebration A for invoicing and settling taxes with Vietnam’s state tax administration company.
In keeping with Thanh, this case raises issues concerning the authorized security of investing in Vietnam for a lot of corporations.
Consistency in mindset and actions to draw FDI
For Vietnam to turn out to be a really perfect vacation spot for giant enterprises, the Authorities ought to apply varied funding insurance policies and deal with maximizing the advantages of international funding to draw FDI to assist restore the economic system. 
Nevertheless, the insurance policies have to make sure the nation’s pursuits, promote manufacturing and enhance home capability as an alternative of simply maximizing the quantity of capital to draw international funding.
Moreover, the applying of screening mechanisms can hinder the attraction of FDI inflows.
Due to this fact, FDI inflows ought to solely be restricted to sure sectors, often nationwide security-related ones. Furthermore, Nam warned that the overuse of land and tax incentives to compete for FDI may trigger growing international locations to fall right into a “race to the underside” competitors.
Lawyer Bui Van Thanh proposed 4 ideas of conduct with international buyers, together with clear, comprehensible and easy-to-apply authorized provisions; easy procedures; fast implementation in funding tasks and profiting from funding incentives; clear and fast decision strategies to cope with conflicts.
Taiwan, one of many 10 economies with essentially the most FDI in Vietnam, has established 14 Taiwanese service provider associations within the nation for normal conferences to debate the conduct of the Vietnamese Authorities, industrial park builders, contractors, and buyers, in accordance with Thanh.
“Any dangerous conduct will instantly be identified within the Chinese language-speaking group and even worldwide,” Thanh stated. Relating to the economic park builders, the administration board and the funding consulting and brokerage models have to construct a detailed cooperation relationship and share the identical message on the funding circumstances in Vietnam, in accordance with Tran Thi Huyen, senior enterprise supervisor of Deep C Industrial Park.
As well as, it’s essential to fastidiously replace the wants of buyers by way of rental prices, geographical location, environmental air pollution therapy system and human assets.
“Worldwide buyers can have not less than one evaluation and overview of the funding surroundings in several localities in Vietnam when returning to their residence international locations. It additionally lays the premise for them to make good or dangerous evaluations concerning the locality and the economic park,” Huyen stated.
Furthermore, the funding consulting and brokerage models ought to make additional efforts to know the necessities of buyers and authorities to offer applicable recommendation and decrease the issuance time of funding certificates. “Details about the supply of land on the industrial parks and their utilities must be clarified so that buyers would not have to attend for land after receiving funding certificates,” Huyen stated.
