Vietnam Remains Safe Destination for Foreign Investors

9:04:48 AM | 3/25/2022

Vietnam's selective investment attraction policy, designed to reduce quantity, increase quality and eliminate small-scale projects with little added value, has begun to work effectively. Vietnam continues to be a safe, attractive and potential investment destination for foreign investors.

FDI business community increasingly confident

Actively improving the business and investment environment not only helps Vietnam increase opportunities to attract investment flows, but also enhances the competitiveness of the business sector and the economy in the new normal context. This is considered the driving force and a "key" for growth in 2022 and beyond.

In fact, the investment and business environment of Vietnam has improved in recent years, which is highly appreciated by domestic and international business communities. From 2014 to now, every year, the government has issued solutions for better investment and business environment and stronger national competitiveness, including Resolutions 19/NQ-CP (from 2014 to 2018) and Resolutions 02/NQ-CP (from 2019 to 2022). Resolutions 02/NQ-CP of 2022 was issued, with expansion in space, scope of content, goals and targets.

By 2019, Vietnam cut more than 50% of business conditions as reported by ministries and sectors. Besides, many indicators of the business environment also picked up. The number of conditional investment and business lines was slashed, from 267 occupations in 2014 to 243 in 2016 and further to 227 in 2020.

In addition, Vietnam's position on global prestigious rankings has been raised, which has built up the confidence of investors and businesses. Specifically, the Global Competitiveness Index 4.0 (announced by the World Economic Forum - WEF) ranked No. 67 out of 141 countries (in 2019), 10 places higher than in 2018. The Global Innovation Index (announced by the World Intellectual Property Organization - WIPO) ranked No. 44 out of 132 countries in 2021. The E-Government Development Index (announced by the United Nations - UN) ranked 86th in 2020), two places higher than in 2018. The Sustainable Development Goals Index (by the UN) ranked No. 51 out of 165 countries in 2021, climbing up 37 places over 2016.

In particular, Vietnam has recently officially restored the visa policy as before the COVID-19 pandemic outbreak in order to reopen the door to international tourists from March 15. This not only brings about a positive effect on tourism, but is also expected to make significant contributions to drawing more foreign investment into Vietnam.

Promoting qualified investment projects

As proof of these efforts, despite the impact of the COVID-19 pandemic, FDI inflows have still poured into Vietnam in recent years. In the year to February 20, 2022, the total registered foreign direct investment (FDI) approximated US$5 billion, down 8.5% year on year. 183 existing projects registered to invest an additional US$631.8 million in the period, up 45.2% in projects but down 80.9% in value.

The fresh FDI fund decreased sharply in the first two months of 2022 from a year earlier because many large-scale projects of over US$100 million were licensed in January and February of 2021. Sizeable projects accounted for 69.2% of the total new registered FDI fund in the first two months of 2021, especially the US$1.3 billion O Mon II Thermal Power Project. Meanwhile, in the corresponding period of 2022, only one large project registered to invest US$136.4 million.

According to economic experts, this decline may only be temporary as large-scale projects are still waiting for being licensed. Thus, it is likely not to affect the recovery FDI inflow trend into Vietnam. In the coming time, Vietnam will need to promote quality investment. Accordingly, it is not important to attract more FDI but high-quality FDI. Generally, those with less intensive land, energy and labor will be prioritized. The manufacturing and processing sector and service will be promoted to attract FDI capital in the coming time.

In fact, over the past time, Vietnam's investment attraction policy, aimed to reduce the quantity, increase quality and eliminate small-scale projects with little added value, has begun to work effectively. The share of FDI funds invested in highly polluted industries using outdated technologies such as textile dyeing has gradually diminished. Not only growing in number, FDI inflows to Vietnam are also bringing high-quality projects that use green technologies and renewable energy. Typically, LEGO Group (Denmark) signed a memorandum of understanding with Vietnam-Singapore Industrial Park Co., Ltd (VSIP) to build a new factory in Vietnam. As planned, this is LEGO's first carbon-neutral factory energized by solar energy that causes no environmental pollution, dust or waste.

Minister of Planning and Investment Nguyen Chi Dung said that the Ministry is submitting seven criteria on FDI selection to the Prime Minister: Investment unit rate on the area of land, number of employees, high technology content; technology transfer commitment of investors, ability to link with the domestic business sector, environmental protection, and guaranteed national defense and security.

To do this, Vietnam will adopt active FDI attraction policies. In addition to proactively preparing infrastructure for FDI enterprises, many localities are also looking for investors through direct meetings rather than waiting for them to arrive. At the same time, Vietnam is committed to creating the most favorable conditions, promptly removing difficulties and obstacles for investors to work and develop stably in the long run.

By Thu Ha, Vietnam Business Forum