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|The new FDI strategy with focus to 2030 will look at areas such as removing attraction barriers and setting incentives for high-tech groups, Photo: Le Toan|
Highlights of Vietnam’s draft new-generation FDI attraction strategy
One of the highlights in the upcoming strategy is the change in the country’s FDI attraction orientations and investment incentives focusing on output quality and contributions to the domestic sectors. These include the value chain, added value, application, and transfer of high technology, as well as research and development and innovation, rather than the previous focus on location, sectors, and investment scale.
In addition, Vietnam will also concentrate more on financial supporting policies, for example incentives on lending interest rates and trading rights, instead of focusing on tax and land incentives as it does currently.
The top priorities for FDI attraction in the coming years will include IT and telecommunications, advanced electronics, automobiles, agricultural machinery, supporting industries, research and development, the Internet of Things, and Artificial Intelligence, among others.
Other priority sectors include processing and manufacturing to serve hi-tech agriculture, healthcare, logistics, and renewable energy. Furthermore, the country will continue attracting FDI into the sectors that Vietnam has advantages in, such as textiles and garments or footwear, with a focus on high added value, smart production, and automation.
On August 20, the Politburo issued Resolution No.50-NQ-TW on orientations to perfect institutions and policies to enhance the quality and efficiency of foreign investment co-operation through 2030.
Under the resolution, Vietnam will attract foreign direct investment (FDI) in a more selective manner, focusing on efficiency, technology, and environmental protection. Thus, the country will give priority to projects having advanced and new technology, modern governance, high added value, and wide links with global production and supply chains.
NEW ORIENTATIONS AND TARGETS
Under the resolution, the country will further diversify investment co-operation modes and promote links between foreign-invested and domestic private enterprises in line with the country’s economic restructuring and sustainable development agenda towards increasing the self-reliance of the local economy.
Generally, the country will remove barriers existing in the current policies on FDI attraction and related laws to improve the business climate and national competitiveness towards reaching the average indicators of the ASEAN-4 group (Singapore, Malaysia, Thailand, and the Philippines) by 2021 and the ASEAN-3 group (Singapore, Malaysia, and Thailand) by 2030.
In particular, Vietnam targets luring in $150-200 billion worth of total registered FDI in the 2021-2025 period, or $30-40 billion a year. In this period, disbursed FDI will be $100-150 billion, or $20-30 billion annually.
In the 2026-2030 period, the total registered FDI will be $200-300 billion, or $40-50 billion yearly. The disbursed capital will total at $150-200 billion, or $30-40 billion a year.
The number of enterprises using advanced and environmentally friendly technology as well as having modern governance and plans for high-tech application is set to rise by 50 per cent by 2025 and by 100 per cent by 2030 against 2018 benchmarks. The localisation rate is set to increase to 30 per cent by 2025 and 40 per cent by 2030 from the current 20-25 per cent, while the trained workforce will ascend to 70 per cent (2025) and 80 per cent (2030) of the total workforce, from the 56 per cent measured in 2017.
To meet the targets, Vietnam will focus on completing and synchronising the prevailing laws on investment, securities, and foreign currency management. Additionally, the country will build a list of sectors restricted for foreign investment in line with its international commitments, and set the criteria to select and prioritise investment in line with the planning and development orientations of each sector and region.
Vietnam will also renew its investment incentive policies and add new ones for profitable businesses performing their commitments and for specific sectors. This is particularly true for important high-tech projects by multinational corporations who will see unparalleled incentives to set up research and development bases or innovation centres in Vietnam.
In addition, investment incentives will be crafted for foreign investment in infrastructure development in the northern mountainous, Central Highlands, and Mekong Delta regions. At the same time, relevant authorities will draft and complete policies on investment in economic zones, industrial parks, hi-tech parks, and hi-tech agriculture parks, creating attractive, customised incentive packages for each one.
The country will also focus on improving and completing the policy framework for supporting industries and startups, thus enabling them to better connect with international groups and improving their capacity to apply technology and join global value chains.
Another priority will be the issuance of policies to encourage the public-private partnership model and mergers and acquisitions involving international investors.
With the resolution, Vietnam will say no to proposals to expand or extend the operations of projects using out-of-date technology that constitute risk to the environment or waste natural resources. Projects where there is a high possibility of transfer pricing or illegal investment will be dealt with comprehensively.
To this end, the country will complete the policies safeguarding foreign investors’ interests and outlining their responsibilities and obligations in line with international commitments and practices. It will also clarify and fine-tune rules on investment management and supervision as well as the prevention and settlement of investment disputes.
As scheduled, a new FDI attraction strategy will be enacted soon, based on the spirit of Resolution 50 (see box).
The resolution and the strategy came amid changing global trends, with the wide influence of the Fourth Industrial Revolution, a rise in protectionism, stiffening regional competition, and the development of new investment modes, while low salaries will no longer be an advantage.
“Vietnam aims to attract high-quality FDI and use it more effectively to approach new and advanced technologies and innovations, increasing its footprint in the global value chains, thus contributing to increasing the country’s competitiveness and fostering economic restructuring in line with the changes to the growth model,” said Vu Dai Thang, Deputy Minister of Planning and Investment.
Industry insiders said that when the new strategy is in play, Vietnam is possibly set to see an increase in FDI inflows, especially from big players including Japan, South Korea, Singapore, the EU, and the United States. Recently, these partners have made bold moves in preparation for the new development period.
In a fresh development, a group of members of the European Chamber of Commerce in Vietnam last week gathered to learn about business and investment opportunities to broaden in the Southeast Asian nation amidst the US-China tensions. Meanwhile, Japanese, South Korean, and US investors are also making similar moves.
“Italian investors have performed well in the country for years. We expect that more Italian investment will be pumped into Vietnam in the future with involvement and support from giant funders,” Pham Hoang Hai, executive director of the Italian Chamber of Commerce in Vietnam, told VIR.
According to the latest report of Singapore’s United Overseas Bank, ASEAN countries, particularly Vietnam and Malaysia, will be the most popular destinations of multinational investors relocating operations.
Corresponding to the accelerating FDI inflows, new FDI activities in Vietnam have also been very reassuring, with 2019 likely to be on track to be the best year on record, based on current run rates. In the year to July, Vietnam attracted 2,064 new foreign-invested projects, which is 25 per cent higher than in the same period in 2018, which itself was already a record year, according to the report.
Bruno Angelet - Former head of the European Union Delegation to Vietnam
FDI has proven to be a major driver of Vietnam’s economic development and has contributed to the impressive growth rates averaging 6.5-7 per cent over the past decade. FDI has created resources for the government and jobs for the Vietnamese people.
With its population of almost 100 million, the Vietnamese market is extremely attractive for investors. Besides, a network of free trade agreements concluded by Vietnam offers competitive access to other markets. These are the factors that can make Vietnam an important destination for investment in the region.
However, after more than 30 years of this rapid economic development, Vietnam needs better investment that will leave more value in the country, and create higher-skilled jobs that would support the government’s policy of sustainable development respecting the environment and the society. The next generation of FDI is needed for Vietnam to continue its impressive economic development path and upgrade the profile of its economy.
The EU can offer investment in high-tech, environmentally friendly, and less energy-intensive sectors. European businesses do not only bring technology and quality jobs but also responsible business practices. This quality European investment can create useful links with local companies and integrate them in global value chains.
Marko Walde - Chief representative, German Industry and Commerce Vietnam
FDI was and is still playing a huge role in Vietnam’s rapid development. First of all, in the past Vietnamese companies, although hardworking and creative, did not have sufficient capacities and experiences to start a modern project on their own. So FDI helps a lot to modernise the country.
Second, FDI also brought know-how, technologies, and qualified workers to Vietnam. That is why Vietnamese companies were not just able to improve their product and service quality but also their production process and management methods. So FDI is partially responsible for Vietnam’s growth and for bringing capital stock and knowledge so that Vietnamese companies could eventually start their own projects.
On behalf of German investors, I would say that they are always highly interested in co-operating with Vietnamese companies in the same region, for example as potential suppliers or as service providers. Thus, Vietnamese companies could also benefit from a foreign investor in the region.
Germany is a very export-oriented economy, engaged in a lot of international business. German companies have to be present on the most promising markets, and one of them is Vietnam. It has a fast-growing middle class, desiring to catch up on consumption and an industry requesting for products and technology of high quality.
Denis Brunetti - President, Ericsson Vietnam and Myanmar
Over the past 30 years, Vietnam has successfully orchestrated a phenomenal socio-economic development journey, averaging over 6 per cent of teh GDP and transforming itself into a middle income economy. This amazing achievement was fuelled by over $350 billion of FDI which was primarily focused on low-cost and labour-intensive manufacturing and production.
The government wisely recognises that for Vietnam to continue enjoying sustained and inclusive GDP growth, avoiding the middle income trap, the next wave of socio-economic development and prosperity will need to be driven by science, technology, and innovation-centric FDI. Ericsson supports and is aligned with the government’s vision of promoting hi-tech FDI to Vietnam, enabled by 5G Internet of Things (IoT) connectivity across the nation, digitally transforming all industries.
Ericsson is committed to driving Industry 4.0 and industry digitalisation in Vietnam through our investments in mobile broadband networks across Vietnam, including 3G and 4G IoT, and soon 5G. Ericsson recognises that for Vietnam to attract good-quality hi-tech FDI, it needs to have high performing mobile broadband network infrastructure across the nation – indeed, this mobile data network connectivity is the infrastructure that is needed to build smart cities and digitally transform industries, such as manufacturing, agriculture, energy, transport, and retail through the growing digital economy.
Hannu Hyttinen - Managing director, Nefab Vietnam
It is amazing how the Vietnamese government can develop in the best directions. Manufacturing has been an attractive industry among foreign investors in Vietnam for years. Japanese, South Korean, and others have been here for a long time, and now a lot of Western companies have come. In the new development period, manufacturing still remains important in the country’s FDI picture. I like to see that the Vietnamese government is taking close steps now to attract more, quality foreign investment.
Our company has been present in Vietnam for four years, and is operating in five countries. Currently, we have a small manufacturing facility in Vietnam, focusing on packaging solution for our hi-tech customers in different industries such as ABB, General Electric, and Schneider Electric, among others. As we are growing in the country, we are thinking about a new plant in the south of the country to meet growing demands.
With the new incentives, the new FDI attraction strategy will help Vietnam attract more foreign investment.
Seck Yee Chung - Vice president, Singapore Business Group in Ho Chi Minh City
The business environment in Vietnam is very encouraging. The country is known for its good resources, and especially now it is involved in international trade and investment agreements. There has been a rise in development and population growth, and so more people enter the workforce, colleges, and teh customer-base. So I think they all contribute to healthy opportunities for investment.
However, Vietnam also has concerns and has struggled a bit when it comes to new sector facilities, especially in technology or sectors related to innovation. The government should spend a lot of time researching and encouraging businesses to continue to run in Vietnam, especially in the energy sector.
It should also spend time studying new business models in the region and around the world. In addition, the government should spend more time to speak with businesses, whether they are technology companies or local startups, to understand what these new models look like.
Patrick Downey - Managing director, AsiaIDA Ltd.
During my 28 years in Vietnam, I have been privileged to witness businesses substantially grow here. This is due to a large extent on the hardworking and progressive nature of its people with support from the government legislation focused on the country’s steady growth and development, which based on current developments is continuing.
The Vietnamese government’s FDI approach and supporting policies will further add to and increase the country’s growth and development by attracting more foreign companies and entities, particularly those who recognise that first-class manufacturing facilities are available, or can be established at a reasonable cost.
Furthermore, the government’s positive approach continues to open up new opportunities and operational benefits. These include access to the growing Vietnamese market and other Asian and world markets.
These opportunities and benefits created by positive FDI developments will further open up beneficial technology transfer and related opportunities, thus highlighting the considerable advantages of Vietnam as a business base.
To maximise the benefits for all parties concerned, the Vietnamese government authorities and departments need to adopt a highly supportive customer-centric approach in the implementation and support of these new FDI developments and initiatives.
Linson Lim - President, Keppel Land Vietnam
Amidst the volatility of the global economic landscape, with concerns over trade tensions between the United States and China as well as slowing global growth, the Vietnamese economy may also be impacted. Notwithstanding that, we are confident of Vietnam’s long-term prospects and are committed to further strengthening our presence in Vietnam, with a focus on Ho Chi Minh City, which we believe will continue to be one of the country’s key growth locomotives.
Over the years, the Vietnam government and Ho Chi Minh City authorities have taken active steps to strengthen the country’s socio-economy and support enterprise growth. Foreign investors such as Keppel Land endeavour to bring into the market disruptive technologies, latest know-how and best practices.
At the same time, amidst a fast-changing technological and economic landscape, we have to be prepared to take on market risks.
We are glad that the local authorities in Ho Chi Minh City have been very supportive of investors and have helped to create an environment conducive to overseas businesses. We look towards the continued support of the authorities to help these companies mitigate investment and operational risks through clarity of policies and making the approval processes for projects more transparent.
Such improvements will enable companies like ourselves to make investment decisions with greater confidence, operate more efficiently and contribute more effectively to the city’s development.
Raymond Mallon - Senior economic advisor, Australia-Vietnam economic reform programme
The country needs to have a sustained focus on equitable provision of best quality basic education, including foreign language training, with a renewed focus on developing university and vocational education.
The country should also look at policies to boost research and development, including greater collaboration between industry and academic researchers. Besides that, it is necessary to work with business to look at areas where intellectual property rights need to be better protected to encourage in increased research and development.
The government also needs to invest in creating a good environment to attract the best possible talent to stay in and/or move to work in Vietnam.
I also would like to stress that despite big FDI into Vietnam, there remains a weak link between domestic and foreign enterprises. To enhance this link to ensure the interests of foreign businesses and the growth of domestic ones, the most important thing is to focus on building a strong domestic private sector with a significant number of the medium and larger size firms that are likely to be most attractive for foreign firms to work with.