Unlocking vietnam’s fdi potential current trends, future outlook and strategies for attracting high quality investments s

Noticeably, Vietnam was named among the world’s top 20 host economies for foreign direct investment FDI for the first time in 2020 with an inflow of USD 16 billion, according to the UN C

STUDENT: VU ANH THU - 22051233

BUI DUC TRONG - 22051261 NGUYEN MINH HIEU - 22051029 HOANG MAI ANH - 22050940 TRAN CAO DUC MINH - 22051135 NGUYEN DUC TRUNG - 22051263 TONG HUYEN TRANG — 22051250 PHAM HANH NGUYEN - 22051163 EVAN GOMEZ - 24056708

Ha Noi — 12/2024

TABLE OF CONTENT

1.1 Overview of FDI in Vietnam - milestones and the evolution of investment waves (1988 - 2022)

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1.2 Current trends of FDI in Vietnam in the first 10 months of 2024 cece seen 7 1.3 Impact of FDI on the Vietnamese €C0NOINV L1 v.v.“ HH Hà Hàn 10 1.3.1 Contribution to Economic growth and GDP expansion 10 13.2 Tndustrial development and SIrHCIHrdl [FHSƒOTTN(QÍÍOH chì HH tre, 10

1.3.5 Export growth and Integration into Global SHDDÌV CẠH( cach kiiiiee 12

2.1 Continued FDI growth in key S€COFS HH Hà HH on ng 12 2.2 EFDI as a Catalyst for Infrastructure developIment cà + Sky 13 2.3 Enhanced role in ølobal supply chạn c5 <1 HH TH Hung 13

transformation

2.7.1 Potential of Information technology and digital transformation in Vietnam

SUBTOPIC 3: STRATEGIES IMPLEMENTED BY THE VIETNAMESE GOVERNMENT TO

ATTRACT HIGH QUALITY INVESTMENT

3.1 Strategic infrastructure đeVeÌ0pI€HIL s- 5 2à 1v TH TH TH HH KH gu gưêp 3.2 Regulatory and Institutional F€OFITS <6 <5 10T ng 3.3 Targeted sectoral focus

3.4 Expanding trade agr t

3.5 Promotion of Industrial parks and Innovation hubs

CONCLUSION

22 24

SUBTOPIC 1: TRENDS OF FDI INFLOW IN VIETNAM

1.1 Overview of FDI in Vietnam - milestones and the evolution of investment waves (1988 - 2022)

Foreign Direct Investment (FDI) has played a central role in transforming Vietnam into one of Asia’s fastest-growing economies Over the past few decades, the country has positioned itself as an attractive destination for FDI, largely driven by its strategic location in Southeast Asia, an abundant and youthful labor force, competitive labor costs, and its increasing integration into global trade networks Through participation in multiple free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam has enhanced its appeal as a prime location for foreign investors Noticeably, Vietnam was named among the world’s top 20 host economies for foreign direct investment (FDI) for the first time in 2020 with an inflow of USD 16 billion, according to the UN Conference on Trade and Development (UNCTAD)’s World Investment Report 2021

In 2022, over a 35-year journey, Vietnam’s registered foreign direct investment has grown to US $524 billion from just US$2 million dollars

1.1.1 The evolution of investment waves

In 1988, Vietnam's economy started a new chapter with its first-ever FDI project in the southern province of Ba Ria — Vung Tau For the first few years after that, foreign investors were still hesitant, thus projects and capital only trickled into Vietnam

By 1991, FDI growth sped up, marking the first big wave of foreign investment, with projects and capital value constantly surpassing previous records Many industry giants flocked to Vietnam to outsource their manufacturing, like Taiwanese footwear producers PouChen and Feng Tay, and Japan's Honda with its motorbikes

The FDI market grew cold with the 1998 Asian financial crisis and did not recover until 2002 In 2006, Vietnam welcomed its first few billion-dollar projects from American chipmaker Intel and South Korean steel manufacturer Posco, gathering a new record of US$10 billion and marking the second big FDI wave for the country

Total registered FDI then climbed to a new height of US$72 billion in 2008, the same year in which South Korean conglomerate Samsung — now Vietnam’s largest foreign investor, began constructing their first factory in Bac Ninh Province

The 2008 global financial crisis wreaked havoc on Vietnam’s FDI resulting in actual FDI disbursed fluctuating around US$10-11 billion, much lower than initially committed From 2015 to 2019, FDI made a comeback, marking the third big wave of foreign capital, during which FDI did not spike abruptly like in the 2005-2008 period, but grew consistently

The pandemic at the start of 2020 put a halt on cross-border investments, causing FDI to plunge

1.1.2 Contribution of FDI businesses

Contribution of FDI businesses

@FDI businesses State-owned enterprises @ Private enterprises

Ö Product taxes minus product subsidies

Number of businesses Number of jobs

Source: General Statistics Office

Figure 1.1: Contribution of FDI businesses from 1988 — 2022

(Source: General Statistics Office) According to the General Statistics Office, FDI businesses only accounted for a very small proportion of 3.1% but contributed to 18.7% of GDP and created 35.3% of jobs 1.1.3 Biggest contribution of FDI

Vietnam's exports: FDI vs Vietnamese firms

roi @ Domestic

ee Textiles and garments [is

Figure 1.2: Vietnam’s exports: FDO vs Vietnamese firms

As evident from the graph, FDI firms surpassed Vietnam’s companies in most sectors The FDI sector is also more efficient than the domestic sector For 12 out of the

17 years from 2005 to 2021, FDI surpassed private and public sectors, the two components of the domestic sector, in growth and earning power, despite some large FDI businesses reporting net losses Since 2010, the profit margin of the FDI sector has inched ahead of the public sector, and is two to three times higher than private sector

Figure 1.3: Top 10 biggest source of FDI in Vietnam

(Source: General Statistics Office of Vietnam)

In 2022, South Korea, Singapore and Japan were the three biggest contributors to Vietnam’s FDI Specifically:

South Korea: This country leads as the largest investor in Vietnam with significant contributions across various sectors, particularly in electronics and manufacturing Notable companies like Samsung have been pivotal, making South Korea a dominant player in Vietnam's FDI landscape

Singapore: Singapore ranks as the second-largest investor, with substantial investments in real estate, logistics, and manufacturing Its strategic position as a financial hub has allowed steady and diverse investment flows into Vietnam

Japan: Japan has maintained its position as the third-largest investor, focusing on infrastructure, technology, and industrial development Companies like Honda have played a significant role 1n shaping Vietnam's economic landscape With Vietnam-U.S relations upgraded to Comprehensive Strategic Partnership in early September 2023, Vietnam is expected to receive its fourth big wave of FDI from the US with a capital injection from the world’s biggest economy

1.2 Current trends of FDI in Vietnam in the first 10 months of 2024

FDI in the first 10 months in 2024

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

mums Newly registered capital mame Adjusted capital

Capital contribution and share purchases ===== New projects

Figure 1.4: FDI in the first 10 months in 2024 by month

Of which: Newly registered capital: There were 2,743 projects worth 12.23 billion USD, were granted licenses, down 1.4% % in number and up 2.5% in value year-on-year

Adjusted capital: There were 1,151 projects had their capital added with a total of 8.35 billion USD, up 6% in number and 41.7% in value year-on-year Capital contribution and share purchases: There were 2,669 capital contribution and share purchases by foreign investors (down 10.4% year-on-year) with a value of more than 3.68 billion USD (down 29% year-on-year)

FDI structure in the first 10 months in 2024 by industry

R&D; 3.3; 3% The others; 7.1; 7%

Wholesale and retail; 3.7; 4%

Electricity production distributioi 4%

m Processing and manufactoring industry m Real estate

mw Electricity production and distribution jm Wholesale and retail m= R&D mw The others

Figure 1.5; FDI structure in the first 10 months in 2024 by industry

FDI structure in in the first 10 months in 2024 by region

B Total capital (million USD)

Figure 1.6: FDI structure in the first 10 months in 2024 by region The foreign investors had invested in 55 provinces and cities nationwide in the first ten months of 2024 Bac Ninh led the way with a total registered capital of approximately 4.7 billion USD, making up 17.2% of the total and 3.15 times higher than the figure of previous year Ho Chi Minh ranked second with about 2.1 billion USD, accounting 7.7%

of the total and falling 12.7% as compared with the same period last year Quang Ninh ranked third with a total registered capital of 1.98 billion USD, accounting for 7.2% of the total Followed by Hai Phong, Ba Ria - Vung Tau, Binh Duong, Hanoi and so on

Ho Chi Minh City was the best performer in attracting new projects (41.9%) and capital contributions and share purchases (70.9%) Bac Ninh led in turns of adjusted capital (14.5%)

The ten-month adjusted capital continued to grow robustly (41.7%) over the same period However, new capital felt by 2.5%, although the number of new projects still increased slightly by 1.4% The reason is that this month saw mostly small-scale projects, with a few of them having capital from over 100 million USD to over 300 million USD Meanwhile, in October 2023 alone, there were three large-scale projects worth between

500 million USD and 1.5 billion USD

Investment still focused on cities and provinces that have more advantages such as infrastructure, stable human resources, efforts to reform administrative procedures, and active investment promotion

Asian and traditional investors accounted for the most proportion in the nine months Export of the FDI sector continued to increase compared to the same period last year With a trade surplus of 42.4 billion USD (including crude oil) and 40.8 billion USD (excluding crude oil), the FDI sector offset the trade deficit of 19.4 billion USD of the domestic business sector, helping the country have a trade surplus of about 23 billion USD in the first ten months of 2024

1.3 Impact of FDI on the Vietnamese economy

1.3.1 Contribution to Economic growth and GDP expansion

In the last two decades, Vietnam has consistently recorded impressive growth rates, which can largely be attributed to foreign investments in various sectors According to the General Statistics Office of Vietnam (GSO), FDI’s contribution to Vietnam’s GDP stood

at around 20% in 2023, a share that has steadily increased over the years By 2023, FDI inflows had reached approximately $22.5 billion, signaling a consistent upward trend despite global challenges like the COVID-19 pandemic, trade wars, and rising geopolitical tensions

1.3.2 Industrial development and Structural transformation

FDI has played a pivotal role in the industrialization of Vietnam One of the most significant impacts has been in the manufacturing sector, where foreign investments have transformed Vietnam into a global manufacturing hub Major sectors that have benefited from FDI include electronics, textiles, automotive, and machinery

Electronics: Vietnam has become one of the world’s largest exporters of electronics, especially mobile phones For example, Samsung Electronics, which invested over $11 billion in its factories in Vietnam, has made the country the world’s second-largest exporter of mobile phones, behind China Samsung’s mobile phone exports alone accounted for over $50 billion in 2022, contributing immensely to Vietnam's export

revenues

Textiles and Garments: FDI has been crucial in shaping Vietnam's textile and garment industry, which has become one of the largest sectors in terms of export value

Foreign brands such as Nike, Adidas, and H&M have established production facilities in Vietnam, and the sector now contributes around 15% of Vietnam’s total exports Automobiles: Vietnam's automobile manufacturing sector has also been significantly shaped by FDI Companies like Toyota, Honda, and Hyundai have set up plants in Vietnam, bringing in technology, capital, and management expertise to the

country

This industrial boom, fueled by FDI, has allowed Vietnam to diversify its economy, moving from primarily agriculture-based exports to high-value manufacturing As a result, Vietnam's GDP has increasingly been driven by industrial output, with manufacturing alone accounting for around 25-30% of the GDP in recent years

1.3.3 Technological advancement and Innovation

Another significant impact of FDI on Vietnam has been in the transfer of technology and knowledge Foreign companies typically bring advanced technologies and modern production processes that local companies can adopt, helping to increase productivity and improve product quality Vietnam’s electronics sector, for example, has benefited greatly from FDI-driven technology transfers, especially from companies like Samsung and Intel, which have invested heavily in research and development (R&D) within the country Intel's Investment: Intel invested over $1 billion in a state-of-the-art semiconductor manufacturing plant in Vietnam, contributing to the development of Vietnam’s high-tech sector This investment has had a positive spillover effect, with local suppliers and small businesses benefiting from the transfer of knowledge and technological know-how Tech Startups and Digital Transformation: The digital economy in Vietnam has been bolstered by foreign investments in IT, fintech, and digital services Global giants such as Google, Facebook, and Microsoft have set up operations in Vietnam, pushing the country’s digital transformation agenda Additionally, the government has been working

to create a conducive environment for technology startups, and foreign venture capital has played a key role in this space

1.3.4 Job creation and Skill development

FDI has contributed substantially to job creation in Vietnam, particularly in labor- intensive industries such as manufacturing and agriculture In 2023, the FDI sector employed more than 4 million people, making it one of the largest employers in the

country The foreign-invested sector accounts for about 15-20% of the total workforce in Vietnam

Skill Development: FDI has also contributed to the development of local skills Foreign investors often provide training and development programs for their employees, helping to upgrade the local workforce's skills in areas such as management, engineering, and information technology This has led to an upskilled labor force, which is better equipped to meet the demands of an increasingly competitive global market

However, challenges remain in ensuring that FDI also contributes to inclusive growth The rural areas still have limited access to well-paying jobs, and there is a growing need to improve the skillsets of workers, particularly in high-tech and services

sectors

1.3.5 Export growth and Integration into Global Supply Chains

FDI has significantly boosted Vietnam's export performance, particularly in the manufacturing sector As of 2023, foreign-invested enterprises (FIEs) accounted for more than 70% of Vietnam's total export value The sectors most affected include electronics, textiles, and footwear, where FDI has played a key role in driving export growth Electronics Exports: Samsung, LG, and other foreign investors in the electronics sector have made Vietnam one of the world’s largest exporters of mobile phones, televisions, and other electronic goods For example, Samsung's mobile phone exports alone were valued at $56 billion in 2022

Textiles and Apparel: Vietnam is one of the largest exporters of textiles and garments in the world, and much of this is driven by FDI Companies like Nike, Adidas, and Puma source products from Vietnam’s FDI-driven factories, which supply garments

to global markets

SUBTOPIC 2: FUTURE OUTLOOK FOR FDI IN VIETNAM

2.1 Continued FDI growth in key sectors

FDI in Vietnam is expected to remain strong, driven by several key factors: Manufacturing & Electronics: Vietnam is poised to continue benefiting from global manufacturing shifts, especially as multinational corporations look for alternatives to China due to rising labor costs and trade tensions The electronics sector, in particular, will remain a major driver of FDI, with companies like Samsung, LG, and Intel already