Throughout the period of economic development over the past 35 years, foreign direct investment has played a pivotal role in driving the country’s remarkable growth and transformative journey. The impact of this rich history persists in shaping policies aimed at attracting foreign investment. This is especially true in light of Vietnam’s significant expansion of international multilateral and bilateral trade and investment agreements. As the country continues to forge ahead in its pursuit of growth, these policies remain key in facilitating a conducive environment for foreign investors, and achieving predictability in inward funding flows is essential for Vietnam to attract foreign flows.
Challenges that Vietnam is currently facing
a. The infrastructure
Despite its efforts, Vietnam faces tough competition in attracting foreign investment and funding, as other regional countries also harbor the same ambition. The country strives to strike a balance between fulfilling its investment needs while safeguarding its resources, environment, culture, and citizens. It aims to rely more on domestic investment to reduce its dependence on foreign sources while promoting a higher level of sophistication in foreign investment beyond basic low-cost production.
However, one of Vietnam’s key hurdles is its infrastructure and lack of funding. Despite notable progress, the country’s infrastructure remains insufficient to adequately support the growth and development of various sectors, such as manufacturing, transportation, and energy. To address this challenge and secure funding, the government is taking steps to improve infrastructure. This includes investing in new roads, bridges, ports, and upgrading power and telecommunications networks. Unfortunately, the reduction in bilateral aid for infrastructure from countries and development banks and organizations has added to the costliness and funding challenges of these endeavors.
In addition to expanding infrastructure, Vietnam must also prioritize the efficiency and maintenance of existing infrastructure, requiring ongoing investments in repairs, maintenance, and the adoption of new technologies to enhance performance. For instance, smart transportation systems that utilize technology to enhance the efficiency and safety of transportation networks could be a worthwhile government investment and funding opportunity. Such advancements can facilitate the swift and secure movement of goods and people throughout the country, attracting further funding and investment.
b. Workforce
The workforce poses another challenge for Vietnam. The country needs to generate, attract, and retain skilled workers to support economic growth and remain competitive globally. The government is actively taking measures to tackle this challenge. To cultivate a skilled workforce, the government is investing in education and training programs designed to equip the next generation with the necessary skills.
Vietnam must enhance access to high-quality education and implement initiatives aimed at training and upskilling workers in industries projected to thrive in the future, such as technology and renewable energy. Additionally, Vietnam faces challenges concerning quality of life. The country must ensure that economic progress is sustainable and inclusive, benefiting all citizens instead of just a privileged few. This calls for investments in healthcare, social services, affordable housing, and environmental preservation, as well as programs to combat poverty.
Primary areas of concentration
Notwithstanding these difficulties, Vietnam remains an appealing investment destination. The nation boasts a swiftly expanding economy, a youthful and energetic population, and a favorable business environment. In recent times, the government has introduced a range of reforms aimed at enhancing the investment climate, streamlining procedures to facilitate foreign companies’ investment and operations in the country. However, certain obstacles persist, such as overly burdensome visa and work permit procedures.
a. Technology
The technology sector stands out as one of the most opportune fields for investment. Vietnam boasts a flourishing technology industry, with an increasing number of startups and a highly regarded workforce renowned for their expertise. The government is actively fostering foreign investment in the technology sector, acknowledging its pivotal role in the nation’s future growth and progress. This encompasses initiatives to promote the advancement of emerging technologies like AI, blockchain, and the Internet of Things, as well as programs aimed at nurturing the expansion of existing technology companies and startups.
There is also potential for investment in the digital economy. Vietnam is experiencing a steady expansion of its digital economy, driven by its sizable and tech-savvy younger population. This presents a substantial opportunity for foreign investors to capitalize on the escalating demand for digital goods and services.
To further bolster the growth of the digital economy, the government is implementing measures like tax incentives and support for the advancement of technology startups. Investing in this sector will undoubtedly foster innovation, generate new employment opportunities, and attract additional foreign investment in the digital economy.
b. Renewable energy & manufacturing
Renewable energy emerges as another auspicious sector for investment. Vietnam possesses notable potential for renewable energy sources like wind, solar, and hydropower. Proactively, the government is encouraging investments in this sector, encompassing endeavors to construct new renewable energy facilities and initiatives to foster the advancement of innovative technologies and business models in renewable energy. However, one area that requires improvement is the power distribution system.
Undoubtedly, the manufacturing sector stands as a pivotal domain for investment. Vietnam boasts a well-established manufacturing industry, characterized by a skilled workforce and a favorable business environment. The government actively promotes investments in this sector, acknowledging its crucial role in facilitating the country’s robust export activities. Potential investments in this sector could include initiatives to bolster the development of novel manufacturing technologies, alongside programs aimed at supporting the growth of existing companies.
c. Tourism industry
Vietnam’s robust tourism industry presents a prime opportunity for attracting more foreign direct investment (FDI). The country’s breathtaking landscapes, rich cultural heritage, and dynamic urban hubs make it an enticing choice for travelers worldwide. By dedicating resources to enhance its tourism infrastructure, such as bolstering airport facilities and establishing new hotels and resorts, Vietnam can capitalize on the rising demand for tourism and entice increased FDI.
Moreover, the government’s active promotion of ecotourism and sustainable tourism practices adds another dimension to Vietnam’s appeal as a sought-after destination for both tourists and investors. This emphasis on responsible tourism further positions the country as an attractive investment opportunity, aligning with global trends focused on environmental conservation and sustainability.
Foreign investor and some notices
When facing the objective of achieving predictability in inward funding flows in Vietnam, foreign investors should consider the following preparations:
Thoroughly research the regulatory environment:
It is crucial to have a solid understanding of the legal and regulatory framework governing inward investment in Vietnam. Familiarize yourself with policies, laws, and regulations related to foreign investment, capital repatriation, and profit remittance.
Consult with legal and financial experts:
Seek advice from local legal and financial experts who have expertise in Vietnam’s investment landscape. They can guide you through the legal requirements, potential challenges, and necessary documentation for inward funding flows.
Conduct due diligence:
Before investing, perform a comprehensive due diligence process to evaluate the viability and sustainability of the investment opportunity. This includes assessing market conditions, understanding potential risks, and conducting financial analysis.
Establish relationships and partnerships:
Building strong relationships with local partners, government agencies, and relevant stakeholders can provide valuable insights and support in navigating the Vietnamese investment landscape. Collaborating with reliable local partners can also enhance predictability and mitigate potential challenges.
Consider risk management strategies:
Develop risk management strategies to mitigate potential uncertainties in funding flows. This may include diversifying investment portfolios, considering insurance options, and maintaining contingency plans.
Stay updated with changes in policies and regulations:
Stay informed about any changes in policies, regulations, or incentives related to foreign investment in Vietnam. Regularly monitor updates issued by the government or relevant authorities to ensure compliance and adapt strategies accordingly.
Conclusion
Vietnam is confronted with various obstacles in its quest to attract more FDI, but it is in a favorable position to capitalize on the numerous opportunities available. The country boasts a flourishing economy, a youthful and dynamic population, and a business environment conducive to investment. In order to entice greater FDI, the government must address these challenges head-on. Key areas that require attention include enhancing infrastructure, cultivating a skilled workforce, and promoting sustainable economic development.
Furthermore, there should be a strategic emphasis on pursuing higher value-added production and investment. Although Vietnam has experienced remarkable growth through activities such as basic assembly and the production of garments and shoes, the next phase of its growth trajectory hinges on high-tech manufacturing and other industries that offer greater value-add and service. This includes sectors like finance, tourism, and IT, which can contribute significantly to Vietnam’s overall development and economic diversification.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
