With recent government policies, incentives, and initiatives centered on opening Vietnam to expanded foreign trade, foreign investors have been increasingly attracted to Vietnam as a nation suitable for potential economic gain. Foreign investment has asserted its influence in the Southeast Asian economic zone, and this investment has had a positive effect in transforming the Vietnamese economy, spurring economic reforms, catalyzing economic and social innovation, improving the general business environment, all the while favorably increasing Vietnam’s regional and international standing.

In the context of global economic challenges, concurrent with increased political contention in some nations, persistent inflation, decreased global demand for some goods, tightening global financial credit conditions, and attendant, persistent risk adversity amongst global financiers and banks, foreign investment in Vietnam has been exposed to all of these conditions.  The question arises as to what policies the government has implemented to both attract and support existing and potential foreign investors. Specifically, what solutions has the government offered to make foreign investment in Vietnam more favorable in the light of current global economic and political hurdles?

The Role of Foreign Investors in the Development of Vietnam’s Economy:

In tandem with domestic Vietnamese enterprises, foreign financial institutions and enterprises are contributing to the development, and in some instances, recovery of the Vietnamese economy, in the post-pandemic years. Evidence of continued foreign investment in the economy despite recent challenges is found in the latest figures from the Ministry of Planning and Investment. As of September 20, 2023, the total of newly registered capital, adjusted capital, and capital contribution to purchase shares from foreign investors reached nearly USD 20.21 billion. This figure reflects a 7.7% increase compared to the same period last year, although the increase is 0.5% lower than in the first eight months of 2023.

In the first nine months of 2023, investors from 102 countries and territories invested in the Vietnamese economy. Notably, Singapore led other nations in total investment capital of over USD 3.98 billion, accounting for more than 19.7% of the total investment capital in Vietnam, a 15.2% decrease compared to the same period in 2022. China ranked second with USD 2.92 billion, accounting for 14.5% of the total investment capital, a 94.9% increase compared to the same period last year. Japan ranked third with nearly USD 2.9 billion in registered investment capital, representing over 14.3% of the total investment capital, a 51% increase compared to the same period in 2022.

Foreign Investment in Vietnam Has Experienced Fluctuations Over Time, but the Role of Foreign Investors Continues to be Strengthened

– Contributions to the economic transformation and development: The increased presence of foreign investors has partially contributed to promoting economic transformation and development. This investment has significantly driven several growth models  while enhancing the competitiveness of both domestic and foreign investors.  These positive factors in turn, promote further economic development.

A host of quality products and services can compete in the global marketplace, which has the effect of fostering institutional innovation, economic policy improvement, while supporting favorable investment and business conditions. The net result is the creation of numerous jobs for Vietnam’s younger generations. Foreign investments in a number of enterprises not only drive the development of the domestic market, they also contribute to the development of associated service activities , including the hospitality industry, hotel business most notably, consulting services, and related technology.

– Expanding international markets and increasing export turnover: Foreign investment has facilitated the rapid expansion of Vietnam’s presence in international markets. This increasing influence has resulted in the negotiation of bilateral and multilateral trade agreements in global markets with a subsequent increase of Vietnamese produced goods imported into other countries. Many Vietnamese products are exported globally, creating opportunities for the world to become more familiar with the Vietnamese economy, culture, and the high quality of goods on offer. Foreign-invested enterprises have established a global production network, enabling Vietman to participate in regional labor sectors. Additionlly, Vietnam’s increasing export revenue, allows for greater entry in the global production network and value chain.

– Expanding national financial resources and providing capital for infrastructure development: Vietnam is internationally recognized as one of the most successful countries with regard to attracting foreign investment in the Southeast Asian region and the world. The nation has become a reliable and effective investment destination for foreign investors. Foreign investment provides essential funding for development projects and infrastructure, which contributes significantly to the synchronous development of economic and social infrastructure, especially in the development of transportation and industrial infrastructure.  This plays a crucial rold in attracting further investment and helping to strengthen Vietnam’s national financial reserves.

– Transferring new management models and technologies: Collaboration with foreign nations often involves the transfer of technology, knowledge, and the improvement of competitive/market-driven production capabilities. Many new technologies have been introduced to Vietnam, especialy in the areas of telecommunications, petroleum, electronics, information technology, automobile manufacturing, high-quality textile production, and other key industries including semiconductor chip manufacturing, renewable energy, green hydrogen, high-tech agriculture, innovation, international financial centers, and high-tech logistics. These industries align with global trends, offer high added value, and are areas where foreign investors excel at implementation.

– Training human resources to meet high demand in Vietnam:  Currently, many foreign-invested enterprises contribute to training a professional workforce, which improves the qualifications necessary to meet the demands of employers. This, in turn, motivates the workforce to further invest in their skills and expertise. This trend has in many ways contributed to enhancing Vietnam’s labor competitiveness as it promotes the transition from low-skilled labor to highly specialized and managerial positions. The net result is the development of core human resources in various enterprises as incomes are substantially increased.

– Generating employment and stable income for Vietnamese labor: The foreign investment sector also contributes significantly to job creation for the Vietnamese people, promoting the restructuring of the labor force while improving the quality of the workforce, finally resulting in the creation of jobs for many individuals. The average income for businesses with foreign investment  is consistenly 20% higher than other enterprises in the non-state sector. Some foreign-invested businesses have been at the forefront of developing the capacity of Vietnamese laborers. This has the effect of creating stable jobs while contributing to the development of human resources in Vietnam.

Despite the strengths and advantages stemming from foreign investment in Vietnam, there are also certain challenges that need to be addressed. Addressing these challenges ensures sustainable development. Chief amongst these concerns is the issue of environmental protection and technology transfer.

– Addressing environmental protection and sustainable development: The rapid growth of foreign-invested enterprises in Vietnam has led to concerns about environmental pollution and the efficient use of natural resources. To ensure sustainable development, it is essential to strengthen environmental management and improve the legal framework for environmental protection. This requires both the government and the private sector to be proactive in adopting environmentally friendly technologies, while implementing effective waste treatment measures. Equally important is the promotion of sustainable business practices.

– Facilitating technology transfer: While many foreign-invested enterprises bring advanced technologies to Vietnam, there is a need to ensure an effective technology transfer to domestic enterprises. This requires a comprehensive strategy to promote technology transfer, including collaboration between foreign and domestic enterprises, establishing technology transfer centers, and creating a conducive environment for knowledge exchange. The government plays a crucial role in facilitating this process through supportive policies and incentives.

Policie and Solutions to Support Foreign Investors in Vietnam:

To address the challenges and ensure a conducive environment for foreign investors, the Vietnamese government has implemented various policies and solutions.

1. Improving the legal framework: The government has been proactive in refining and improving the legal framework necessary to create a transparent and reliably consistent business environment for foreign investors. This includes updating investment laws, trade laws, and other relevant regulations to align with international standards and best practices.

2. Administrative reforms: Streamling administrative procedures and reducing bureaucratic hurdles have been one of the primary concerns of the government towards enhancing the ease of doing business in Vietnam. Efforts have been made to simplify licensing processes, provide online services, and reducing the time and cost of administrative procedures.

3. Investment incentives: The government continues to offer attractive investment incentives to foreign investors, including tax breaks, preferential land leases, and other financial incentives. These incentives aim to encourage foreign investors to choose Vietnam as a favorable investment destination.

4. Infrastructure development: Recognizing the importance of infrastructure in attracting and sustaining foreign investment, the government has prioritized infrastructure development projects. Investments in transportation, energy, and industrial infrastructure aim to improve connectivity and create a more conducive environment for foreign investors.

5. Technology and innovation: To promote an efficient transfer of technology and innovation, the government is actively supporting research and development activities. Collaboration between foreign and domestic enterprises in technology-intensive sectors is encouraged, and initiatives have been established to foster an innovation-driven economy.

6. Sustainable development: Environmental sustainability is a key consideration in government policies. Regulations and standards related to environmental protection are being strengthened, and incentives are provided for environmentally friendly practices.

7. Skilled workforce development: The government recognizes the importance of a skilled workforce in attracting and retaining foreign investment. Initiatives for education and vocational training are underway to ensure that the workforce meets the evolving demands of foreign-invested enterprises.

8. International integration: Vietnam’s active participation in international trade agreements and economic partnerships enhances its attractiveness to foreign investors. By being part of regional and global economic networks, Vietnam provides foreign investors with access to diverse markets.

In conclusion, foreign investors play a crucial role in the development of Vietnam’s economy, contributing to economic transformation, market expansion, technology transfer, infrastructure development, and job creation. The government’s policies and initiatives aim to create an environment that is conducive to foreign investment, as it addresses challenges and promotes sustainable development. Vietnam continues to navigate a course through global economic dynamics, all the while maintaining a balance between attracting foreign investment and ensuring sustainable development in order to ensure long-term success.