European businesses indicated continued faith in Vietnam's investment environment

Recent meetings between foreign business leaders and Vietnamese officials indicate that foreign investment will continue to flow into Vietnam, as both registered and disbursed FDI continued to be highlights in the country’s economic landscape during the first seven months of 2024 and indicate positive signs in FDI attraction into the future.

Land of opportunity

According to the Foreign Investment Agency (FIA) at the Ministry of Planning and Investment, new foreign investment in Vietnam reached over $18 billion in the first seven months of the year, up 10.9 per cent against the same period last year. This includes newly-registered capital of $10.76 billion, an increase of 35.6 per cent, additional capital totaling nearly $4.97 billion, up 19.4 per cent, and investment through capital contributions and share purchases of $2.27 billion, down 45.2 per cent.

While capital contributions and share purchases declined, both newly-registered capital and additional capital posted significant increases compared to the same period of 2023. Notably, disbursed capital in July rose and brought the total in the first seven months to $12.55 billion, an 8.4 per cent increase year-on-year. Amid an overall global decline in investment, the continuous increase in FDI to Vietnam underscores its appeal among international investors.

At a recent economic forum organized by Vietnam Economic Times (VET) / VnEconomy and the Party Central Committee’s Economic Commission, Mr. Nguyen Ba Hung, Chief Economist at the Asian Development Bank (ADB) in Vietnam, highlighted the global decline in investment flows, and added that “this capital is flowing into surrounding countries, with Vietnam remaining a ‘bright spot’ in attracting foreign investment amid an overall decline.”

Assessing Vietnam’s attractiveness in Southeast Asia, Mr. Dominik Meichle, Chairman of the European Chamber of Commerce in Vietnam (EuroCham), pointed out that the EU-Vietnam Free Trade Agreement (EUVFTA) has contributed to its appeal among European companies seeking to expand their manufacturing operations. As one of only two Southeast Asian countries with such an agreement, Vietnam offers European businesses a unique advantage in the region.

He also noted that Vietnam’s young, eager workforce of more than 50 million, along with lower labor costs, appeal to a wide range of European industries. Additionally, Vietnam’s location in Southeast Asia is also a major advantage for European businesses. Being in Vietnam makes it easy to reach other key Asian markets like China, Japan, South Korea, and ASEAN members, and also makes managing supply chains more straightforward while lowering the cost of transporting goods.

Furthermore, Vietnam’s strong focus on building infrastructure is a further advantage for European businesses, Mr. Meichle continued. Investing a significant 6 per cent of its GDP compared to the ASEAN average of 2.3 per cent, Vietnam is making every effort to improve its infrastructure, and this translates into smoother operations and easier access to markets across the region, making it even more attractive as a business location.

According to the FIA, manufacturing and processing remained the dominant sector for FDI in the first seven months. Figures show that among the 1,816 newly-registered foreign projects, with total registered capital of $10.76 billion, the manufacturing and processing sector accounted for $7.88 billion, or 73.2 per cent of the total.

Similarly, of the $4.97 billion in additional capital for existing projects this year, $4.35 billion went to the manufacturing and processing sector, or 87.5 per cent of the total.

In regard to capital contributions and share purchases, foreign investors poured over $420 million into the manufacturing and processing sector, accounting for 18.4 per cent of the total and second only to the real estate sector.

Moreover, disbursed FDI capital in manufacturing and processing accounted for a substantial proportion. Of the total $12.55 billion disbursed in the first seven months, $9.98 billion was in manufacturing and processing, or 79.5 per cent. “This shows that Vietnam continues to be selected as a production hub in the global supply chain by many foreign enterprises,” Mr. Do Nhat Hoang, Director of the FIA, said.

Promising major projects

Numerous large-scale investment projects are being proposed by foreign investors, signaling significant opportunities into the future. At a meeting with Prime Minister Pham Minh Chinh during his State visit to India from July 30 to August 1, Mr. Gautam Adani, Chairman of the Adani Group, expressed a strong interest in investing in a range of infrastructure and energy projects in Vietnam. He announced plans to invest in Lien Chieu Port in central Da Nang city, with estimated capital exceeding $2 billion, and the group also aims to invest $2.8 billion in the Vinh Tan Coal Fired Power Plant III in south-central Binh Thuan province. Additionally, it will partner with Vietnamese enterprises in the aviation sector, including in the construction of Long Thanh International Airport, Phase 2, in southern Dong Nai province, and in Chu Lai Airport in central Quang Nam province. Overall, Adani’s projected investment in Vietnam totals nearly $5 billion.

Furthermore, two Indian pharmaceutical companies - BDR Pharmaceuticals and SMS Pharmaceuticals - plan to invest in building a high-tech pharmaceutical industrial park at the Nghi Son Economic Zone in the north-central province of Thanh Hoa. Once established, the park is expected to attract $4-5 billion over the next 10-12 years, with production targeting the US and European markets.

At a recent meeting with Deputy Prime Minister Tran Luu Quang, meanwhile, Mr. Yoshihisa Kitao, Executive Vice President of the NIDEC Corporation from Japan, and Director of NIDEC Vietnam Corporation, emphasized that it views Vietnam as its most critical global investment location due to the country’s potential, development prospects, and supportive government. NIDEC plans to expand its investment in high-tech and new technology sectors in Vietnam, having already invested over $1 billion since 2017. While the exact timing of these investments remains unclear, they clearly highlight Vietnam’s continued attractiveness in the global value chain.

Cautious optimism

Despite the country’s robust first-half GDP growth, aided by 6.93 per cent growth in the second quarter, the Business Confidence Index (BCI) for Q2 2024, recently released by EuroCham and Decision Lab, showed a slight decline from 52.8 points in the first quarter to 51.3 points in the second. This suggests that Vietnam’s legal policies need further refinement to regain the high levels of confidence seen in previous years.

“Vietnam’s economic potential is undeniable, and the European business community remains confident in its long-term growth,” said Mr. Meichle. “While our survey points to areas for improvement, we believe that by working together to address administrative and regulatory hurdles, we can create a more efficient and attractive business environment that benefits both the European and Vietnamese business communities.”

Mr. Thue Quist Thomasen, CEO of Decision Lab, noted that while 68 per cent of respondents report neutral to positive current conditions, there has been a slight increase in short-term caution, which needs to be addressed to continue the positive trend from the previous quarters. “However, the strong 6.42 per cent GDP growth in the first half of 2024 and nearly 70 per cent of respondents expressing long-term optimism indicate robust underlying confidence that may materialize in future readings,” he explained.

While European businesses maintain their optimism about Vietnam’s potential, the survey highlighted persistent regulatory challenges that hinder growth and investment. Key pain points include ambiguous regulations subject to varying interpretations; burdensome administrative processes; difficulties in obtaining licenses, permits, and approvals; challenges with visas and work permits for foreign workers; and duplicate or inconsistent approvals across government levels.

To attract more FDI and stimulate economic growth, businesses surveyed highlighted five key areas where Vietnam could enhance its business environment: streamlining administrative and procedural processes; enhancing clarity and precision in laws to reduce arbitrary interpretation; developing core infrastructure (roads, ports, and bridges, etc.); and simplifying visa and work permit procedures for foreign experts, etc.