Advancing Sustainability in FDI Capital Flows

The augmentation of investment capital in the realms of green growth and sustainable development, currently constituting approximately 2% of the Gross Domestic Product (GDP), emerges as a pivotal strategy for Vietnam to elevate its competitiveness and foster sustainable development.

Sustainable development is a top priority for Nestlé Vietnam

Inevitable trend

As reported by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, the realized FDI fund, reaching an unprecedented US$20.25 billion in the year until November 20, underscored Vietnam's sustained allure as an investment destination. This is attributed to its transparent investment policies and an evolving business and investment environment.

Beyond mere fiscal growth, FDI inflows into Vietnam exhibit an evolving character, characterized by increased environmental consciousness and strategic acumen. Noteworthy projects, such as the Bac Lieu LNG-fueled power plant and the Long An I and II LNG power plants, exemplify a shift toward projects with higher technological sophistication and environmental relevance. Lego and Nestlé contribute to this transformative landscape.

Addressing the workshop "FDI Businesses in Vietnam's Green Growth" in April 2023, Mr. Nguyen Anh Tuan, Deputy Director of FIA, disclosed that the business sector, comprising both FDI and domestic entities, has invested approximately US$9 billion in green growth fields, constituting about 2% of the GDP. Notably, green growth investments have displayed a remarkable annual growth rate of 10-13% over the past two years.

Mr. Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign-invested Enterprises (VAFIE), shared that prior to 2021, a mere 5% of Foreign Direct Investment (FDI) firms in Vietnam were high-tech, while 80% were medium-tech, and 15% were low-tech. However, the prospects for attracting green FDI funds are promising.

A host of substantial FDI projects in Vietnam are now focusing on high technology, innovation, research and development, green economy, digital economy, circular economy and clean energy. These projects are backed by leading global corporations such as Intel, Samsung and Foxconn.

These sectors align with Vietnam’s development priorities, and the country offers extensive support and incentives for investment projects in these areas.

Deputy Minister of Planning and Investment, Nguyen Thi Bich Ngoc, emphasized that transitioning toward green economic development aligns with Vietnam's long-term goals outlined in the resolutions of the 13th National Party Congress and the 5-year Socioeconomic Development Plan (2021-2025). This shift positions Vietnam to be a pioneering nation in the region for green growth and recovery, aligning with global development trends.

Mr. Nguyen Quang Vinh, Vice President of the Vietnam Chamber of Commerce and Industry (VCCI), and Chair of the Vietnam Business Council for Sustainable Development (VBCSD), underscored the importance of the green economy and its transformative impact on long-term growth. In the face of an unpredictable context, aligning with green growth strategies becomes imperative, not only to fulfill international commitments such as net zero emissions by 2050 at COP26, but also to enhance competitiveness and integrate more deeply into global value chains. The "greening" of FDI capital flows is not merely a trend to follow but an imperative for Vietnam to improve competitiveness and join more deeply in global value chains.

Shifts toward sustainable development in Vietnam

Vietnam is actively steering its economic trajectory toward green and sustainable growth, as evidenced by significant initiatives and policy frameworks. The endorsement of Decision 1658/QD-TTg on October 1, 2021, by the Prime Minister marks a pivotal milestone, approving the National Green Growth Strategy for the period 2021-2030, with an outlook to 2050. This direction includes specific models resilient to climate change, notably the circular economy, actively researched and facilitated to drive green transformation amid economic recovery. These concerted commitments have garnered commendation from foreign investors, positioning Vietnam to tap into fresh opportunities for capital infusion into environmentally conscious sectors.

VCCI Vice President Nguyen Quang Vinh emphasized the imperative for businesses to analyze and realign their strategies, particularly emphasizing the need for green growth strategies. This juncture demands businesses to introduce novel values that align with emerging needs, specifically those centered around green, sustainable and inclusive development.

Facilitating the transition from the conventional "brown economy" to the environmentally-conscious "green economy" necessitates precise policy initiatives to materialize the plans of international investors. The establishment and dissemination of comprehensive, coherent, and centralized criteria become imperative to aid localities in selecting and assessing potential investors, focusing on those employing advanced environmentally friendly technologies. This is particularly pertinent in industries where Vietnam holds a comparative advantage and prioritizes development, including agriculture, tourism, and energy, which also have high carbon emissions.

Moreover, Vietnam must enhance its legal framework and related policies concerning FDI attraction, with a specific focus on technology import, transfer and environmental considerations. Creating institutions and policies with competitive incentives, coupled with conducive business conditions, is vital to attract significant high-tech projects. The appeal to strategic investors and multinational corporations involves encouraging investments, establishing headquarters, and initiating research and development (R&D) centers within Vietnam.

In acknowledging the challenges faced by businesses in accessing green capital, VCCI Vice President Nguyen Quang Vinh stressed the necessity for a more transparent and supportive environment. The clarity of regulations surrounding green capital flows is paramount, especially given the substantial capital resources required by businesses investing in production equipment systems meeting green criteria.

Experts highlighted the critical importance of preparing input factors to align with the demands of foreign investors in green FDI projects. This necessitates a concerted effort in workforce development, with a focus on cultivating professional skills in high-quality industries such as digital technology, information technology, ICT applications, electronics, telecommunications and biotechnology. Concurrently, there is a need to innovate and update knowledge, professional standards and skills in line with national and global developmental trends.

Furthermore, the optimization of production premises is identified as an essential facet of preparedness. Localities are urged to scrutinize slow and ineffective projects, revoking allocated land funds for reassignment to more promising investment ventures necessitating production shifts. The emphasis on eco-industrial parks is accentuated, calling for comprehensive policies and increased investment from industrial real estate developers.

By Thu Ha, Vietnam Business Forum