Vietnam’s FDI Soars Amidst Global Economic Headwinds

In the face of prevailing global economic uncertainties, Vietnam experienced a surge in foreign direct investment (FDI), marking a 32.1% year-on-year increase, reaching US$36.6 billion in 2023.

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), the licensed FDI funds registered in Vietnam reached nearly US$36.61 billion by December 20, reflecting a substantial year-on-year growth of 32.1%. The disbursed FDI value attained an unprecedented US$23.18 billion, signaling a 3.5% increase.

Among these figures, approximately US$20.19 billion emanated from 3,188 new projects, demonstrating an ascent of 62.2% and 56.6% compared to the previous year. This substantial growth in both new projects and newly registered funds demonstrated significant and commendable progress. Furthermore, 2023 witnessed 1,262 existing projects enhancing their investment base by over US$7.88 billion, showing a 14% increase, albeit experiencing a marginal 22.1% decline year on year.

In the interim, foreign investors infused over US$8.5 billion into share acquisitions and capital contributions - a 65.7% surge year on year. Despite a modest decline of 3.2%, the year 2023 witnessed a noteworthy 3,451 equity purchase deals due to increased capital availability.

Foreign investments in 18 out of 21 sectors were observed in 2023. Notably, the processing and manufacturing industry spearheaded the influx, securing over US$23.5 billion, constituting 64.2% of the total registered FDI fund - a 39.9% surge from the previous year. The real estate sector followed closely with nearly US$4.67 billion, comprising more than 12.7% of the total and exhibiting a 4.8% year-on-year growth.

Among sectors, the electricity production and distribution sector claimed the third position with over US$2.37 billion, marking a 4.9% increase, while the banking and finance sector secured nearly US$1.56 billion - a surge of nearly 27 times.

The year 2023 saw a diverse investment landscape with contributions from 111 countries and territories in Vietnam. Singapore took the forefront with a substantial investment exceeding US$6.8 billion, constituting 18.6% of the total FDI fund, reflecting a 5.4% increase from 2022. Japan closely followed with an investment of nearly US$6.57 billion, accounting for over 17.9% and demonstrating a 37.3% year-on-year growth.

Hong Kong (China) secured the third position, surging to over US$4.68 billion, commanding nearly 12.8% of the total - a 2.1-fold increase from the preceding year. Subsequently, China, South Korea, and Taiwan (China) followed in the rankings.

In terms of project distribution, China took the lead with a 22.2% share of new projects, while South Korea exhibited dominance in revised adjustments, accounting for 25.9%, along with an imposing 27.8% share in capital contributions and share purchases.

FDI capital continued its allocation to provinces and cities boasting a myriad of advantages for investors. These areas, encompassing Ho Chi Minh City, Hai Phong, Quang Ninh, Bac Giang, Thai Binh, Hanoi, Bac Ninh, Nghe An, Binh Duong and Dong Nai, have excelled in providing an enticing environment with stellar infrastructure, abundant human resources, streamlined administrative procedures and dynamic investment promotion efforts. Impressively, these 10 localities monopolized 78.6% of new FDI projects and a staggering 74.4% of the country's new FDI capital in 2023.

In 2023, Ho Chi Minh City, the "economic engine," emerged as the premier recipient of FDI, securing a figure exceeding US$5.85 billion. This influx constituted nearly 16% of the total registered FDI capital, showcasing a year-on-year growth of 48.5%. Notably, the predominant utilization of these funds was directed toward acquiring shares and contributing to investment capital, constituting an overwhelming 73.3% share of the total fund in 2023.

Hai Phong City claimed the second position, attracting over US$3.26 billion, equating to 8.9% of the nation's total FDI. This marked an outstanding 66.2% surge from the previous year, affirming its stature as a key hub for foreign investment. Following in the rankings were Quang Ninh, Bac Giang and Thai Binh.

Forecasts indicate that Vietnam is poised to maintain its status as a beacon for FDI inflows in 2024, with FDI emerging as a force propelling the nation's economy forward. Vietnam's consistent leadership in attracting top-tier FDI and fostering green investment positions it at the forefront of economic growth.

Fitch Ratings underlined Vietnam's compelling attributes, including cost competitiveness, a highly qualified workforce, and active participation in regional and international free trade agreements. These factors signal a robust increase in FDI capital flows, particularly amid the dynamic shifts in global supply chains.

As the global minimum tax takes effect in 2024, experts forecast that alternative advantages will assume greater significance for Vietnam in enticing FDI. Investors are anticipated to scrutinize factors crucial for seamless development, such as a skilled labor force and resilient domestic supply chains. Consequently, Vietnam must keenly observe the evolving investment landscape following the COVID-19 pandemic to seize opportunities; failure to do so may result in investors redirecting their focus to alternative markets.

Furthermore, Vietnam is also becoming a hub of the semiconductor supply chain, with more and more large investors from Europe and the U.S. After Vietnam and the U.S. signed a comprehensive strategic partnership, according to Dr. Burkhard Schrage (RMIT University), this will be a new driving force for U.S. investment flows into Vietnam in 2024.

Mr. Raunak Mehta, Co-Founder & CEO of Igloo Vietnam is an emerging market in Southeast Asia with a young, tech-savvy population and a high, stable growing middle class. The government’s commitments to fostering innovations have positioned Vietnam as a leading investment destination, particularly for the insurtech sector - an area with immense potential. According to Global Data, a data analytics and consulting firm, Vietnam’s insurance industry is projected to reach US$3.5 billion by 2026, while the current insurance penetration rate in Vietnam is around 3.3%, significantly lower than developed markets. Moreover, after the COVID-19 pandemic, Vietnamese people have shown more interest in insurance products, especially health insurance, and more familiarity with online consumption. Their willingness to purchase insurance products online has risen considerably. These reasons demonstrate the enormous untapped potential of Vietnam’s growing insurance industry. Vietnam has always been one of Igloo’s key markets. At the macro level, the policies of the Vietnamese Government on accelerating digitalization in all fields, including insurance, have created a more conducive development environment for technology companies like Igloo. This government support not only aligns with Igloo’s commitments to innovation, but also enables the company to thrive amid increasingly encouraged technological advancements. We are enthusiastic about the growth potential of the insurtech market in Vietnam. We are confident in our ability to make a significant contribution to increasing insurance penetration in Vietnam and the positive impact that insurtech can have on underprotected communities in Vietnam. Mr. Pham Tien Dung, Director of Golden Tour Company Despite the global challenges, Vietnam has achieved a remarkable positive recovery. The tourism industry played a vital role in the economic growth of 5.05% in 2023. Vietnamese tourism ranked among the countries with the highest tourism growth, with 12.6 million international visitors in 2023, a 3.4-fold increase from 2022. This outcome was mainly driven by innovations in tourism product development. To sustain this trend, Vietnam needs to incentivize tourism firms to invest in unique and diverse experiences, coupled with creative promotions to attract tourists. To enhance the tourism industry further, Vietnam needs to consider augmenting governmental support to streamline administrative procedures and facilitate tourism investment. Simultaneously, it is essential to invest in tourism infrastructure, improve service quality and implement innovative tourism promotion strategies to expedite recovery and draw more tourists. Institutional reform is crucial to create favorable and sustainable conditions for tourism development. Policies need to be devised to support and encourage a flexible business environment, enabling tourism businesses to rapidly adapt to market fluctuations and foster innovations in the industry.

By Gia Huy, Vietnam Business Forum