FDI Inflows Rebound, Disbursement Hits Record

Despite global economic uncertainties, foreign direct investment (FDI) flows into Vietnam remained steady, reaching more than US$36.6 billion in 2023, up 32.1% year on year. The value of disbursed FDI value was estimated to hit an all-time high of US$23.18 billion, up 3.5%.

In 2023, the processing and manufacturing sector led with over US$23.5 billion, comprising 64.2% of total FDI, marking a 39.9% year-on-year increase

US$36.61 billion of FDI poured into Vietnam

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), in the year to December 20, licensed FDI funds registered in Vietnam reached nearly US$36.61 billion, representing a year-on-year growth of 32.1%. Of the sum, roughly US$20.19 billion came from 3,188 new projects, respectively rising 62.2% and 56.6% from a year earlier. Thus, both new projects and newly registered funds jumped strongly.

In addition, 1,262 existing projects registered to add over US$7.88 billion to their investment base, up 14% but down 22.1% year on year, respectively.

In the meantime, foreign investors spent over US$8.5 billion to acquire shares and pool capital, up 65.7% year on year. Due to more money for capital contribution, equity purchase deals totaled just 3,451 in 2023, down 3.2% on year.

In 2023, foreign investors invested in 18 out of 21 industries. The processing and manufacturing industry took the lead with more than US$23.5 billion, accounting for 64.2% of the total registered FDI funds and rising 39.9% from a year earlier. The real estate sector ranked second with nearly US$4.67 billion, accounting for more than 12.7% of the total and growing 4.8% year on year.

The electricity production and distribution sector and the banking and finance sector came third and fourth with more than US$2.37 billion and nearly US$1.56 billion, up 4.9% and nearly 27 times, respectively.

FDI capital continued to land on provinces and cities that have proven advantages for FDI investors (good infrastructure, abundant human resources, efforts to reform administrative procedures and dynamic investment promotion) like Ho Chi Minh City, Hai Phong, Quang Ninh, Bac Giang, Thai Binh, Hanoi, Bac Ninh, Nghe An, Binh Duong and Dong Nai. These 10 localities alone accounted for 78.6% of new FDI projects and 74.4% of new FDI capital of the country in 2023.

In 2023, as many as 111 countries and territories invested in Vietnam. Singapore led with more than US$6.8 billion, accounting for 18.6% of the total FDI fund into Vietnam, up 5.4% from 2022. Japan ranked second with nearly US$6.57 billion, accounting for more than 17.9% and up 37.3% on year. Hong Kong (China) came third with over US$4.68 billion, accounting for nearly 12.8% and soaring 2.1 times from a year earlier.

By the number of projects, China took the lead with 22.2% of new projects, while South Korea had the most revised adjustments (accounting for 25.9%) and capital contributions and share purchases (accounting for 27.8%).

In particular, one of the bright spots of FDI attraction this year is that not only did it increase in project number, but the realized FDI fund also advanced 3.5% to US$23.18 billion, an increase of 3.5% from 2022. This is an all-time high level.

According to FIA (MPI), the increase in disbursed capital showed the companionship of the Government and the Prime Minister; close coordination of central and local agencies in proactively approaching, grasping and removing bottlenecks and legal barriers hindering effective business investment and operation, thus helping investors to stabilize and improve their business performance and make more investments.

New expectations in 2024

Vietnam has many prospects and advantages in competing for FDI inflow with fundamental factors such as political stability, geographical location, infrastructure, attractive incentive policies, high growth, fast-growing population and better workforce. The manufacturing sector in Vietnam continues to expand, especially in high-tech fields. In addition, Vietnam's FDI business environment is increasingly improving.

According to expert forecasts, entering 2024, Vietnam can continue to assert itself as one of the most attractive options in the region for the “China+1” strategy. Furthermore, the breakthrough in new FDI capital flows into the manufacturing sector in 2023 continues to bring hope to Vietnam.

The Business Confidence Index (BCI), launched by the European Chamber of Commerce in Vietnam (EuroCham), rose to 45.1 points in the third quarter from 43.5 points in the second quarter, showing strong business sentiment of European companies in Vietnam. Regarding FDI prospects, Vietnam's global investment appeal remains strong, with 63% of correspondents ranking Vietnam in the top 10 destinations for FDI flows.

The AHK World Business Outlook - Fall 2023, released by the German Chamber of Industry and Commerce in Vietnam (AHK Vietnam), also showed that Vietnam continues to be seen as a potential investment destination for German businesses. German businesses that adopt the “China+1” strategy are focusing on green investment projects, and the Vietnamese market is ready to welcome and support such projects by providing a platform for growth, diversification and sustainable business practices.

In particular, after US President Joe Biden's visit to Vietnam from September 10 - 11, 2023, the prospect of FDI flows into Vietnam has been strongly and positively boosted. Many large American business delegations have expressed their confidence about continued investment expansion trends in Vietnam such as General Electric (GE), Intel, Nike, ExxonMobil, Amazon, Coca-Cola, Google and Visa.

To tap new opportunities and realize expectations of FDI inflows, in the coming time, in addition to ensuring political and macroeconomic stability, position and competitiveness of the business environment, Vietnam needs to further improve institutions, laws and policies on FDI attraction and utilization; modernize socioeconomic infrastructures; develop human resources and science - technology and innovation ecosystems; improve the business environment and facilitate large corporations to make long-term investment in prioritized areas to strongly direct FDI flows into green growth, digital transformation and supply chains of Vietnamese companies with FDI firms, especially large transnational corporations.

Furthermore, it is necessary to form an ecosystem to effectively support the domestic supplier chain to improve modern governance. This not only enhances connectivity between Vietnamese companies and FDI firms, but also helps achieve the Government's strategic FDI attraction goals: Developing the economy, increasing the budget revenue, generating jobs and acquiring modern science and technology and internationally advanced administration skills.

By Thu Ha, Vietnam Business Forum