Vietnam's Most Appealing Sectors for FDI and Top Investing Partners

Vietnam's Most Appealing Sectors for FDI and Top Investing Partners

Over the last decades, Vietnam has experienced rapid industrialization, modernization, and international integration. Thanks to cheap labor costs, preferential tax & investment policies, and its geographically strategic location, Vietnam has become one of the go-to destinations for overseas investors. Stable socio-economic and business environment, along with strong international economic integration through free trade agreements (FTAs), are also key factors to attract foreign businesses to invest and to do business in Vietnam.

As of December 2020, there were over 33,000 active foreign-invested projects in Vietnam with a total registered capital of US$386 billion.

KEY SECTORS RECEIVING FOREIGN DIRECT INVESTMENT (FDI)

By December 2020, the manufacturing & processing sector accounts for 48% of the total registered investment capital in the country, at US$228.5 billion. This was followed by US$60.3 billion in real estate, US$28.7 billion in electricity production and distribution, and US$12.5 billion in accommodation & food services. Other notable FDI sectors include construction, wholesale, transport, mining, education, and information technology.

Source: GSO

Manufacturing and Processing

The manufacturing sector has been bolstered by multinational enterprises (MNEs) attempting to sidestep trade tensions between the US and China. An increasing number of firms have shifted their manufacturing operations to Vietnam or have adopted the “China Plus One” model. Industries primed for relocation have been textile & garment, electronics, automobiles, mechanical engineering, food & beverage, and feed processing.

The textiles & garment sector is Vietnam’s major area of export. Particularly, Vietnam was the second-largest textile and garment supplier in 2020, only after China. In recent years, multinational retail giants, such as Nike and Adidas, have broadened their manufacturing bases to Vietnam because of cheaper labor costs. Nike began to manufacture more of its product line in Vietnam than China starting in 2009, and Adidas soon followed in 2012.

Vietnam’s recent tech boom has paved the way for the country to begin the production of more sophisticated, high-tech goods. This can be witnessed through the recent trend of major high-tech manufacturers making the shift to Vietnam. Notably among them are China’s Goertek and its assembly of AirPods, Apple’s wireless headphones; Google and its production of Pixel-series phones Microsoft has also followed suit and since 2020 and has been planning on moving the production of Surface-series tablets to Vietnam. Most recently, South Korean electronics giant LG Display has invested an additional US$1.4 billion in its manufacturing facility in Hai Phong- This additional capital has brought the total investment of LG Display in Vietnam to US$4.65 billion. Amid global tensions stemming from the uncertain outcome of the US-China trade war and its hefty tariffs placed on high-tech products, Vietnam has become a prominent alternative choice for tech-based manufacturing FDI.

While the country suffered setbacks from COVID-19, the pandemic is unlikely to diminish Vietnam’s global role in global value chains that depend on Vietnam as a key manufacturing hub; short-term disruption would force established businesses to bear the consequences rather than relocate out of Vietnam due to additional costs.

Real Estate

Since the 2000s, Vietnam’s real estate market has been attractive to foreign investors thanks to the nation’s political stability and stable macroeconomic growth.

Big Singaporean developers such as Keppel Land, CapitaLand, Sembcorp, and Mapletree are among the main driving forces behind Vietnam’s thriving real estate market as early as the mid-1990s.

The following wave of significant investment came from Korea with notable developers including GS E&C and Lotte continuing to expand their presence until this day. Additionally, there have been a number of successful Malaysian developers, namely Gamuda and SP Setia, as well as other successful real estate projects such as Park City in Hanoi.

Moreover, Vietnam has been enjoying the growing interest from Japan, with Japanese investors involved in numerous projects of all sizes, from smaller ones like Takashiyama’s US$12 million high-quality school system in the Starlake urban development project to giant projects such as Sumitomo’s smart city joint venture with BRG, or the US$1 billion worth Kajima and Indochina Capital’s joint project to develop a network of 20 hotels and tourism complexes over the next decade.

In 2020 and the first quarter of 2021, FDI into Vietnam’s real estate sector faced great difficulties. The two core reasons are the ripple effects of COVID-19 and the legal issues facing development projects. Investors have raised their concern about the complicated investing, constructing, and particularly accessing land procedures in Vietnam. Although the government has made efforts to simplify business procedures through Resolution No. 68 in May 2020, little change has been seen. Roughly 100 development projects in Ho Chi Minh City facing delayed and complex land procedures. Nevertheless, overseas interest in Vietnam’s real estate is increasing.

In 2021-2022, the residential, office, and industrial asset classes will capture the most investor attention. Vietnam is a key target market for MNEs, with providers of Technology, Financial Services, Life Insurance, all making gains. All these manufacturing organizations requiring office space underpins demand levels. With many projects under construction, new supply is likely to see the segment become far more competitive.

Electricity Production and Distribution

Over the last decade, there has been rapid growth in Vietnam’s energy industry. National electricity demand is expected to increase by 8.5% per year until 2025 and 7% until 2030, making Vietnam an attractive market for foreign energy investors.

At the 2020 Energy Summit hosted in Hanoi, a number of deals for investment in energy projects were signed, including the MOU by the Copenhagen Infrastructure Partners, Asiapetro, and Novasia Energy with the Binh Thuan Province People’s Committee to develop the 3.5GW La Gan offshore wind power project at a cost of US$10 billion.

2021 also witnessed significant energy projects in Southern Vietnam, including the US$3.1 billion LNG Power Plant Project in Long An by Singaporean investors and the US$1.31 billion Thermal Power Plant Factory in Can Tho by Japanese investors.

In the next decade, renewable and clean energy will offer foreign investors great opportunities, given the country’s huge power demand for development coupled with the national strategy of sustainable energy development with the priority on renewable energy.

TOP INVESTING PARTNERS

Vietnam's strong and stable growth performance over the past decade has been an attractive magnet for foreign investors. There have been over 100 countries and territories with investments in Vietnam.

Source: GSO

Asian countries have risen to represent the majority of Vietnam’s FDI. South Korea has invested US$70.4 billion in the country, being the largest investor. Japan comes in second (investment capital of US$60.6), followed by Singapore (investment capital of US$56.9 billion). In addition, multiple firms from Taiwan and Hong Kong are also active in the country.

Going forward, FTAs with countries beyond Asia could attract a new set of investors. For example, research suggests that 72% of EuroCham members are of the view that the EU-Vietnam FTA could lead to a surge in European firms investing in Vietnam.

[For more information on how to invest in Vietnam, contact us at info@oneip.vn]