FDI prospects off to stellar start for 2024

January 23, 2024 | 08:00
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Numerous ventures worth hundreds of millions of USD are pouring into Vietnam, promising positive results in foreign investment mobilisation and contributing to economic growth for 2024.

Last week, Crystal Group, in a meeting with the northern province of Nam Dinh’s leaders, proposed a $200 million investment in a fibre, fabric, and garments facility. This is the sixth project in Vietnam for the group, which is a key supplier of popular fashion brands such as Uniqlo and Victoria’s Secret.

FDI prospects off to stellar start for 2024
FDI prospects off to stellar start for 2024. Source: crystalgroup.com

“This is also Crystal’s first in Vietnam to be funded on a chain scale, and promises to be our most significant achievement,” said Chan Chi Yuen, director of Financial Control in Asia and in charge of development in Vietnam at Crystal Group.

South Korean manufacturer Hyosung wants to invest an additional $2 billion in Vietnam in 2024. The information was given by Cho Huyn-sang, group vice president, during a discussion on investment opportunities in the Vietnamese market at last week’s event chaired by Prime Minister Pham Minh Chinh.

Hyosung has already invested $3.5 billion in Vietnam, present in major cities such as Hanoi, Ho Chi Minh City, Dong Nai, and Ba Ria-Vung Tau with more than 9,000 employees, and planning to increase capital to $5.5 billion this year. The vice president of Hyosung Group said that many South Korean companies want to be present in Vietnam.

“Vietnam’s strengths are the strong and effective leadership and administration of the central government, the active support of local governments, and the hard-working and serious spirit of Vietnamese people,” Hyun-sang said.

In the very first days of the new year, dozens of million-dollar projects have received investment certificates or in-principle approvals. Six such schemes, with a total capital of $390 million, received investment certificates at a conference in the central province of Nghe An on January 13.

Hai Duong province in the north has approved 27 projects, with the total capital of more than $1.5 billion. In addition to some domestic ventures, there were numerous large-scale foreign ones, such as Deli Vietnam Office Technology with $270 million; Biel Crystal Technology Manufactory with $260 million; and Boviet Hai Duong’s solar photovoltaic panel manufacturing initiative, worth $120 million.

In the southern province of Dong Nai, of the nine projects awarded investment certificates this month, there are four foreign-invested ones with the total newly registered capital of $156.4 million, and four expanding projects with additional capital of $217 million, including Nestlé, Hyosung, and Kenda.

Among them, Nestlé is putting in $100 million to raise its total investment to more than $500 million. “This is a testament to Nestlé’s long-term commitment in Vietnam,” said Binu Jacob, general director of Nestlé Vietnam.

The beginning of the year is often a time when localities organise promotion conferences or meet with foreign investors. “It has been quite exciting lately because numerous large-scale projects have been announced. This promises that 2024 will continue to be a successful year for Vietnam in attracting foreign investment,” a representative of the Foreign Investment Agency under the Ministry of Planning and Investment (MPI) said.

At the government conference with localities in early January, Deputy Prime Minister Le Minh Khai emphasised that top US microchip manufacturers have also visited Vietnam and are considering pouring money. “Vietnam is still an attractive destination for foreign investors,” he said.

Michael Kokalari, chief economist at VinaCapital, expressed his belief that Vietnam’s foreign direct investment (FDI) inflows in 2024 will be positive. “We have received a lot of information about Japanese corporations looking for opportunities to cooperate with domestic partners to pour capital into Vietnam’s real estate sector,” Kokalari said.

Vietnam’s opportunity to engage foreign investment is huge. However, there are some challenges also, including the application of the global minimum tax (GMT) since January 1, and building additional incentive mechanisms.

Recently, Intel decided to pour $25 billion into Israel. Besides being an important market for Intel, Israel provides subsidies of up to $3.2 billion, equivalent to 12.8 per cent of investment. This is said to be one of the reasons why Intel decided to invest a huge amount of money there. Previously, Intel also decided to pump $4.6 billion into Poland, and more than €30 billion in Germany, and both received huge financial support.

Competition to draw in FDI is fierce. In a report submitted to the government in early January, the MPI said that in 2024, the outlook for global investment flows may be more uncertain. “The growth of FDI inflows is getting smaller and are concentrated among countries with geopolitical links, especially in strategic fields. The implementation of the GMT and related policies in some countries may also affect FDI flows,” the ministry reported.

Administrative procedures, infrastructure, and human resources are still issues in Vietnam. In the report on the Business Confidence Index of the European Chamber of Commerce in Vietnam in the fourth quarter of 2023, chairman Gabor Fluit said that positive trends are still happening but emphasised that “Vietnam needs to resolve issues of administrative burdens, and lack of efficiency”.

Nguyen Quoc Viet, vice president of the Vietnam Institute for Economics and Policy Research, has proposed promoting both static and dynamic comparative advantages for Vietnam.

“Of these, the static advantages are abundant and much talked about: creative labour, great resources for high-tech industrial production, participation in free trade agreements, and others,” Viet said. “However, the static advantages cannot increase sharply, so we should exploit and improve the dynamic comparative advantages, including new policies, improving human resources quality, and cutting down costs for startups and innovation.”

By doing so, Vietnam will maintain FDI inflows and engage more multinational and high-tech manufacturers to produce high-value goods, instead of industries that are labour-intensive, Viet added.

Vu Tien Loc, member, National Assembly Economic Committee

FDI prospects off to stellar start for 2024

The National Assembly should promulgate an additional resolution on incentive and support policies to ensure an attractive investment environment. Thereby, the country may meet the two goals of promoting high-quality capital flows into the economy while following the economic development strategy of the Party. At the same time, it must not violate international commitments or go against the integration trend.

Promulgating new incentives is a solution to support the investors, which is not a measure to compensate for losses because they have to pay additional taxes to offset a violation of Organisation for Economic Co-operation and Development principles.

The new incentive policies need to ensure the principle of fairness, aiming at all businesses that meet specific criteria, regardless of whether they are subject to additional taxes or not.

These policies need to be prioritised on environmentally friendly high-tech fields, research and development activities, renewable energy, and strategic investors in high technology.

In addition, the promulgation of the resolution on applying corporate income tax is forecasted to have a huge impact on reducing the attractiveness of the business environment in Vietnam, especially for strategic investors in a very fierce competition in attracting foreign funding.

Nguyen Van Toan, vice chairman, Vietnam Association of Foreign-Invested Enterprises

FDI prospects off to stellar start for 2024

Although the imposition of the global minimum tax impacts Vietnam’s tax incentive advantage in attracting foreign investment, it also brings benefits to Vietnam, helping to solve the transfer pricing problem in foreign-invested enterprises.

In front of this status, to support the impacted investors to ensure attraction, Vietnam needs to change the environment to retain giants and at the same time engage new investors in 2024.

To reach the targets, attraction mechanisms need to be more open. In addition, the policymakers should build up a more strict intellectual property rights protection policy.

The improvement of the labour force is also an extremely crucial requirement. Specifically, we must have a series of suppliers of sufficient quality to be able to participate in the production stages of foreign investors, compensating for the shortage of components. In addition, we must focus on developing supporting industries to engage and retain foreign investment capital flows.

Vietnam has opportunities to attract new inflows in 2024 and onwards, which is a similar status to in 2008 when Vietnam had just joined the World Trade Organisation. Forecasts are optimistic that Vietnam is in the early stages of a new cycle of attracting foreign capital.

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