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Vietnam: Foreign investment

Wednesday - 01/03/2017 19:40
FDI inflows to Vietnam have increased considerably since the country authorised foreign investments back in 1988. The social-political stability of the country is one of its main assets.
Vietnam: Foreign investment
FDI in Figures
 Although FDI was affected by the global economic crisis, showing a drop in 2009, the policy of economic openness since 2010 has enhanced the country's attractiveness to investors. According to the World Bank, the Vietnamese business climate improved in 2015, with the country gaining three places in the 2016 Doing Business report (90th out of 189).
Traditionally, FDI flows were directed towards light industry, but they are now quickly turning towards heavy industry, real estate and tourism. They are expected to continue in growth, confirming the country's position as the third most attractive country in terms of FDI in Asia, just behind China and India. Thanks to FDI, Vietnam now produces high value-added products such as smart phones and tablets. In total, by late 2015 the sector had received USD 11 billion worth of FDI.
In 2015, the amount as well as quality of FDI in Vietnam increased. The country has attracted large technology, industrial and HR projects and, between January and September 2015, recorded USD 17.15 billion worth of foreign direct investment for a total of 461 projects. The largest investors are South Korea, Malaysia and the United Kingdom. The manufacturing sector attracts the most FDI.
The country is willing to create a more favourable environment for foreign investors. For more information, you can consult The Investment and Trade Promotion Centre of Ho Chi Minh City (ITPC).

Country Comparison For the Protection of Investors

  Vietnam East Asia & Pacific United States Germany
Index of Transaction Transparency* 6.0 5.0 7.0 5.0
Index of Manager’s Responsibility** 1.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 6.0 9.0 5.0
Index of Investor Protection**** 3.0 5.4 8.3 5.0

Source: Doing Business - 2016.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Foreign Direct Investment 2013 2014 2015
FDI Inward Flow (million USD) 8,900 9,200 11,800
FDI Stock (million USD) 81,791 90,991 102,791
Number of Greenfield Investments*** 178 254 233
FDI Inwards (in % of GFCF****) 22.1 21.0 25.5
FDI Stock (in % of GDP) 48.0 48.9 53.7

Source: UNCTAD - 2016.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

Why You Should Choose to Invest in Vietnam

The country's strong points are:
- Positive economic prospects in terms of growth, despite the global crisis;
- A young, cheap, rapidly growing and more and more technologically qualified manpower;
- A certain social-political stability;
- A government committed to liberalising the economy and to introducing reforms based on the free market.

The country's weak points are:
- Weak financial structure. Although it is undergoing reforms, the financial sector is neither well regulated nor independent of the government;
- The lack of guarantees for property rights;
- A high level of corruption.

Foreign investment is subject to an array of unclear regulations, which cannot be legally guaranteed. The judiciary is subject to political influence, and commercial cases often take years to be resolved.

The promotion of foreign investments is part of the country's development strategy. Therefore, the government has never stopped perfecting its judicial system, creating more incentives and taxation policies for foreign investors and trying to respect its commitments with regard to the international community. "Business forums" are frequently organised between the Vietnamese government and the private sector, these being opportunities for foreign investors to establish fruitful dialogue and to assert their interests. Additionally, Vietnamese efforts to maintain socio-political stability and set up and professionalise investment promotion activities also play a crucial role in increasing the FDI flow.

Procedures Relative to Foreign Investment

The Government has relentlessly perfected its legal system, created more incentive policies for foreign investors and tried to fulfil its commitments to the international community. As well, Vietnam's efforts to maintain its socio-political stability and step up and professionalise investment promotion activities play a crucial role in increasing the FDI flow.

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