Successfully investing in Vietnam

last updated on 9 May 2022 | reading time approx. 5 minutes



How do you assess the current economic situation in Vietnam?

The So­cial­ist Re­pub­lic of Vi­et­nam has ex­per­i­enced a rap­id and re­mark­able eco­nom­ic growth and de­vel­op­ment over the past three and a half dec­ades start­ing with the "Doi Moi" eco­nom­ic and polit­ic­al re­form of 1986. Since then, the trans­ition of the eco­nomy fol­low­ing "Doi Moi" has fueled an im­press­ive growth with rising eco­nom­ic in­dic­at­ors in Vi­et­nam.


In re­cent years, Vi­et­nam has emerged as a prom­ising des­tin­a­tion for many re­gion­al and in­ter­na­tion­al in­vestors thanks to its strong an­nu­al eco­nom­ic growth. Before the Covid-19 pandemic, the annual growth averaged between 5 to 7 per cent. Un­der­ly­ing factors that con­trib­ute to such pro­gress are among other things a stable polit­ic­al sys­tem, a young and dy­nam­ic work­force, low wages eco­nomy and a grow­ing middle class.


Des­pite sig­ni­fic­ant im­pacts of the un­pre­ced­en­ted and on­go­ing Cov­id-19 pan­dem­ic, Vi­et­nam counted among the few coun­tries that registered a pos­it­ive GDP growth where most eco­nom­ies fell under the pressure add sub­stan­tiated by the sanitary crisis. Despite the inevitable drawbacks debuting in 2020, Vietnam remained South­east Asia's growth leader as it was the only country in ASEAN to achieve a positive economic growth of 2.91 per cent that same year and 2.58 per cent in 2021.


Now, ac­cord­ing to the Gen­er­al Stat­ist­ic De­part­ment, GDP growth in Vi­et­nam in the first quarter of 2022 was estimated to increase by 5.03 per cent over the same period last year. The World Bank predicts the GDP to grow by 5.5 per cent in 2022.


How would you describe the investment climate in Vietnam? Which sectors offer the largest potential?


Since the country´s ac­ces­sion to the World Trade Or­gan­iz­a­tion in 2007, Vi­et­namese mar­kets have been ex­tens­ively opened to for­eign in­vestors in many sec­tors. Sim­ul­tan­eously, the gov­ern­ment has is­sued vari­ous policies eas­ing busi­ness con­di­tions and re­lax­ing ad­min­is­trat­ive bur­dens. In ad­di­tion, Vi­et­nam has also signed sev­er­al new free trade agree­ments, such as EU-Vi­et­nam FTA and UK-Vi­et­nam FTA, which are prom­ising to boost trade flows and to cre­ate at­tract­ive and safe con­di­tions for busi­ness ven­tures in the coun­try.


For­eign in­vest­ment in­to Vi­et­nam is largely open and liberalised, save for very lim­ited areas sub­ject to for­eign in­vest­ment re­stric­tions (e.g., fin­an­cial ser­vices, cer­tain as­pects of lo­gist­ics, tele­com­mu­nic­a­tions and util­it­ies). Nevertheless, Vi­et­nam's lib­er­al mar­ket eco­nomy holds great po­ten­tial for for­eign in­vestors, par­tic­u­larly in the fields of man­u­fac­tur­ing, re­new­able en­ergy, high-tech and IT, the last be­ing sub­ject to at­tract­ive tax in­cent­ives. The coun­try's in­tern­al mar­ket also of­fers a good basis for for­eign in­vestors due to its rap­idly grow­ing middle class and a high num­ber of con­sumers. The fo­cus on tra­di­tion­al ag­ri­cul­tur­al and labor-in­tens­ive in­dus­tries, such as tex­tiles and tim­ber, is still there but is cur­rently shift­ing. Re­new­able en­er­gies are still very un­der­deve­loped in Vi­et­nam and of­fer good op­por­tun­it­ies – a fact that has been recognized by the coun­try's gov­ern­ment, which is pro­act­ively try­ing to at­tract in­vest­ment in this area.


Direct foreign investments were an important driving force and another example of the overall successful management of the pandemic in Vietnam. In December 2021, the Ministry of Planning and Investment released that the economic growth was boosted by a total capital of 19.74 billion US dollars Foreign Direct Investment (FDI).


The safe and stable situation of Vietnam attracted FDI from 106 countries and territories. Singaporean firms representing 10.7 billion US dollars of the invested capital, beating South Korea and its invested capital of 5 billion US Dollar.  


It is the processing and manufacturing sector that led the growth with an investment capital of 18.1 billion US dollars accounting for 58.2 per cent of total registered investment capital. 


However, Vietnam's success in attracting foreign investment can also be measured in the light of the effort made to improve the investment climate. Indeed, the government's incentives to support industries in the effectiveness of a supply chain successfully attracted an increasing number of firms to relocate their manufacturing operations in Vietnam. Such an approach aligns with effective steps taken to revise the law on Corporate Income Tax to open incentives not only to new investment projects but also to investment expansions.  

What challenges do German companies face during their business ventures into Vietnam?

Ac­cord­ing to the Delegation of German Industry and Commerce in Vietnam (AHK Vietnam), Germany placed Vietnam one of the most important ASEAN trading partners in the European Union. Counting over 500 German companies in the country, the country represents a total FDI that reached an invested capital of 2.3 billion US dollars by the end of 2021.  


Ger­man com­pan­ies op­er­at­ing in Vi­et­nam still face a num­ber of chal­lenges: from in­fra­struc­tur­al prob­lems, such as the un­der­developed road net­work to non-trans­par­ent ad­min­is­trat­ive de­cision mak­ing. Con­tra­dict­ory le­gis­la­tion and in­ef­fi­cient bur­eau­cracy re­main ser­i­ous prob­lems that the coun­try still has to man­age.


However, the country undertook a series of legislative reforms to align itself with free trade agree­ments but also with current international standards. As such, cus­toms reg­u­la­tions have been sig­ni­fic­antly re­duced resulting in the Trans­par­ency In­ter­na­tion­al Cor­rup­tion In­dex of Vi­et­nam to slip fur­ther down to the 87th rank, one of the lowest rates in the re­gion. For for­eign in­vestors, it is thus pos­sible to un­der­take all de­sired and ne­ces­sary pro­ced­ures in a trans­par­ent man­ner and to enjoy a protective environment for their investments through Vietnam's growing network of free trade agreements.

What opportunities can arise for Vietman in the light of the economic and political challenges ahead?

Vi­et­nam has con­tinu­ously de­veloped in­to an at­tract­ive sup­ply-chain di­ver­si­fic­a­tion op­tion to China. China's trade con­flict with the United States is lead­ing to in­creased and un­pre­dict­able tar­iffs across the board. Taking part in the China Plus One Strategy, Vi­et­nam of­fers a more cost-ef­fi­cient and pre­dict­able trade op­tion through a vari­ety of free trade agree­ments, but also a lib­er­al mar­ket entry thanks to an ever-reacting economy. Vietnam's inde­pend­ence from loc­al part­ners further res­ults in a strong in­vest­ment in­flow prone to innovation.


Vi­et­nam will not be­come a sub­sti­tu­tion­al al­tern­at­ive to China in the fu­ture, but the coun­try will con­tin­ue to be seen as a val­ued di­ver­si­fic­a­tion op­tion. From a risk man­age­ment point of view, sup­ply-chain de­pend­ence on one coun­try such as China should be re­duced, and Vi­et­nam of­fers an op­por­tun­ity to do so.


More recently, the Russia-Ukraine conflict that emerged in February 2022 has undoubtedly sent shockwaves throughout the entire world. It is indeed predicted that the fallout of the conflict will have significant consequences in disturbing trade and global supply chains. However, this also may open doors and create opportunities for Vietnam to diversify its trade and cater to new markets. 

In your opinion, how will Vietnam develop?

Des­pite no­tice­able de­fi­cits in the areas of le­gis­la­tion, reg­u­la­tions, bur­eau­cracy, cor­rup­tion, in­tern­al pro­cesses and in­fra­struc­ture, Vi­et­nam con­tin­ues to de­vel­op pos­it­ively. Backed by a stable and pre­dict­able polit­ic­al frame­work, the short­com­ings are gradu­ally be­ing re­duced in or­der to make the coun­try even more at­tract­ive – es­pe­cially for for­eign in­vestors.


Vi­et­nam will con­tin­ue to work hard on the de­vel­op­ment of its in­dustry and to­wards the coun­try´s modernization, ef­fect­ive­ness, and sus­tain­ab­il­ity, in or­der to gen­er­ate a high­er com­pet­it­ive­ness as a stable basis of an industrialised na­tion. The coun­try will be able to ex­ploit and take ad­vant­age of op­por­tun­it­ies from signed Free Trade Agree­ments to re­move trade bar­ri­ers which will, in turn, sup­port the do­mest­ic ex­port-ori­ented in­dus­tries and there­fore open new and ad­di­tion­al op­por­tun­it­ies for trade and for­eign dir­ect in­vest­ment.


One of the most current and innovative sectors is energy, following the implementation of the ASEAN Plan of Action for Energy Co-operation Phase II, where Southeast Asia countries have committed themselves to meet a target of 23 per cent of renewable energy by 2025. It is stating the obvious to say that there is an increasing need for investment in renewable energy capacity and in electricity networks to facilitate the flexibility needed to integrate renewables. 


Vietnam is an ideal place to invest in such progressive technologies as there is a current shift to a national im­plementation of programs rather than an ASEAN-led regional infrastructure through different models for attrac­ting private investment depending on the country (i.e. long-term concession; build own operate and transfer con­tracts, etc.). Particularly, Vietnam is leading the ASEAN sector in clean energy investment (34 per cent of ASEAN investment in 2021) and has plans to install more than 13 GW of new renewable energy from projects (50 GW capacity from wind and solar planned for 2030).

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Michael Wekezer


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Markus Schlüter


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