Vietnam

Executive Summary

In 2016, Vietnam attracted a record level of foreign direct investment (FDI) with USD $15.8 billion, a 9 percent increase from 2015 levels. Continued strong FDI inflows are due in part to ongoing economic reforms, as well as the country’s close proximity to China; a young, and increasingly urbanized, population; political stability; and inexpensive labor. The country remains one of the few in Southeast Asia with sustained manufacturing growth. Political stability continued in 2016 with the government leadership transition during the 12^thParty Congress last January, and the National Assembly affirming the new leaders in July 2016. Vietnam also commenced hosting the Asia Pacific Economic Cooperation (APEC) in 2017, which puts a spotlight on regional economic integration and improvements to the business climate.

While the Trans Pacific Partnership (TPP) is no longer a powerful tool to accelerate economic reforms, internal pressures remain and will continue to drive the reform process. These pressures include: a sustained budget deficit, a weak domestic sector that has low linkages to the global supply chain, falling productivity, and a financial sector overburdened by non-performing loans. The new government, led by Prime Minister Nguyen Xuan Phuc, acknowledges the need to spark a ‘second wave’ of economic reforms in order to continue economic growth.

In 2016, manufacturing continued to dominate FDI inflows. The electronics sector attracted major investments from LG (USD $2 billion) and Samsung (USD $300 million). The FDI inflows to the IT sector are in line with Vietnam’s strategic efforts to shift FDI from low-end manufacturing to the high-tech sector. Vietnam also continued to attract investment in infrastructure projects, including power generation, road, and railway construction. However, there remains an estimated USD $170 billion gap in additional infrastructure development in order to meet growing economic demand. In the energy sector alone, the Vietnam’s General Statistics Office (GSO) estimates that electricity demand will continue to grow at a rate of 10 percent to 12 percent per year.

Despite strong FDI inflows, several challenges in the business climate remain, including corruption and a weak legal infrastructure, low intellectual property rights (IPR) enforcement, a shortage of skilled and productive labor that can meet the demands of an increasingly sophisticated global market, a weak judicial system, unstable labor relations, and an increasing demand for improved infrastructure. In addition, 2016 saw increased public awareness and scrutiny of the negative impact business practices such as illegally discharging waste water have on the environment and the need for better environmental protection, after a massive fish kill off the central coast in April 2016 sparked a strong public outcry.

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