Vietnam

Executive Summary

Foreign direct investment (FDI) continues to be of vital importance to Vietnam, as a means to support post-COVID economic recovery and drive the government’s aspirations to achieve middle-income status by 2045. As a result, the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment include government commitments to fight climate change issues, free trade agreements, political stability, ongoing economic reforms, a young and increasingly urbanized and educated population, and competitive labor costs. According to the Ministry of Planning and Investment (MPI), which oversees investment activities, at the end of December 2021 Vietnam had cumulatively received $241.6 billion in FDI.

In 2021, Vietnam’s once successful “Zero COVID” approach was overwhelmed by an April outbreak that led to lengthy shutdowns, especially in manufacturing, and steep economic costs. However, the government reacted quickly to launch a successful national vaccination campaign, which enabled the country to switch from strict lockdowns to a “living with COVID” policy by the end of the year. The Government of Vietnam’s fiscal stimulus, combined with global supply chain shifts, resulted in Vietnam receiving $19.74 billion in FDI in 2021 – a 1.2 percent decrease over the same period in 2020. Of the 2021 investments, 59 percent went into manufacturing – especially in electronics, textiles, footwear, and automobile parts industries; 8 percent in utilities and energy; 15 percent in real estate; and smaller percentages in other industries. The government approved the following major FDI projects in 2021: Long An I and II LNG Power Plant Project ($3.1 billion); LG Display Project in Hai Phong ($2.15 billion); O Mon II Thermal Power Plant Factory in Can Tho ($1.31 billion); Kraft Vina Paper Factory in Vinh Phuc ($611.4 million); Polytex Far Eastern Vietnam Co., Ltd Factory Project ($610 million).

At the 26th United Nations Climate Change Conference (COP26) Vietnam’s Prime Minister Pham Minh Chinh made an ambitious pledge to reach net zero emissions by 2050, by increasing use of clean energy and phasing out coal-fueled power generation. In January 2022 Vietnam introduced new regulations that place responsibility on producers and importers to manage waste associated with the full life cycle of their products. The Government also issued a decree on greenhouse gas mitigation, ozone layer protection, and carbon market development in Vietnam.

Vietnam’s recent moves forward on free trade agreements make it easier to attract FDI by providing better market access for Vietnamese exports and encouraging investor-friendly reforms. The EU-Vietnam Free Trade Agreement (EVFTA) entered into force August 1, 2020. Vietnam signed the UK-Vietnam Free Trade Agreement entered into force May 1, 2021. The Regional Comprehensive Economic Partnership (RCEP) entered into force January 1, 2022 for ten countries, including Vietnam. These agreements may benefit U.S. companies operating in Vietnam by reducing barriers to inputs from and exports to participating countries, but also make it more challenging for U.S. exports to Vietnam to compete against competitors benefiting from preferential treatment.

In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental protection. On January 1, 2021, Vietnam’s Securities Law and new Labor Code Law, which the National Assembly originally approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership limits for investments in most industries. The new Labor Code includes several updated provisions including greater contract flexibility, formal recognition of a greater part of the workforce, and allowing workers to join independent workers’ rights organizations, though key implementing decrees remain pending. On June 17, 2020, Vietnam passed a revised Law of Investment and a new Public Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.

Despite a comparatively high level of FDI inflow as a percentage of GDP – 7.3 percent in 2020 – significant challenges remain in Vietnam’s investment climate. These include widespread corruption, entrenched State Owned Enterprises (SOE), regulatory uncertainty in key sectors like digital economy and energy, weak legal infrastructure, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, and the government’s slow decision-making process.