Vietnam needs to immediately design policies to support investment in high technology. This strikes two birds with one stone as it not only helps the country seize the opportunity in attracting foreign direct investment (FDI), particularly in high-tech products, but also avoid becoming the target of low-quality and small-scale projects.

An employee working on an electronic components production line in Bumjim Electronics Vina Co., Ltd., which is a Republic of Korea-invested enterprise.

Welcoming the wave of production shift

It its report “ASEAN Perspectives – FDI Capital Flows: Persistent in the Face of Challenges”, which was recently released in September, HSBC Global Research said that while the global trade outlook is gloomy, FDI is still being poured into ASEAN.

The region’s share of global FDI soared after the 2008 global financial crisis and accelerated in recent US-China trade tensions. In 2022, ASEAN attracted a record high of nearly 17% of global FDI capital, nearly double the figure from 4 years ago.

“US-China trade tensions have pushed investors to accelerate the relocation of supply chains to elsewhere, in which ASEAN, thanks to its neighbouring geography and improved basic standards, has clearly emerged as an alternative destination,” the report commented.

Meanwhile, Vietnam and the US have just elevated their relations to a comprehensive strategic partnership, which is a historic milestone that opens strategic opportunities for Vietnam.

That Vietnam and the US have just elevated their relations to a comprehensive strategic partnership creates a great opportunity for Vietnam to make good use of the US’s friend-shoring policy and become a high-income country by 2045.

“It creates a great opportunity for Vietnam to make good use of the US’s friend-shoring policy and become a high-income country by 2045,” said economic expert, Dr. Huynh The Du in a recent article.

The "friend-shoring" strategy refers to multinational corporations redirecting their supply chains to countries with economic and political stability or low economic and political risks to avoid disruptions to their business.

Observations show that many US firms have taken specific actions to realise the strategy, including Apple, which has expanded their operation in other markets. According to recent analysis, a quarter of all Apple products will be made outside China by 2025, and this figure is forecast to increase over time. Apple has chosen India and Vietnam as its new production hubs.

To date, the Apple Inc. has relocated 11 factories for manufacturing audio-visual devices to Vietnam. Big3 outsourcing manufacturers for Apple, including Foxconn, Luxshare, and Goertek, have also simultaneously increased capital and expanded factories in Vietnam recently.

In addition, a series of recent visits and business matching events have shown that US businesses are really interested in building new facilities or expanding production and business activities in Vietnam.

Employees working on an electronic components production line in Bumjim Electronics Vina Co., Ltd., which is a Republic of Korea-invested enterprise.

Optimising opportunities with policy on supporting high-tech investment

According to experts, Vietnam should design prompt policy on supporting investment in order to optimise the wave of production shift, especially in the high-tech field.

Promulgating policies to support investment in high technology will help to enhance the competitiveness and attractiveness of Vietnam’s investment environment. It is also in accordance with the Party and State's guideline on attaching priority to attract high-tech FDI projects that can connect global production and supply chains.

In particular, countries in the region which are Vietnam’s competitors for FDI attraction have promulgated new investment incentives to increase attractiveness to foreign investors. Therefore, unless Vietnam makes appropriate adjustments, it will definitely be "exhausted" in this FDI race.

If Vietnam does not work out effective tax policies, it will no longer maintain its attractiveness from the investment environment and its advantage in low-cost workforce.

Experts from the Republic of Korea, a country which has invested in many large FDI projects in Vietnam, emphasised that, if Vietnam does not work out effective tax policies, it will no longer maintain its attractiveness from the investment environment and its advantage in low-cost workforce.

Amidst the increasingly fierce competition in FDI attraction, it is crucial for Vietnam to maintain a stable legal environment, and an attractive and transparent investment environment.

It is also necessary to design new support policies for investors who make great contributions to facilitating the national development and creating jobs for a large number of local workers, as well as investors in the fields of high technology and green energy.

In fact, the presence of high-tech "eagles" will attract to satellite businesses, thereby forming and expanding the technology ecosystem. Once the technology ecosystem is expanded, it will help to minimise opportunity for low-quality and small-scale projects.

The facts have shown that although Vietnam is a bright spot in FDI attraction, the quality of FDI is tending to decline and the majority of FDI projects are of small and medium scale, both in capital and labour as well as revenue criteria.

According to the PCI-FDI 2022 survey of the Vietnam Chamber of Commerce and Industry, which covered 1,282 FDI enterprises, nearly 83% of FDI enterprises have capital of less than 100 billion VND. One-quarter of FDI enterprises employ less than 10 employees; and 57.4% have less than 50 employees.

Regarding revenue, nearly 25% of FDI enterprises earned less than 3 billion VND, 77.8% of which collected revenue of less than 100 billion VND in 2022, it said.

Regarding economic sectors, the survey results showed that nearly half (49.5%) of FDI enterprises operate in the industrial and manufacturing sector; 39% in the service and trade sector; and 7% in the construction sector.

Meanwhile, data from the Foreign Investment Agency under the Ministry of Planning and Investment revealed that the average capital in each FDI project in Vietnam is about 15-16 million USD. Although the number of FDI projects increased, the total registered capital reduced due to the decline in large-scale projects, which is a worrying issue.

FDI has been one of Vietnam's most important economic growth drivers. Therefore, to enhance the country’s FDI attraction, Vietnam needs to take immediate actions to build a sound strategy to lure greater investment in such areas human resource training and development, research and development, and assistance in fixed asset investment.