Current status

Till date, Vietnam has attracted around US$98 billion in 9500 foreign invested projects since 1988. Of these, 2,220 projects are in the north, 818 are in the central region and 5,452 projects are in the south. There are now 82 countries and territories that have made an investment in Vietnam. Asia accounts for 69.8%, Europe 16.7%, and America 6% of the total FDI, other sectors for 7.5%. These five countries and territories account for 58.3% of the  licensed  projects  with  a  total  investment  capital  account  for  60.6%  of  the  total foreign investment capital of Viet Nam. The next five countries and territories are the British Virgin Islands, France, Netherlands, Malaysia and the USA. These “top ten” countries and territories account for over three-quarters of the total licensed projects and foreign-registered capital in Vietnam. Vietnam lured US$20.3 billion in foreign investment in 2007, an increase of 70% against 2006 and approximately equal to the total foreign investment for the 5 years from 2001-2005.

FDI Flow into Viet Nam in the period 1988 - 2007

From 1996 to 2007, there was a tendency towards investment in infrastructure construction, labour-intensive industries, producing goods for export, and producing import substitutes. There are currently more than 4,566 projects in the manufacturing and construction industries with a total capital of about US$35.4 billion, accounting for 61.89% of the registered capital.

While there are foreign-invested projects in most provinces and cities in Vietnam, the lion's share of the investment has been in the key economic areas in the South, including Ho Chi Minh City, Dong Nai, Binh Duong, Ba Ria, and Vung Tau; and in the North, including Hanoi, Hai Duong, Hai Phong and Quang Ninh. Particular focus has been on Hanoi and Ho Chi Minh City which have more developed infrastructure, higher purchasing power and a more skilled labour force.

In recent years there has also been an increase in 100% foreign-owned projects. These projects now account for 76% of total licensed projects and 55% of registered capital, while joint-venture enterprises make up 21% and 34.5% respectively. There are also six licensed foreign-invested BOT projects in Viet Nam (water supply and electricity plants), with a total registered capital of US$1.37 billion.

The foreign-investment sector has seen rapid growth, gradually asserting itself as a dynamic component of the economy, and has made an important contribution to enhancing the economy’s competitiveness and efficiency. In recent years, the foreign-investment sector has accounted for a quarter of the country's total investment, 43.6% (2004) of industrial output, 57.2% (2005) of the national export, and 15.9% of the GDP of Viet Nam. However, the capital disbursement pace of foreign-invested projects is still slow and unstable from US$7.1 billion in the 1991-1995 period to US$13.5 billion in the 1996-2000 period, and US$14.3 billion in 2001-2005. In 2006 and 2007, the disbursed capital only stood at US$8.7 billion.

FDI Contribution to GDP (%)

Source: General Statistics Office

Main legislation for FDI

With a view to creating a comprehensive legal framework for FDI activities in accordance with international standards, Viet Nam has signed and acceded to various bilateral  and  multilateral  arrangements on investment, such as agreements for the promotion and protection of  investment with 46 countries and territories, the ASEAN Framework Agreement on Investment (“AIA”), the BTA with the United states of America containing an investment charter, the Convention on the Establishment of the Multilateral Investment Guarantee Agency (“MIGA”), and other related international investment agreements. Where the international agreements contain provisions inconsistent with the provisions of the legal instruments on FDI, the provisions of those international agreements shall be applied.

Vietnam officially joined the WTO on 7 November 2006 and put its commitments into effect from 11 January 2007. The two main positive impacts of Vietnam’s WTO membership on FDI are:

Firstly, the considerable reduction of import duties on goods for domestic production as well as for private and government consumption (in many cases, import tariff rates on inputs for producing exports and other goods such as machinery and equipment used to produce   exports  have   been   remarkably  reduced  during  the  negotiation  process). Moreover,  the  exporters  are  also  refunded  import  duties  imposed  on  input  materials used for producing exports.

Secondly, the liberalization of Vietnam’s services market. Under the WTO’s classification, provision of services will be divided into four modes: (i) cross-border (e.g., electronic money transfer services between countries); (ii) services consumed abroad (e.g., tourist services); (iii) commercial presence (e.g., FDI in services in Vietnam); and (iv) movement of people (e.g., foreigners providing services in Vietnam). Liberalization of  services  sector,  especially  in  modes  (i)  and  (iv),  will  affect  FDI  flows  in  Vietnam. Firstly,   the   services   sub-sectors   that   used   to   be   closed   or   restricted   to   foreign investment (such as distribution, transport, telecommunication, finance, etc.) will be largely liberalized (despite some limited conditions and a transitional period of three or five years).

Investment sectors and regions entitled to incentives

The Government of Vietnam encourages foreign investors to invest in the following sectors and regions:

(1) Sectors in which investment is entitled to incentives:

- Manufacture  of  new  materials  and  production  of  new  energy,  manufacture  of high-tech products, bio-technology, information technology and mechanical manufacturing;

- Breeding, rearing, growing and processing of agricultural, forestry and aquaculture products; production of salt, creation of new plant and animal varieties;

- Utilization of high technology and advanced techniques, protection of the ecological environment and research, development and creation of high- technology;

- Labour intensive industries;

- Construction and development of infrastructure facilities and important industrial large-scale projects;

- Professional development of education, training, health, sports, physical education and Vietnamese culture;

- Development of traditional crafts and industries; and

- Other manufacturing and service sectors which require encouragement.

(2) Regions in which investment is entitled to incentives:

- Regions  with  difficult  or  especially  difficult  socio-economic  conditions,  such  as mountainous regions, remote or underdeveloped regions; and

- Industrial zones, exporting zones, high-tech zones and economic zones.