FDI in Vietnam: A movement to sustainable growth
For the last few years, Vietnam has risen as a safe destination for development with FDI. By December 2020, there were 33,070 FDI projects with a total value of 384 billion USD, in which 231.86 billion USD (60.4%) of the funding had been disbursed.
The 2016 – 2020 period witnessed a significant growth compared to the previous periods despite the challenges from the Covid-19, proving investors’ trust and confidence in the growth of Vietnam’s market, opportunities and government support.
The question now is that, as the world is moving towards sustainability across all sectors of the economy, will the FDI flow be more on sustainable industries that meet the urgent global demand as raised during COP26. The current three top sectors that receive FDI are Manufacturing and Processing, Real estate and Retail and Wholesale.
According to International Finance Corporation (IFC), the current climate finance in Vietnam is at only about 5% of the total bank loans (10.3 billion USD). The new government target toward a 9 percent decrease in greenhouse emissions by 2030 will hence create a climate investment opportunity of 753 billion USD in the 2016 – 2030 period in Vietnam.
There have been great successes so far as significant deals have been made with FDI in green sectors in Vietnam. Proparco, a French development finance organization, just provided a 50 million USD loan for the Ho Chi Minh City Development Join Stock Commercial Bank (HDBank) to financially support sustainable projects. The International Financial Corporation (IFC) also made a deal of 100 million USD with Orient Commercial Joint Stock Bank (OCB) in May, 2021 to enhance the green activities of private sector, especially for SMEs to finance climate-friendly projects. Other major banks including Bank of Agriculture and Rural Development of Vietnam (Agribank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Tien Phong Commercial Joint Stock Bank and many others also recently received long-term loans with great financial supports from international financial institutions with the promise to fund sustainable projects in Vietnam.
As mentioned in a HSBC’s report on Vietnam’s opportunities in a post-Covid world, Vietnam is having a new focuses on the transition to Sustainability, with its goal in supply chain resilience and sustainability in textile and garments in Vietnam, energy transition and renewable power.
An outstanding example is the renewable energy sector in Vietnam, being the world third-largest market for solar energy in 2020 and the highest level of investment in renewable energy in the Association of Southeast Asian Nations (ASEAN), Vietnam is attracting numerous global investors, opening the door for other ASEAN countries to receive huge investment from foreign investors. Vietnam has also secured an impressive deal of around 101,000 rooftop solar installations to date. This great commitment from the Vietnamese government to renewable energy is a strong foundation to attract more FDI and sustainably support foreign companies with reliable green sources. You can read more about Sustainable Energy in Vietnam here.
You can read more about ASEAN Investment Report 2020 – 2021 here.
It is clear that Vietnam has a great potential for green FDI programmes, catching up with the global trend and requirements. Foreign investors will definitely demand more from local firms, with more innovative business models and strategies that meet both financial targets and sustainability goals. The Vietnamese government has drawn out 3 key changes to attract more FDI in sustainable sectors as below:
Firstly, prioritise FDI in innovative and environmental-friendly sectors, including renewable energy, logistics, education, tourism, etc. Attracting FDI must ensure a balance between export growth and investment in developing value-added products and services and using domestic raw materials, developing supporting industries, and training human resources in the industry. water.
Secondly, in terms of partners, it is necessary to focus on attracting FDI, especially multinational corporations associated with domestic enterprises to form and develop clusters of industry linkages according to each value chain. In the short term, continue to attract FDI into industries where Vietnam still has advantages such as textiles, garments, footwear, etc. At the same time, focus on stages of creating high added value, associated with the production process. Smart, automation.
Carry out multilateralisation and diversification to attract FDI from potential markets and partners. Effectively exploiting relationships with strategic partners (comprehensive partners, comprehensive strategic partners), focusing on the world's leading developed countries, transnational corporations holding source technology, advanced and modern management level.
In addition, proactively monitor and assess the trend of shifting FDI flows into Vietnam with outdated technology and the risk of causing environmental pollution from some countries in the region to take timely measures to prevent them. The attraction of FDI from small and medium-sized enterprises, small and micro-scale projects must ensure conditions for upgrading technology and joining the global production network and value chain and developing supporting industries.
Thirdly, FDI attraction must be suitable with the advantages, conditions, development level and planning of each locality in the regional linkage, ensuring the overall economic - social - environmental efficiency. For sensitive areas and areas related to national defense and security, border areas, sea areas, islands and exclusive economic zones, the attraction of FDI needs to ensure national defense and security. national sovereignty comes first.
It is clear that Vietnam has a great potential for green FDI programmes, catching up with the global trend and requirements. Foreign investors will definitely demand more from local firms, with more innovative business models and strategies that meet both financial targets and sustainability goals.
Reposted from my article on Vietnam Insider