Attracting FDI before a historic turning point

In this journey, opportunities are abundant but also present numerous challenges, requiring Vietnam to act quickly and decisively, keeping pace with the rapidly changing global economic landscape.

Lesson 1: The Sweet Fruits of Economic Diplomacy

Attracting FDI before a historical turning point (image 1)

Textile dyeing production at Jasan Vietnam Textile Dyeing Co., Ltd., Pho Noi B Industrial Zone, Hung Yen Province. (Photo by Dang Anh)

The Foreign Investment Law, enacted in 1987, opened up opportunities for Vietnam to attract foreign capital to accelerate industrialization, modernization, and development towards building an open economy, integrating with the region and the international community.

Alongside specialized laws on attracting investment, the signing and implementation of free trade agreements (FTAs) have also made a significant contribution, facilitating the increasingly strong inflow of foreign capital into Vietnam.

On January 11, 2007, Vietnam officially became the 150th member of the World Trade Organization (WTO), marking the country's comprehensive integration on its journey of reform and international integration. To date, Vietnam has signed and implemented 16 Free Trade Agreements (FTAs), opening up significant opportunities for trade and attracting foreign direct investment (FDI).

An ideal destination in the eyes of investors.

According to Ms. Phi Thi Huong Nga, Director of the Industrial Statistics Department (General Statistics Office), Vietnam has now signed FTAs with all major global economic partners such as Japan, China, the United States, the European Union (EU), Russia, etc.

Notably, new-generation FTAs, including the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP), the Vietnam-European Union Free Trade Agreement (EVFTA), and the Vietnam-United Kingdom and Northern Ireland Free Trade Agreement (UKVFTA), create favorable conditions for foreign investors to come to Vietnam.

Data from the Ministry of Industry and Trade shows that FDI from the United Kingdom has clearly improved after the implementation of the UKVFTA, evidenced by a strong increase in both the number of projects and newly registered capital.

By the end of 2023, the United Kingdom had 550 direct investment projects in Vietnam with a total registered investment capital of approximately US$4.3 billion, ranking 15th among 143 countries and territories with direct investment in Vietnam.

“In just a short time after the implementation of the UKVFTA, the number of projects and investment capital from the United Kingdom in Vietnam has doubled. Clearly, there is significant attention from British investors towards Vietnam,” shared Ngo Chung Khanh, Deputy Director of the Multilateral Trade Policy Department (Ministry of Industry and Trade). He emphasized that recently, the United Kingdom has invested in many large-scale green energy projects in Vietnam, demonstrating the orientation of the two governments in promoting climate change mitigation, green energy development, and a green economy.

Furthermore, the UK's recent official signing of the CPTPP agreement will further boost bilateral economic, trade, and investment relations in the future.

David Johnstone, Head of FTAs Implementation at the UK Department for Business and Trade, assessed that, in addition to the clear tariff benefits, the CPTPP also creates enormous advantages for both countries in terms of deeper integration into each other's supply chains; at the same time, it facilitates business processes for enterprises on both sides and creates the potential for breakthrough growth with the prospect of expanding the agreement in the future.

The EVFTA is also one of the three new-generation FTAs that Vietnam is currently implementing. Since this agreement came into effect, investment capital from EU countries in Vietnam has increased from US$18 billion in 2016 to US$28.91 billion in 2023.

The European Chamber of Commerce in Vietnam's Business Confidence Index report also shows that Vietnam's global investment appeal remains strong, with 63% of surveyed businesses ranking Vietnam among the top 10 FDI destinations. Even more noteworthy, 31% of businesses ranked Vietnam in the top 3, with 16% praising Vietnam as a leading destination for FDI.

Savills' Vietnam Industry Focus 2023 report also highlighted that Vietnam has signed 16 FTAs and is negotiating three more; among them, the EVFTA marked a significant turning point in trade and investment relations between Vietnam and European countries.

Regarding the US market specifically, John Campbell, Deputy Director and Head of Industrial Services at Savills Vietnam, stated: "President Joe Biden's visit and the upgrading of Vietnam-US relations to a Comprehensive Strategic Partnership are expected to significantly increase investor interest from this market in the coming period."

Play with the big players.

In addition to continuing negotiations on new FTAs, from the second half of 2023 to the present, Vietnam has upgraded its comprehensive strategic partnership with three major partners: the United States, Japan, and Australia. Simultaneously, it has deepened its comprehensive strategic partnership with China in many important areas of cooperation, such as science and technology, semiconductors, new-generation official development assistance (ODA), green economy, and digital economy.

It can be seen that, along with the effects of implementing the Law on Foreign Investment, economic diplomacy has actively supported the promotion and removal of trade barriers, enabling Vietnam to expand its market and attract external resources for the development of breakthrough industries such as semiconductor technology, artificial intelligence (AI), and clean energy transition.

Deputy Minister of Foreign Affairs Le Thi Thu Hang shared: Economic diplomacy has been implemented decisively and comprehensively in recent times, undergoing profound qualitative and quantitative changes, achieving many important results, including contributing to attracting high-quality FDI and new-generation ODA, forming favorable frameworks to attract resources to serve green transformation, digital transformation, innovation, and deeper participation in regional and global supply chains.

Notable examples include Vietnam signing the Joint Venture for a Just Energy Transition (JETP) with an initial investment of $15.5 billion; the world's first carbon-neutral plant project worth $1.3 billion by Lego Group; and Samsung Group's $220 million Research and Development Center.

From an economic expert's perspective, Dr. Vo Tri Thanh believes that the significant achievements in foreign affairs in general, and economic diplomacy in particular, have contributed to creating a favorable and stable international environment for economic development; attracting resources, clearly demonstrated through achievements in the fields of economics, trade, investment attraction, production, and business.

This process also contributes to institutional reform, improving the investment and business environment, creating attractiveness and attracting international investment to Vietnam. Furthermore, Vietnam has begun to "play with the big players," participating more proactively by collaborating with other countries to build and establish new rules of international trade, and high-quality, next-generation FTAs such as the CPTPP.

Clearly, the diplomatic sector is playing a crucial role in connecting Vietnam with major players and investors around the world. However, this also requires us to act flexibly and react quickly to avoid being slow or missing opportunities.

According to Master's degree holder Nguyen Tran Minh Tri from the Institute of World Economics and Politics, Vietnam Academy of Social Sciences, economic diplomacy has truly become a central task of the entire Vietnamese diplomatic sector, creating a strong transformation from thinking and awareness to action in ministries, departments, localities, and businesses.

Furthermore, economic diplomacy has been helping industries, sectors, localities, and businesses expand their diverse development opportunities, making Vietnam an important link in regional and global economic connections.

In the context of current geopolitical changes and technological revolution, Mr. Tri recommended that economic diplomacy should continue to be implemented in accordance with the major orientations of the Party and the policies of the State.

This involves focusing on and concretizing the results of attracting high-quality FDI flows for high-tech industries; increasing the number of international tourists to Vietnam; expanding and diversifying markets, products, and supply chains; increasing export orders for the textile, footwear, seafood, wood, and fruit and vegetable industries, ensuring both immediate and long-term benefits; accelerating the signing of FTAs; consolidating Vietnam's market share in traditional markets; and expanding into niche markets and untapped potential markets.

In recent years, Vietnam has effectively implemented three strategic breakthroughs: institutional reform, infrastructure development, and improving the quality of human resources. Vietnam welcomes international investors to invest in the spirit of "harmonious interests, shared risks," equality, sincerity, mutual benefit, and respect for international law.

Vietnam's orientation is to attract selective investment, prioritizing projects in emerging, high-tech, high-value-added sectors with spillover and connectivity potential, especially those serving new growth drivers, promoting digital transformation, green transformation, and strongly developing new breakthrough and strategic fields such as semiconductors and artificial intelligence (AI).

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