Investment by foreign companies still falling short within the region
Foreign Direct Investment (FDI) Transforms Vietnam's Industrial Landscape
Foreign Direct Investment (FDI) has played a pivotal role in shaping Vietnam's industrial sector over the past decade. A shift from labour-intensive industries to high-tech sectors was observed between 2010 and 2024, with electronics' share rising from 4.1% to 17.8%.
This transformation has been reflected in the growth of registered capital. In 2023, Vietnam's registered capital reached nearly $38.23 billion, more than double the figure from 2011. However, localisation remains low, with a high dependence on imports and underdeveloped supporting industries.
FDI inflows have driven science, technology, and innovation, with tech giants like Samsung and Nvidia establishing Research and Development (R&D) centres and adopting Industry 4.0 technologies. This has positioned Vietnam as a regional manufacturing and FDI hub, with a focus on the processing and manufacturing industry.
Investment from Japan, South Korea, and Singapore each contributed about 10% of FDI in Vietnam. The 2020 Investment Law emphasised quality over quantity, prioritising innovation and R&D. As a result, FDI dominates key exports like electronics, footwear, and textiles.
FDI's impact extends beyond manufacturing. It plays a significant role in service sectors, particularly in high-value sectors like finance, education, transport, and logistics. FDI contributes significantly to job creation, with overseas capital accounting for a minority of enterprises but a majority of capital, revenue, and employment.
In 2023, Vietnam attracted $36 billion in registered capital and $25.5 billion in disbursements. Disbursement reached $25.35 billion in the same year.
However, the report raises concerns about potential negative impacts of FDI, including signs of an "oasis" economy, dependence, crowding out, and eliminating private investment, as well as negative impacts on the environment.
Despite these challenges, the government is working on coordinated policy frameworks to streamline investments and avoid detrimental competition among provinces, aiming for a unified FDI strategy and regional development consistent with national industrial goals.
Experts emphasize the need for fundamental reforms in industrial policies to fully leverage FDI benefits, especially to boost technology transfer, domestic industrial competitiveness, and productivity. The industrialization roadmap through 2030 and 2045 integrates FDI as key for modernization, innovation, and high-value industrial development, aligning with national long-term strategic goals.
In summary, FDI has been instrumental in Vietnam’s industrialization by evolving the manufacturing sector, supporting export-led growth, and enhancing macroeconomic stability. However, greater policy reforms are needed to overcome challenges related to sustainable industrial development and technological upgrading.
Education and self-development can be respectively boosted by the introduction of Industry 4.0 technologies by tech giants like Samsung and Nvidia, as these advancements can create opportunities for knowledge acquisition and skill development in Vietnam's industrial sector.
The emphasis on quality over quantity in FDI, as per the 2020 Investment Law, also encourages the flow of capital into high-value sectors such as finance and education, which can contribute to the overall development of human capital in Vietnam.
