Vietnam's foreign direct investment (FDI) activity for the first seven months of 2024 has shown a promising upward trend. With inflows reaching around $18 billion, there has been an 11% increase compared to the same period last year. Notably, new project investments surged by 41% year-on-year, amounting to $10.7 billion, while additional funding for existing projects saw a 20% rise, totaling $4.9 billion. The manufacturing sector dominated the FDI inflows, attracting $12.6 billion, which constitutes 70.3% of the total. The real estate and construction sectors also drew substantial interest, representing 16.3%, followed by wholesale and retail trade at 4.1%.
Factors Enhancing Vietnam's Investment Appeal
▲ Strategic Geographical Position
Vietnam's location is a significant draw for global investors, offering logistical advantages that enhance corporate profitability. With over 3,000 kilometers of coastline and a network of rivers, the country supports efficient maritime transport. Its proximity to major ASEAN trade hubs such as Thailand, Malaysia, Laos, Cambodia, and China reinforces its strategic importance. Vietnam's ambitious infrastructure plans, including the 2030 Port and Cargo Master Plan, the North-South High-Speed Rail project, and the extension of 5,000 kilometers of highways, aim to solidify its status as a logistics hub in Southeast Asia.
▲ Proactive Government Policies
The Vietnamese government has rolled out numerous policies to attract foreign investment. These measures include lowering corporate taxes for new manufacturers, exempting global companies from import taxes on raw materials and machinery, reducing local taxes, and offering long-term leasing options. Such initiatives are designed to foster a favorable and stable business environment for investors.
Addressing Concerns Over Global Minimum Tax (GMT)
Despite the appealing investment climate, the implementation of the global minimum tax (GMT) at the beginning of the year has raised concerns about its potential impact on FDI. Many international firms operating in Vietnam fall under the scope of the GMT, potentially neutralizing the effects of the government’s tax incentives.
To mitigate these concerns, the Vietnamese government has introduced the Vietnam Fund for Investment Support (VFIS). The VFIS aims to provide financial assistance to global companies, helping cover infrastructure, fixed asset investments, human resource development, and R&D costs. It is anticipated that once fully operational, the fund, coupled with other supportive policies, will uphold Vietnam's investment appeal and foster ongoing corporate investments.
Impact on Vietnam's Markets
According to an analysis at Hana Securities, While the stock market outlook remains neutral, the stable dollar/dong exchange rate during periods of FDI growth suggests positive implications for economic stability. Continued investment in the manufacturing sector is expected to drive economic growth, which could, in turn, create a favorable environment for the stock market. Enhanced FDI inflows are likely to bolster both economic expansion and market conditions in Vietnam.
