Vietnam needs to do more to attract sustainable foreign investment

Vietnam needs to do more to attract sustainable foreign investment when many international corporations and businesses flock to the Southeast Asian country.

Samsung's plant in Vietnam

During a recent official visit to South Korea by Prime Minister Pham Minh Chinh, Samsung Group Chairman Lee Jae Yong pledged to pour more money into Vietnam in the next three years, turning Samsung's factory in Vietnam into the group's largest display module production base globally. This is seen as a very positive signal as there has been recent information that some multinational corporations are looking to shift their investments to other countries.

From the beginning of 2024 to date, total registered foreign direct investment (FDI) in Vietnam has reached over $15 billion, up 13.1 percent over the same period last year. Of this, realized capital has reached $10.84 billion, up 8.2 percent. This is the highest FDI disbursement in the first six months of the year in the past five years.

However, on the other hand, according to the Ministry of Planning and Investment, LG Group has temporarily suspended new investment in a $5 billion electronics manufacturing project and decided to shift its investment to a battery production project in Indonesia after conducting a survey in Vietnam.

Worse, Intel Corporation has shifted investment in a $3 billion chip manufacturing plant to Poland, although the group is currently operating the first phase of a plant in Ho Chi Minh City-based High-Tech Park. Austrian semiconductor group AT&S and Japanese pneumatic company SMC have also announced the suspension or transfer of projects worth hundreds of millions of US dollars, or even billions of US dollars to other countries.

Many economic experts believe that the global minimum tax policy is having a certain impact on the investment plans and choices of many large corporations around the world, especially high-tech corporations.

Preferential policies such as taxes, land rental costs, access to electricity, water, and cheap labor are no longer advantages of Vietnam in competition with many other countries in the region. In some major cities, land rental costs in export processing zones and industrial zones are too high, there is no clean energy source. Plus, although the digital data platform has been formed in the country, it is not connected well while the wage level is much higher than in some countries in the region.

Especially, the greening infrastructure is still weak and insufficient, making it difficult to support businesses in achieving Net Zero goals and practicing ESG (environmental, social, governance) principles while minimizing carbon emissions.

Vietnam must review all businesses and entities affected by global minimum tax policies, determining the scope and direct or indirect impact levels. Additionally, the Vietnamese government needs to study other countries’ approaches to formulate appropriate investment attraction policies in the new context.

An important solution is investing in sustainable development-oriented infrastructure for export processing zones and industrial parks. This infrastructure must incorporate green elements, including new energy technologies, renewable energy, clean production technologies, environmentally friendly practices, sustainable resource utilization, and ecosystem restoration.

Additionally, infrastructure should adopt digital technology platforms and new business models associated with digital technology in service and business activities.

Last but not least, Vietnam should also promptly establish specialized industrial zones that attract investment, fully integrated into the supply chain of FDI enterprises producing end products. Properly trained human resources to meet international standards for foreign businesses is also crucial for attracting investors.

In recent years, Vietnam has implemented open policies and incentives that have successfully attracted high-quality foreign investors, greatly contributing to the country’s development. However, the country now should adopt a new approach through a ‘give and take’ policy which means that the government will provide incentives to foreign investors while requiring technology transfer to domestic enterprises.

Ultimately, the highest goal of attracting foreign investment is not only to address employment needs but also to enable Vietnamese businesses to access and keep pace with global scientific and technological advancements. This effort also strengthens the national economic resilience.

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