The increasing amount of inward foreign direct investment (FDI) in Vietnam signals a continued bright future for the investment source after Vietnam integrates even more deeply into the global economy through free trade agreements (FTAs).

The latest figures from the Foreign Investment Agency at the Ministry of Planning and Investment (MPI) show that in the first two months of 2016 Vietnam attracted more than $2.8 billion in FDI, up 135 per cent year-on-year. Disbursed FDI capital stood at $1.5 billion, up 15.4 per cent year-on-year.

Notably, foreign investors poured $1.9 billion into 291 newly-registered FDI projects, for an increase of 167.5 per cent in capital and 96.6 per cent in the projects numbers, respectively, while $898.3 million in additional capital came from 137 existing projects. “FDI is increasing in all indicators,” the MPI noted in a report. “This is a good sign for 2016 and we hope this year will mark a breakthrough in foreign investment inflows.”

FDI inflows usually slow down or even decline in the first quarter of a year but the opposite has been seen this year. Professor Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises, described this as the start of a third wave of foreign investment to the country. “The first occurred after the US lifted its embargo on Vietnam, and the second was after the country’s joined the WTO,” she said. “This third wave comes on the back of Vietnam signing a number of FTAs in 2015, opening up to foreign investors.”

FTAs include the Vietnam - Korea FTA (VKFTA) and the EU - Vietnam FTA (EVFTA), together with the TPP. Though Vietnam had already signed nearly ten FTAs, analysts and foreign investors believe the latest agreements are more advanced and comprehensive and provide investors with huge opportunities and better protection.

Government leaders have also noted they wish to see more FDI flowing into the country to cover capital shortfalls from the State budget and the domestic private sector. “Attracting FDI has always been crucial in Vietnam,” according to Minister of Planning and Investment Bui Quang Vinh. “Vietnam already has many comparative advantages and a strong investment climate and we are working hard to become even more appealing to foreign investors, by vigorously renovating the business and investment climate and by integrating deeply into the global economy.”

Investors’ response

Samsung is often mentioned in any discussion on foreign investment in Vietnam. The South Korean electronics giant has invested around $14 billion in the country, building three mega electronics manufacturing complexes in northern Thai Nguyen and Bac Ninh provinces and in Ho Chi Minh City. It is also set to build a $300 million research and development (R&D) center in Hanoi and has announced multi-billion dollar investments in other sectors such as energy and shipbuilding.

Samsung will soon no longer be alone, as its rival - the California-based technology giant Apple - responded to the call of the Vietnamese Government by considering to conduct a $1 billion investment in the country.

A source from MPI said that Apple will build a data center and an R&D center to serve its businesses throughout Asia. If the project comes to pass it will be Apple’s first in Vietnam. Its presence would boost Vietnam’s profile as a global investment destination even further and promote the country’s advantages in low-cost but quality workforce and investment safety and stability.

Apart from Apple, others are also negotiating with State authorities over investments. Hong Kong’s Hutchison Asia Telecommunications and a local partner, Hanoi Telecom, the joint owners of the mobile phone service Vietnamobile, are said to be adding $210 million to expand their business in Vietnam. Meanwhile, the Global Telecommunications Corporation, the owner of Gmobile, is considering joining hands with an unnamed foreign partner to inject an additional $2 billion in investment in Vietnam.

Though two important trade agreements, the EVFTA and the TPP, are still to come into effect, no foreign companies wants to be a latecomer to Vietnam at this point in time.

“We called for investment and the response from foreign investors has been very positive,” said Mr. Tran Duy Dong, General Director of Economic Zones Management Department at MPI. “Foreign investors that have come here to discuss future investments all say they foresee a bright outlook for the economy given the new FTAs.” Mr. Dong, who is responsible of calling for foreign investment into economic zones and industrial parks around the country, added that foreign investors feel the FTAs provide them with full protection.

Mr. Chang Bok Sang, President and CEO of CJ Vietnam, a subsidiary of South Korea’s CJ Group, said the deeper Vietnam integrates into global economy the higher its growth will be. Economic growth, in turn, generates more opportunities for companies like CJ. In March, CJ Vietnam announced plans to invest an additional $500 million in the country to seize the growing opportunities, raising its total investment to $900 million, with the new funds to go to agriculture, industrial manufacturing, and entertainment projects.

Key drivers

A great many foreign companies believe that Vietnam is among the best places for investment in Asia because of its low costs, high economic growth, young population, and stability. These factors existed, of course, in the past, so why have companies like Apple, CJ, and Nestle, which has just started a $70 million dairy plant in northern Hung Yen province, chosen now to make their investments? Why this third wave of FDI?

Mr. Glenn Maguire, Chief Economist with the ANZ Banking Group for South, Southeast Asia and Pacific, said the new FTAs Vietnam has signed provide confidence and trust among foreign investors and lift the country to a higher competitive level against others in the region.

He has met many foreign investors, he said, who have adopted a wait-and-see approach to investment plans in Vietnam for a few years. Now, though, everything seems clearer and there is no reason for them to retain such an attitude.

Professor Mai said that when joining these advanced FTAs, which include serious commitments on investment and the opening up of markets, Vietnam had to restructure its business climate and this is what many foreign investors have been waiting for.

A number of foreign enterprises have also decided to expand their investment in Vietnam because of the expanding market and the higher earnings to be made. A report from the Japan External Trade Organization (JETRO) released in February showed that roughly 64 per cent of Japanese companies operating in Vietnam plan to expand their operations over the coming year. The survey indicates the main reason companies are confident about expanding operations is that 85 per cent reported revenue growth over the past year and are optimistic about further growth in 2016.