Top 10 Reasons Why You Should Invest in Vietnam: A Guide to the Opportunities and Challenges

Why Invest in Vietnam?

Vietnam is a key developing and highly productive nation in Southeast Asia, with a young, dynamic, and digitally savvy population. It has been one of the fastest-growing economies in the world, achieving remarkable progress in poverty reduction, human development, and social inclusion. Vietnam also offers a favorable business environment, with low corporate taxes, an abundant labor force, and a strategic location for trade and investment.

In this article, we will explore the reasons and benefits of investing in Vietnam, as well as the challenges and risks that investors need to be aware of.

Understanding Vietnam’s Market

Vietnam is a dynamic and fast-growing country in Southeast Asia, with many opportunities and benefits for investors:

• Vietnam has a population of more than 96 million people, with a median age of 30, making it one of the largest and youngest consumer markets in the region.
• Vietnam’s GDP growth was 8.0% in 2022, exceeding its average rate of 7.1% from 2016 to 2019. Despite the impact of the COVID-19 pandemic, Vietnam still managed a 2.9% rise in GDP in 2020 and is expected to rebound to 6.3% in 2023 and 8.0% in 2024.
• Vietnam’s services sector accounted for 45.5% of GDP and employed 35% of the workforce in 2020.
• Vietnam’s digital advertising market alone is worth $301 million and is expected to double by 2025.
• Vietnam has the 5th highest internet penetration rate in Southeast Asia, trailing only Singapore and Thailand.

However, Vietnam also faces some challenges and risks that may affect its market potential and attractiveness. Some of these include:

• Corruption and bureaucracy: Vietnam still has a high level of corruption in the public sector, ranking 87 out of 180 countries in 2021. Investors may face unclear and inconsistent government rules, unexpected taxes, complex land issues, and long approval processes.
• Infrastructure and human capital gaps: Vietnam’s infrastructure is not keeping up with its economic growth, causing problems in transport, energy, water, and telecoms. Vietnam also lacks skilled workers, especially in high-tech and service sectors, and has a mismatch between education and jobs.
• External and environmental shocks: Vietnam’s economy relies heavily on trade and investment, making it sensitive to global changes and uncertainties, such as the US-China trade war, the COVID-19 pandemic, and the rising protectionism in some markets. Vietnam is also very vulnerable to climate change, which can harm its agriculture, fisheries, tourism, and urban development.

Before investing in Vietnam, you need to do your homework, understand the market, and find the next investment projects, right partners and strategies. In the next section, we will discuss some of the key sectors and industries for your investment projects in Vietnam.

Investment Opportunities in Vietnam

Vietnam is a rising star in Southeast Asia, attracting foreign investors with its stable politics, favorable business environment, rich natural resources, and young, dynamic population. The country offers diverse opportunities across various sectors, such as manufacturing, renewable energy, technology, real estate, and stock market.

• Manufacturing is a key driver of Vietnam’s economy, as the country has become a global hub for producing electronics, textiles, footwear, and furniture. Vietnam’s strategic location, low-cost labor, skilled workforce, and trade agreements with major markets give it a competitive edge in this sector.
• Renewable energy is another promising sector in Vietnam, as the country aims to increase its share of clean energy by 2045. Vietnam has abundant potential for solar, wind, hydro, and biomass power generation, and the government supports this development with incentives such as feed-in tariffs and tax exemptions.
• Technology is a booming sector in Vietnam, fueled by internet growth, e-commerce, and digital transformation. The country has a large pool of tech talent and a vibrant startup ecosystem. Government initiatives also support tech innovation, making Vietnam an attractive destination for investors, including tech giants like Google and Microsoft.
• Real estate is a dynamic sector in Vietnam, with strong demand across residential, office, and industrial segments. Despite the impact of COVID-19, the sector remains resilient, drawing significant investment from both domestic and foreign sources. Foreign investors face some restrictions, but they can benefit from the country’s rapid urbanization and economic integration.
• Stock market is a burgeoning sector in Vietnam, offering diverse investment opportunities for foreign investors. They can trade in stocks, bonds, and ETFs, although there are some regulatory limitations. The market’s growth, reform initiatives, and potential for MSCI Emerging Markets Index inclusion make it attractive for international investors.

Top 10 Reasons Why Invest in Vietnam

Rapid Economic Growth

Vietnam is one of the fastest-growing economies in the world, with an average GDP growth rate of 7.1% from 2016 to 2019. Despite the impact of the COVID-19 pandemic, Vietnam still managed to achieve a positive growth of 2.9% in 2020 and is expected to rebound to 6.3% in 2023 and 8.0% in 2024.

Vietnam’s economy is on a strong growth trajectory, buoyed by several key factors:

• A resilient manufacturing sector.
• Strong domestic demand.
• Diverse export markets.
• Effective health crisis management.
• Participation in major free trade agreements like the CPTPP and EVFTA, boosting global market access and foreign investment.

These factors collectively make Vietnam an attractive and resilient destination for investors, offering a promising environment for business growth and development.

Favorable Demographics

Vietnam has a population of more than 96 million people, with a median age of 30, making it one of the largest and youngest consumer markets in the region.

Vietnam’s middle class is also expanding rapidly, with an estimated 26 million people in 2020 and a projected 44 million people by 2030. These consumers have a high disposable income and a strong preference for quality goods and services, especially in sectors such as education, health, entertainment, tourism, e-commerce, and digital technology.

Vietnam also has a high internet penetration rate, with 70% of the population using the internet and 67% using smartphones in 2020. This creates a huge potential for online businesses and digital platforms to reach and engage with Vietnamese consumers.

Strategic Location

Vietnam is actively strengthening its position in global trade and manufacturing by leveraging its strategic location in Southeast Asia and investing in robust infrastructure development.

Key Aspects of Vietnam’s Strategic Position and Infrastructure:

• Geographical Advantage: Vietnam’s shared borders with China, Laos, and Cambodia contribute to robust regional links. The extensive coastline plays a pivotal role in facilitating maritime trade.
• Regional Integration and Cooperation: Vietnam actively participates in the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP). These partnerships enable smoother trade and the movement of goods, services, and resources within the region.
• Comprehensive Infrastructure Network: Vietnam has invested in a comprehensive infrastructure network that includes roads, railways, airports, seaports, and industrial zones. This infrastructure supports efficient transportation and logistics, which are crucial for domestic and international trade.
• Global Manufacturing Influence: Vietnam specializes in sectors such as electronics, textiles, footwear, and furniture. The country plays an integral role in global value chains, attracting international investors. Additionally, Vietnam is emerging as an alternative manufacturing location for businesses diversifying from China.

By capitalizing on its strategic location, investing in infrastructure, fostering regional integration, and developing key sectors, Vietnam is actively positioning itself as a significant player in global trade and manufacturing.

Progressive Trade Agreements

Vietnam is a signatory to several major trade agreements that enhance its market access and investment attractiveness. These include:

• CPTPP: Vietnam is a signatory to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement among 11 countries in the Asia-Pacific region. The CPTPP provides Vietnam with preferential access to large and dynamic markets, attracting foreign investment, technology transfer, and participation in global value chains. According to the World Bank, the CPTPP could increase Vietnam’s GDP by 1.3 percentage points by 2030.
• EVFTA: Vietnam has entered into the EU-Vietnam Free Trade Agreement (EVFTA), a comprehensive trade and investment agreement with the European Union. The EVFTA eliminates tariffs on 99% of goods traded between Vietnam and the EU over a period of up to 10 years. It also addresses non-tariff barriers, enhances protection for intellectual property, public procurement, labor, and the environment. The EVFTA is expected to significantly boost Vietnam’s exports to the EU, particularly in sectors such as textiles, footwear, agriculture, and electronics, and contribute to an estimated 15% increase in Vietnam’s GDP by 2030.
• RCEP: Vietnam is a member of the Regional Comprehensive Economic Partnership (RCEP), a mega-regional trade agreement among 15 countries in Asia and the Pacific. The RCEP creates the world’s largest free trade area, accounting for about 30% of global GDP and trade, and offers Vietnam benefits such as tariff elimination or reduction, rules of origin harmonization, market access expansion, and regional integration.

These trade agreements provide Vietnam with increased market access, reduced trade barriers, and opportunities for economic growth. By leveraging them, Vietnam aims to enhance its position in global trade and attract more foreign investment.

Government Incentives for Investors

The Vietnamese government offers various tax incentives for foreign investors to promote investment in sectors or areas that align with the national development strategies. These incentives include:

• Corporate income tax (CIT) incentives, such as preferential tax rates, tax holidays, and tax exemptions or reductions. The standard CIT rate in Vietnam is 20%, but some projects can enjoy lower rates of 10%, 15%, or 17% for a certain period of time or throughout the project execution. Some projects can also qualify for tax holidays, where they do not have to pay CIT for a certain period, usually four years, followed by a partial tax holiday, where they only pay 50% of the payable tax. The CIT incentives are granted based on the sector, location, and size of investment of the project.
• Import duty incentives, such as exemption or reduction of import duties on goods imported as fixed assets, raw materials, supplies, and parts used for the project. The import duty incentives are also granted based on the sector, location, and size of investment of the project.
• Land rent and levy incentives, such as exemption or reduction of land rents and levies, are provided for projects located in specific areas or sectors encouraged for investment. These incentives are determined by provincial authorities based on the land use plan and the investment policy of the project.

Robust Foreign Direct Investment Environment

Vietnam has attracted a lot of foreign direct investment (FDI) in recent years thanks to its stability, business friendliness, natural resources, and young population.

According to the Foreign Investment Agency, Vietnam attracted US$19.74 billion of FDI in 2021, a remarkable achievement to attract investment even amid the COVID-19 pandemic. This figure is only slightly lower (by 1.2%) compared to the FDI received in 2020, highlighting Vietnam’s resilience as an investment destination during a global crisis.

Key points to note:

• The FDI originated from 112 different countries and territories.
• Leading investors included Singapore, South Korea, Denmark, and China.
• Investment was primarily focused on sectors such as manufacturing, electricity, real estate, and wholesale and retail.

Additionally, FDI disbursement in 2021 amounted to $22.5 billion, reflecting a 7.8% increase from the previous year. This rise in disbursement underscores the growing confidence and commitment of foreign investors in Vietnam’s economy.

The FDI has been a key driver of Vietnam’s economic development, boosting the growth, employment, exports, innovation, and competitiveness of the country. According to the World Bank, the FDI sector accounted for 25% of the GDP, 70% of the exports, and 12% of the employment in 2019.

The FDI sector has also helped Vietnam to join the global economy, participate in the global value and supply chains, and access advanced technologies and management practices. The FDI sector has also brought positive spillover effects from foreign investments back to the domestic sector, such as knowledge transfer, skill development, and market expansion.

Developing Infrastructure

Vietnam is significantly investing in its transportation and infrastructure to boost its economic growth and trade integration. Its strategic location in Southeast Asia, with a long coastline and access to major waterways like the Pacific Ocean and the South China Sea, is a key advantage. The country also shares borders with China, Laos, and Cambodia and is close to other countries with major markets, such as Thailand, Indonesia, Malaysia, and Singapore.

Key Elements of Vietnam’s Infrastructure Development:

• Transport Infrastructure: This includes roads, railways, airports, seaports, and industrial zones, essential for the movement of goods, services, and people both domestically and internationally.
• Urban Infrastructure Development: Ongoing projects, including metro systems, bridges, tunnels, and smart cities, are underway to enhance the quality of life and the environment for citizens.
• Investment in Infrastructure: According to the World Bank, Vietnam’s infrastructure spending was 5.7% of its GDP in 2019, higher than the 3.8% average for East Asia and Pacific countries.
• Infrastructure Master Plan for 2021-2030: The government’s plan involves an estimated cost of $43 billion to $65 billion for infrastructure development, including expressways, high-speed rail routes, deepwater ports, and new international airports. The focus is also on renewable energy, digital transformation, and innovation.

The enhancement of transportation and infrastructure is crucial for Vietnam, as it reduces logistics and operating costs, increases connectivity and competitiveness, and attracts more investment, both domestic and foreign.

Vibrant Sectors for Diverse Investments

Vietnam has a diverse and dynamic economy, with several sectors that offer attractive investment opportunities for investors. Some of the most vibrant sectors are technology, manufacturing, and renewable energy.

Technology:

• A rapidly growing market in Southeast Asia.
• High internet and smartphone penetration.
• Varied segments, including e-commerce, fintech, and software development.
• Attracted $861 million in investments in 2020, a 25% increase from 2019.

Manufacturing:

• A global hub, especially in electronics and textiles.
• Contributed over 20% to GDP and 70% to exports.
• Resilient growth, with FDI focusing heavily on this sector.
• Expected to evolve with digital transformation and green initiatives.

Renewable Energy:

• Strong potential in solar and wind power.
• Government support and increasing demand drive growth.
• Renewable energy’s share in the power mix is projected to increase significantly by 2050.
• Requires substantial investment to meet future climate goals.

These sectors illustrate Vietnam’s diverse and robust economic landscape, presenting a wealth of opportunities for growth and investment.

Competitive Labor Market

Vietnam has a low-cost and high-quality workforce, which supports the profitability of foreign investors. According to the World Bank, Vietnam’s average labor cost per employee was US$2,739 in 2018, much lower than the regional and global averages of US$1,992 and US$2,114, respectively. Vietnam’s labor force is also large, young, well-educated, and skilled, especially in technology, manufacturing, and services. Vietnam’s competitive labor market offers a great opportunity for foreign investors who are looking for a productive and efficient workforce, as well as a dynamic consumer market.

However, foreign companies and investors also need to be aware of the challenges and risks of the labor market, such as labor costs, shortages, skill gaps, labor disputes, and labor regulations. Foreign investors need to adopt effective human resource strategies to attract, retain, and motivate their employees, as well as to comply with the labor laws and standards in Vietnam.

Stable Political and Economic Environment

Vietnam has a stable political system and economic environment that makes it an attractive destination for investors and tourists. Here are some of the main features of Vietnam’s stability and resilience:

• Political stability: Vietnam is a one-party state ruled by the Communist Party of Vietnam (CPV), which provides strategic direction and decides all major policy issues. Vietnam has maintained political stability and social order without significant threats to the regime or national security. Vietnam also has a good relationship with most of its neighbors and partners and participates actively in regional and international cooperation.
• Economic resilience: Vietnam swiftly contained the COVID-19 pandemic through decisive measures and provided timely fiscal and monetary support to mitigate its economic impact. As a result, Vietnam’s economy grew by 2.9% in 2020, one of the highest growth rates globally, and is projected to grow by 6.5% in 2021. Vietnam’s economic resilience is supported by diversified export markets, a competitive labor force, robust foreign investment, and low public debt.

Vietnam has a stable and resilient environment that supports its long-term growth and prosperity. Its political stability provides consistent policies and social harmony, while its economic resilience ensures potential and competitiveness. Its stable environment also gives it a positive image and reputation, which can draw more visitors and investors.

Conclusion: Why Vietnam is a Worthy Investment Destination

Vietnam is an attractive and profitable destination for your investment, with a friendly business environment, a skilled and affordable labor force, and a strategic location for trade and investment.

However, before investing in Vietnam, you need to research the market, understand the opportunities and challenges, and find the right partners and strategies. We hope that this report has given you some helpful information and insights to help you make a smart decision. We urge you to consider Vietnam as your next investment destination, and we are eager to work with you in the future.

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