In the face of global economic uncertainties, the Vietnamese economy still maintains stability, attracting a remarkable $36.6 billion in foreign direct investment (FDI) in the year 2023.

Despite the challenges posed by the global economic downturn, FDI experienced a robust 32.1% increase compared to the previous year, demonstrating the resilience of Vietnam’s economy.

According to the Foreign Investment Department (Ministry of Planning and Investment), the recovery of foreign investment capital flows into Vietnam in the last months of the year has caused this capital flow in 2023 to increase sharply compared to 2022.

As of December 20, 2023, the total registered FDI in Vietnam reached nearly $36.61 billion, marking a substantial 32.1% increase from the same period the previous year. Additionally, the realized capital of foreign-invested projects reached approximately $23.18 billion, a 3.5% increase compared to 2022 and setting a record-high disbursement level.

Breaking down the FDI figures, within the total registered investment of $36.6 billion, newly registered capital reached almost $20.19 billion, reflecting a remarkable 62.2% increase. The number of newly registered projects also reached 3,188 projects, an increase of 56.6%.

Apart from newly registered capital, 2023 also saw 1,262 projects registering adjustments to their investment capital, a 14% increase from the previous year. Although the total investment capital in these adjusted projects increased by over $7.88 billion, it marked a 22.1% decrease compared to the corresponding period of 2022.

In terms of investment channels, FDI through capital contribution and share purchase reached over $8.5 billion, representing a substantial 65.7% increase from the previous year. Despite a slight decrease in the number of transactions (3,451 transactions, down by 3.2% compared to the same period of 2022), the increased capital contribution highlights the growing confidence of investors.

The Foreign Investment Agency, in its assessment of the FDI landscape in Vietnam in 2023, emphasized the role of the government, the Prime Minister, and the close coordination with various ministries and localities in actively addressing and removing legal obstacles hindering investment and business operations. This proactive approach has proven effective in stabilizing businesses, improving production and business activities, and fostering continued investment.

The substantial increase in newly registered capital further indicates that Vietnam remains a secure and attractive destination for investors. Despite a reduction in adjusted investment capital, the improved rate of decrease suggests sustained investor confidence in the long-term business prospects in Vietnam.

Examining the sectors of investment, foreign investors in 2023 participated in 18 out of the total 21 national economic sectors. The processing and manufacturing industry led the way, attracting over $23.5 billion in investment, accounting for 64.2% of the total registered capital and a 39.9% increase from the previous year. The real estate business sector followed with nearly $4.67 billion in total investment, representing over 12.7% of the total registered capital and a 4.8% increase.

Other sectors such as electricity production and distribution and finance and banking secured the third and fourth positions, registering total registered capital of over $2.37 billion (a 4.9% increase) and nearly $1.56 billion (an almost 27-fold increase), respectively.

In terms of investing countries, 111 countries and territories invested in Vietnam in 2023. Singapore led the way with over $6.8 billion in total investment, comprising 18.6% of the total investment in Vietnam and a 5.4% increase from 2022. Japan came in second with nearly $6.57 billion, representing over 17.9% of the total investment and a remarkable 37.3% increase from the previous year.

Following closely, Hong Kong claimed the third spot with registered capital exceeding $4.68 billion, accounting for almost 12.8% of the total investment and doubling compared to the same period. China, South Korea, Taiwan, and other countries occupied subsequent positions.

Analyzing the number of projects, China took the lead in new project registrations, accounting for 22.2% of the total. South Korea led in the number of projects adjusting investment capital (25.9%) and capital contribution through share purchase (27.8%).

Vietnam’s impressive FDI performance in 2023 not only demonstrates its resilience in the face of global economic challenges but also underscores its attractiveness as an investment destination. As the government continues to actively support and facilitate foreign investment, Vietnam is ready to maintain its momentum and emerge as a key player in the global economic landscape.

ASL LAW is the top-tier Vietnam law firm for in-depth legal advice in Vietnam and internationally. If you need any advice, please contact us for further information or collaboration.

CONTACT

Your infomation

(Published on VIR’s website) With positive signals in real estate and technology-related merger and acquisition (M&A) deals in the latter part of 2023 and policy changes aimed at attracting foreign investments, the Vietnamese M&A market is expected to recover and thrive in 2024. Explaining more is ASL Law’s managing partner Pham Duy Khuong and senior partner Nguyen Thi Thuy Chung.

With the global economy’s uncertainty and escalating political tensions alongside the unfavorable closure of the M&A market in 2022, activities in 2023 have not been as dynamic and vigorous as anticipated. Data indicates that the volume of M&A transactions in 2023 has even fallen below the levels of 2022.

Global M&A transaction volume in the first half of 2023 – encompassing various types of transactions such as minority stakes and venture capital rounds – continued to decrease compared to last year after the record-breaking activity of 2021. The total global M&A transaction volume in 2023 up to Q3 ($1.95 trillion) was nearly $1 trillion lower than the same period in 2022 ($2.91 trillion) and marked the third-lowest total value since 2013 ($1.77 trillion).

Consequently, the recorded number of transactions in various regions reflected declining M&A transaction volumes as a global trend, with major markets witnessing similar substantial declines: North America decreased by 37 percent, Europe by 55 percent, and Southeast Asia by 40 percent.

Overall, this decline was primarily due to a reduction in the number of large transactions, significantly lower than both the pandemic level and the regional averages of previous years.

Among the total deals in the first seven months, as per statistics from EY-Parthenon, the real estate sector held the highest proportion, led by construction and followed by financial services and consumer services. Notably, the number of real estate and construction deals was nearly double that of the second-ranked sector.

With a total transaction value of $1.4 billion in the first seven months of 2023, the industrial real estate sector drew the most attention from foreign investors, signaling a recovery in the real estate market. This attention was due to advantages in favorable pricing and stable values; as well as policies showing positive signals in efforts to improve the legal framework related directly to M&A projects.

Additionally, the recovery in industrial production has been one of the reasons for the growth in M&A transactions in the industrial real estate sector.

Meanwhile, Vietnam is undergoing a digital transformation, with the government building a national database and digitalizing population data. In the private sector, banks are aggressively promoting digital banking services.

Moreover, the high internet usage rate and extensive application of technology in core financial services and banking offer significant advantages. This aids the development of the e-commerce market, positioning Vietnam as an up-and-coming market in the region. The visual indices regarding the country’s internet and e-commerce below demonstrate its considerable potential in e-commerce within the region, reflecting a highly progressive trend in consumer behavior within e-commerce.

Impacts of current events

Concerning market access and policy support, a pivotal aspect of the comprehensive strategic partnership between Vietnam and the United States is Vietnam’s proposal for the US to consider recognizing its market economy status.

This is anticipated to impact the M&A market significantly. It will strengthen trade and investment cooperation by further opening the market for Vietnam’s key products, suggesting the potential application of the Generalised System of Preferences for tariff preferences. The US also commits not to employ trade defense measures.

Collaboration will also be prioritised in fields such as science and technology, innovation, education, climate change mitigation, and renewable energy. In terms of development and infrastructure support, the US pledges to enhance assistance to Vietnam in manufacturing, developing high-quality physical and digital infrastructure, and achieving equitable energy transition.

The US International Development Finance Corporation will continue providing financial support for relevant ventures, which could aid enterprises in expanding their scale and business capabilities during M&A transactions.

Meanwhile, the Russia-Ukraine conflict has affected trade and investment activities due to sanctions against Russia. Actions like blocking Russia’s financial system SWIFT have impacted Russian projects using the Euro currency in Vietnam, potentially reducing M&A activities Russia might engage in.

The conflict has caused supply chain disruptions, leading to halted orders for many Vietnamese export businesses and disruptions in raw material supplies, resulting in delays in payment methods.

In addition, the rise in prices of certain fuel and production-related raw materials has increased pressure on global inflation. Companies involved in M&A might face delays in project implementation and contract execution due to unstable transportation and logistics caused by higher freight charges.

Meanwhile, the conflict between Israel and Hamas has resulted in a disruption of trade and investment relations, intensifying economic defensive measures. Political conflicts often lead to increased economic defensiveness due to concerns about reduced overall consumer demand. This affects Vietnam’s exports, potentially decreasing income from foreign sales.

Additionally, the global rise in oil prices affects finance and banking, posing significant challenges for the State Bank of Vietnam due to defensive psychology and leading to the hoarding of valuable assets such as USD and gold.

Furthermore, supply chain disruptions and impacts on energy sources, particularly oil, are notable. This disrupts the movement in supply chains and international investments, impacting investments from European and American countries and facing difficulties expanding cooperation with Arab nations.

Predictions for 2024

Next year, Vietnam is poised to continue attracting overseas funding due to sustained economic growth, a high-quality workforce, and being a focal point in the transition of investment flows from China. Vietnam has become one of the world’s attractive investment destinations with advantages in a young population, impressive economic growth rates, and an increasing number of consumers.

In recent years, Vietnam has attracted investments from various Asian markets such as Japan, South Korea, Singapore, Thailand, and China, while receiving relatively less investment from Europe and North/South America.

In terms of sectors, attention may be directed towards real estate and construction, energy, consumer goods, and industrial manufacturing in the coming year.

Policy-wise, modifications to regulations directly governing M&A transactions in this sector, including the laws on land, real estate business, and housing, are expected in 2024. A clear legal framework is considered crucial, reducing risk appetite and enhancing the attractiveness of M&A deals in this sector.

Despite the overall market downturn due to the pandemic’s impact, signs of recovery are emerging, and lower bank interest rates are contributing to a heating up of the real estate market. Concurrently, with the development and potential of industrial production, industrial real estate is likely to continue garnering significant attention in investment opportunities.

In the energy sector, renewable energy is a potential market amidst global climate change. There is a national action program to perfect policies and laws to promote responsible business practices in Vietnam towards the 2027 period, with one of the tasks to improve the legal framework on the environment by 2025.

The Law on Environmental Protection has also come into effect with new provisions, such as the introduction of a carbon trading floor to be tested in 2025 and officially implemented in 2028.

Over 1,900 Vietnamese enterprises are required to undergo greenhouse gas inventory procedures and report annually. These are new regulations and businesses are currently undergoing training to comply, indicating a significant policy-driven potential for market development and investment attraction.

In the consumer goods and industrial manufacturing sector, the vigorous digital transformation of both the public and private sectors in Vietnam, along with the rapid adaptation of the population to these changes, coupled with the high potential for the development of e-commerce, are highly regarded in the region as factors driving the growth of the consumer industry in the foreseeable future.

Industrial manufacturing is expected to benefit from commitments between Vietnam and the US under the comprehensive strategic partnership, commitments related to training support, project funding, as well as Vietnam’s position in the supply chain.

Overall, 2023 witnessed a multitude of challenges for businesses worldwide. Nevertheless, amidst these adversities, the positive indications seen in the M&A market during the third quarter of 2023, driven by shifts in economic, political, and social landscapes, alongside the government’s initiatives to enhance the business environment, inspire confidence in the robust resurgence and expansion of M&A activities in Vietnam in 2024.