HCMC’s poor infrastructure unattractive to FDI

Ho Chi Minh City is experiencing a decline in foreign direct investment as its limited supply of land and outdated infrastructure make the economic hub less attractive than competing localities.

Some $979.6 million in FDI reached Vietnam’s largest city in the first four months of this year, down 23.4% year-on-year.

Last year HCMC saw its FDI value drop nearly 49% year-on-year to $4.33 billion.

Ngo Ngoc Vinh, head the University of Economics Ho Chi Minh City’s Institute of Development Economic Research, said the southern metro had for years been Vietnam’s leader in drawing oversees capital.

Thus, he argued, the FDI attraction slowdown needed to be seriously evaluated.

The figures also concerned other analysts.

“Does the city have what strategic investors need? Are their requirements fulfilled, both in terms of soft and hard infrastructure?” asked Ngo Nghi Cuong, CEO of investment consultancy firm C+, at a forum last week.

Phuc Nguyen, a lawyer specializing in HCMC investment counseling, said that the city’s advantages were declining over time.

“Investors used think of Ho Chi Minh City first when they wanted to invest in Vietnam, but now they are increasingly choosing northern localities.”

Aside from U.S. tech giant Intel and its accumulated investment of over $1.5 billion to date, HCMC has managed to attract only one other massive multinational investor in South Korea’s Samsung, which increased investment in its HCMC CE Complex to to $841 million last year.

Although HCMC has remained one of Vietnam’s top FDI attracting localities in recent years, data shows that billion-dollar FDI projects are slipping through its fingers.

From 2017 to 2021, the five biggest FDI projects of each year found their way to the northern localities of Thai Nguyen, Bac Ninh, Nam Dinh and Hai Phong, or the HCMC-adjacent southern provinces of Ba Ria – Vung Tau and Binh Duong.

Only in 2019 there were two projects of the top five registered in HCMC. However, both of them had a price tag of less than $1 billion each.

One of the city’s biggest obstacles to attracting more FDI is the outdated transport and service infrastructure in the city and neighboring localities, said HCMC People’s Committee Chairman Phan Van Mai at a government meeting last month.

Another challenge is the metropolis’ dwindling supply of real estate. This year, the Ho Chi Minh City Export Processing and Industrial Zones Authority (HEPZA) had only 41 hectares of land to rent to businesses. But even this figure his was the total combined amount of land in different localities, which means there was not a single land lot big enough to allocate to a large foreign enterprise.

HEPZA is also facing administrative difficulties in accessing 1,500 hectares of land tied up in bureaucratic red tape (delays in land allocation ,site clearance, compensation, relocation, etc).

Lawyer Phuc Nguyen said that the city’s online investment information hub remains outdated and difficult to access.

The southern hub’s Provincial Competitiveness Index tumbled 13 places last year to 27th out of 63 localities in Vietnam.

The city also ranked low on the Provincial Green Index at 49th out of 63 localities, implying that investors are choosing other more environmentally-friendly localities.

A decline in global investment amid economic challenges and geo-political tension also contributed to a drop in FDI attraction for HCMC, said Nguyen Tu Anh, director of the General Department at the Central Economic Commission.

He added that the global minimum tax of 15% on multinational corporations, which is set to come into effect in 2024, will likely make Vietnam even less attractive in drawing in FDI.

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But as Vietnam’s economic leader, HCMC is still setting its sights high.

By 2025, municipal leaders want to bring in over 50 high-tech projects with a total investment of over $3 billion, including at least one globally famous company.

The city also aims for 70% of new investment to come from 17 key countries, including South Korea, Japan, Singapore, China, and the U.S.

To achieve these ambitious targets, the city needs to improve its business environment, including imposing policies that are predictable and easy to understand, and increasing transparency, said Cao Thi Phi Van, deputy director of the HCMC Investment and Trade Promotion Center.

Focusing on e-commerce, software, finance and health systems development will be clutch, she said.

Tu Anh said that the global minimum tax can be both a disadvantage and an advantage, as countries which had been considered “tax avoidance heavens” will fall out of favor and the city can take this opportunity to develop a major financial center attractive to multinationals.

Truong Minh Huy Vu, deputy director of HCMC Institute for Development Studies (HIDS), said that improving the quality of industrial parks will also be important.

HIDS is studying ways to upgrade the quality of five industrial parks in the city.

The city is also studying the possibility of building inter-region infrastructure to expand its supply of industrial land.