The European investment picture in Vietnam is still some way off reaching its potential, but trends indicate forward motion moving through this year and beyond.

The European Chamber of Commerce in Vietnam (EuroCham) will launch its annual whitebook on January 16, providing a comprehensive set of recommendations under the theme of boosting investment in Vietnam towards a green and sustainable economy.

While having strong attention in Vietnam, European investment in Vietnam yet to meet expectations. According to statistics from the Ministry of Planning and Investment, about $2 billion was the total investment of EU member countries in Vietnam in 2023, compared to more than $2.45 billion in 2022.

Administrative and bureaucratic inefficiencies persist as the primary obstacles, despite various pieces of legislation being put into effect over the past five years on improving business environment reform and enhancing competitiveness.

Nevertheless, major ventures continue to be realised or put into motion in Vietnam, led by European groups.

John Cockerill from Belgium is finalising procedures to invest in a high-tech project for the energy industry in the Saigon High-tech Park (SHTP) in Ho Chi Minh City. The company has strengths in manufacturing machinery and industrial solutions in energy, environment, hydrogen, and industrial services.

High-tech and green investment have been among the investment trends among European companies in Vietnam in recent years. In November, BE Semiconductor Industries from the Netherlands was licensed to inject nearly $5 million in the first phase of manufacturing semiconductor equipment components at the SHTP.

In general, the global economic pace has been slow since 2019 due to the pandemic and geopolitical uncertainty. Diversification of supply chains has been a priority for the West and Vietnam is a destination that offers many advantages in the region.

Key sectors for investments continue to be renewable energy, seaports, semiconductors, vehicles, electronics, footwear, textiles, coffee, pharmaceuticals, and food processing.

According to EuroCham, which represents the voice of more than 1,000 businesses, Vietnam’s growing middle class has led to a significant increase in consumer spending. It can expect this trend to continue for decades to come.

European investors are making the most of this trend by investing in food and beverages, retail, fashion, and services, for example. With Vietnam’s skilled workforce and competitive production costs, European investors are also attracted to high-tech manufacturing sectors such as electronics, precision engineering, and advanced materials.

This interest continues to be shown in the Business Confidence Index (BCI) for Q4 of 2023, released early this week. A notable number of businesses express positive sentiment about their performance (increasing from 24 to 32 per cent), and anticipate maintaining this elevated level into the first quarter of 2024 (29 per cent).

The BCI states that while Vietnam’s macroeconomy may not have maintained the robust performance observed in 2022, the country is still seen as an attractive investment destination, with more than 60 per cent of businesses considering it within their top 10 destinations. Additionally, a larger number of businesses anticipated a more substantial increase in their company’s foreign direct investment in Vietnam compared to last year.

Le Net, lawyer at LNT & Partners, admitted that several factors can affect the realisation of expected investment outcomes.

“The most important factor is unpredictable and unstable regulatory issues. The second factor is the environment. Vietnam is notorious for the polluted environment, albeit being a beautiful country, and traffic jams, caused partly by mindsets that can impact investor confidence,” Net said.

“To enhance the attractiveness of the investment environment and encourage more EU investments, Vietnam could consider regulatory reforms, infrastructure development, transparency in rule of law, and more investor protections.”

According to Vaibhav Saxena, lawyer at VILAF, the EU and Vietnam are yet to realise their full potential for bilateral investment and trade.

“This year is expected to revive the economic situation worldwide and we foresee sizable investments flowing from EU member countries into Vietnam,” Saxena said.

Vietnam has already provided a 2 per cent VAT cut until June and is further considering supportive policies to cope up with the global minimum tax regime, he added.

“There seems to be two key areas for consideration: easing admin procedures to support doing business, and encouraging international financing standards with a domestic banking industry blend,” Saxena added.

Vietnam Investment Review