Vietnam Struggles to Attract High-Tech FDI

Despite being viewed as having a rare opportunity to attract high-quality FDI capital in the high-tech sector, spurred by the global supply chain shift, Vietnam has thus far struggled to entice “eagle” FDI enterprises into its market.

Concerning About Unstable Power Supply

In a recent proposal submitted to the Government and relevant agencies, FDI enterprises from the US, EU, Japan, and Korea expressed their keen interest in Vietnam’s electricity supply capacity, both present and future. This interest is particularly pronounced in the context of high-tech manufacturing industries, which rely heavily on substantial and consistent power sources for uninterrupted operation.

Mr. Joseph Uddo, Chairman of the American Chamber of Commerce in Vietnam (AmCham), emphasized that one of the primary requirements for all businesses and prospective investors is the assurance of a stable energy supply and immediate access to renewable energy sources. The maintenance of robust energy systems not only ensures investor access to renewable energy but also enhances the country’s competitive advantage. Therefore, fostering collaboration between the public and private sectors is imperative to develop sustainable power sources. Vietnam stands to attract global financial resources by demonstrating effective energy management practices.

“We encourage continued dialogue between the Ministry of Industry and Trade, Vietnam Electricity, and stakeholders in the private sector, to be able to come up with feasible short- and long-term solutions to meet the needs of energy security, including promoting approval of large-scale liquefied natural gas (LNG) projects to support energy security. Energy infrastructure cannot be established overnight, so planning for Vietnam’s sustainable growth needs to be done now,” recommended Mr. Joseph Uddo.

Echoing Mr. Uddo’s sentiments, Mr. Gabor Fluit, Chairman of the European Chamber of Commerce in Vietnam (EuroCham), also expressed concern about the ability to supply electricity for businesses’ production. According to him, Vietnam should establish a mechanism to regulate the direct supply of energy from renewable energy projects to end users (bypassing EVN and the power grid), facilitated through Direct Power Purchase Agreements (DPPA) between the generator and the end consumer.

In a petition to the Government, Mr. Muto Shiro, Vice President of The Japan Chamber of Commerce and Industry in Vietnam (JCCI), highlighted the severity of the power outage incident in the North last year. He emphasized that numerous businesses faced challenges in making production plans and forecasting delivery dates, significantly impacting the “just in time” model, which is the cornerstone of the supply chain.

Mr. Hong Sun, Chairman of the Korean Business Association (Kocham) in Vietnam, referred to calculated data from the World Bank (WB), revealing that in 2023, Vietnam incurred approximately USD 1.4 billion in losses due to electricity shortages, equivalent to 0.3% of GDP. Consequently, the inadequate power supply serves as a major deterrent for many Korean businesses, particularly high-tech companies, when considering investment in Vietnam.

Concerns Regarding “Inconsistent” Preferential Policies

Representatives of FDI business associations in Vietnam have voiced concerns over the perceived inconsistency in preferential policies. Despite Vietnam’s strong determination to attract high-tech FDI fields such as semiconductors, issues such as the lack of incentives for businesses following the implementation of the global minimum tax, or local electricity shortages in the North, are seen as barriers that diminish Vietnam’s attractiveness to semiconductor businesses.

Chairman KoCham highlighted that as of the beginning of 2024, Vietnam has officially implemented the global minimum tax, set at a rate of 15% for multinational enterprises with a total consolidated revenue of Euro 750 million (approximately USD 800 million) or more over a span of 2 years within the 4 most consecutive years. It is estimated that the government will collect VND 14,600 billion from around 122 foreign investment corporations in Vietnam subject to this tax. However, to date, Vietnam has yet to establish specific regulations regarding the incentives that FDI enterprises will enjoy after applying the aforementioned tax rates. Although the Ministry of Planning and Investment has drafted a Decree outlining incentives for businesses post-implementation of the global minimum tax, the extent of support remains unclear.

Similarly, Mr. Seck Yee Chung, Vice President of the Singapore Chamber of Commerce in Vietnam (SCCV), expressed concerns regarding the narrow scope of support outlined in the draft Decree on the establishment, management, and utilization of the Investment Support Fund. Specifically, the draft targets businesses with investment projects in the high-tech field, requiring investment capital exceeding VND 12,000 billion or annual revenue surpassing VND 20,000 billion. Given these criteria, only a very limited number of businesses are able to meet such thresholds, resulting in a policy that applies to a narrow subset of subjects and fails to adequately represent the broader group of investors in the high-tech sector.

Indeed, it’s crucial for preferential policies aimed at FDI enterprises during their initial investments to be sustained over time. This demonstrates the certainty and consistency of government policy, which is essential for fostering a favorable investment environment and attracting long-term investment commitments. By maintaining such policies, the government can provide reassurance to investors regarding the stability of the business environment and ensure a level playing field for all stakeholders involved in the investment process.

Source: SGGP News