HCMC City Attracts US$ 2.15 billion FDI in Six Months

June 30, 2017 Posted by Vietnam Briefing Reading Time: 5 minutes

By: Dezan Shira & Associates
Editor: Koushan Das

In the first half of 2017, the city has attracted US$2.15 billion in foreign direct investment (FDI), double the amount from the same period last year. Major sectors that attracted investments include the processing and manufacturing sector, followed closely by wholesale and retail. Other sectors include automobile and motorbike maintenance businesses along with the information and communications industry. Looking forward, investment into the city will continue to surpass previous levels, driven by growing working age population, investor friendly policies, and slow but steady transition to high-value manufacturing.

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FDI inflows

South Korea is the largest investor, accounting for 26.9 percent of the total FDI. Japan accounted for 14.1 percent, followed closely by Malaysia at 12.1 percent and Singapore at 11.1 percent.

The city attracted 340 new projects amounting to US$ 375 million, while US$ 346 million is being invested in 91 existing projects. The city’s robust processing and manufacturing sector attracted 33.1 percent or US$ 124 million of the total FDI, while wholesale and retail, and automobile and motorbike maintenance businesses attracted 29.4 percent or US$ 110 million of the total FDI. The information and communications industry attracted US$ 56.23 million or 15 percent of the total FDI.

Much of the FDI was in the form of capital contribution and share buying deals by foreign investors that accounted for a total of US$1.15 billion.

Ho Chi Minh’s economy

In the first half of 2017, the city achieved a growth of 7.68 percent, up from 7.47 percent a year earlier. In the first six months, 18,030 new companies with total registered capital of VND 492.7 trillion (US$21.8 billion) were issued licenses, more than twice the number in the same period last year. This has led to an increase in jobs and city’s revenues by 18 percent to VND 147.5 trillion ($6.6 billion).

Key industries such as engineering and automation, electronics, chemicals, rubber, plastics, and food processing continue to grow at nearly 9.72 percent, driven by exports and investment in technology to further productivity and competitiveness. Services and retail sales grew by 10.3 percent, while industrial output rose by 7.5 percent.

FDI opportunities

The growing middle class, low cost labor pool, and young population, coupled with rise in disposable income and spending patterns, will continue to offer compelling opportunities for investors in retail, e-commerce, food processing, and electronics industry to capitalize on the growing local consumption.

Investment friendly regulations and tax benefits such as lower corporate income tax, import duty exemptions, SEZ benefits, and reduction of land rental or land use taxes provides ample opportunities to investors especially in high-tech and healthcare sectors. Already companies such as Samsung, LG, Toyota, Honda, and Canon have selected Vietnam as a manufacturing base.

Opportunities also prevail in the infrastructure sector. With the economy booming, the city is planning to invest heavily in infrastructure projects mainly through Public Private Partnerships (PPP). The city has established a public-private partnership (PPP) board to attract more capital to infrastructure development, as it needs VND850 trillion ($37.4 billion) from 2016 to 2020, while it can only fund 20 per cent. Under the PPP model, incentives are being offered in seven specific programs: human resource development, administrative reform, growth quality, competitiveness improvement, traffic congestion and flooding control, and cityscape rehabilitation.

Looking forward

Ho Chi Minh City’s upward trajectory looks set to continue, driven by a growing middle class, increase spending, and policy reforms. The favorable demographics, expanding consumer market, and increasing FDI in the last few years has pushed the city’s rankings to the second spot in the 2017 JLL City Momentum Index, which tracks the rate of change of a city’s economy.

To ensure a sustainable growth, the city needs to move towards high-value and technology-based activities, which are currently at a nascent stage. The city also needs to focus on establishing stronger higher-education institutions, to ensure a high-skilled workforce. To further support the economy, investment in infrastructure projects has to increase. Foreign investors usually stay away from such projects due to lack of transparency, but ongoing reforms and incentives are trying to provide a conducive environment for investors.

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