Vietnam pushes for high tech as investors pivot from China

Vietnam is positioning itself as an attractive destination for high-tech industries, aiming to draw investments in semiconductor manufacturing, artificial intelligence (AI), and green energy. As global supply chains shift away from China due to the escalating trade war between Beijing and Washington, Vietnam has emerged as a reliable manufacturing center. Major corporations like Samsung and Foxconn have established operations in the country, further strengthening Vietnam’s strategic role.

However, Vietnam still faces challenges in attracting high-value investments in high-tech sectors. Issues such as a shortage of skilled labor, concerns about energy supply stability, and competition from other Southeast Asian nations like Malaysia have made some investors cautious. To overcome these barriers, Vietnam is studying new incentive policies designed to attract technology-focused companies.

According to Do Nhat Hoang, Director of the Foreign Investment Agency, proposed policies include reducing land lease costs, cutting corporate taxes, and waiving import-export duties. Hoang noted that “tens of billions of dollars” in potential investments are currently under negotiation. While he did not disclose specific companies, recent visits by Apple CEO Tim Cook and Nvidia CEO Jensen Huang highlight increasing interest in Vietnam’s technological potential. To further boost its appeal, the government is developing an investment support fund that offers cash grants or cost-based incentives for high-tech projects. These measures aim to offset the effects of the new global minimum tax rate of 15%, which has reduced the attractiveness of previous tax breaks.

A skilled workforce is a crucial factor for the development of high-tech industries. Vietnam is prioritizing partnerships with universities and multinational corporations to enhance technical expertise, particularly in engineering and technology fields. Hoang emphasized the importance of expediting administrative procedures to meet the demands of large-scale high-tech projects. Simplifying licensing and registration processes will help Vietnam compete more effectively in the race for international capital.

Energy supply stability is another pressing issue. Last year, power outages in northern Vietnam disrupted manufacturing operations, raising concerns about the country’s ability to meet the energy needs of energy-intensive industries like semiconductor production. However, recent developments, including new power plants and improved transmission infrastructure, have stabilized energy supplies. The government has also implemented a policy allowing some businesses to purchase electricity directly from renewable energy producers, such as solar and wind farms. These initiatives are expected to reassure investors that Vietnam can meet their energy requirements.

Vietnam’s attractiveness as an investment destination is reflected in its strong foreign direct investment (FDI) performance. In 2022, registered FDI increased by nearly 30% to $36.6 billion, with $23.2 billion disbursed—a record high. The government is confident of maintaining this growth trajectory, projecting annual FDI inflows of $40 billion or more over the next five years. A significant portion of these investments is expected to focus on high-tech sectors, as Vietnam seeks to diversify beyond traditional manufacturing.

To sustain this momentum, Vietnam must transition from low-cost manufacturing to higher-value production. HSBC analysts have stressed the importance of moving up the manufacturing value chain by increasing domestic value-added content in goods. This transformation requires proactive steps such as fostering technical upskilling and improving infrastructure. By doing so, Vietnam can secure a larger share of value within global supply chains.

Vietnam’s efforts to attract high-tech investments come amid internal challenges. A large-scale anti-corruption campaign in recent years has slowed government activity, with hundreds of officials arrested and top leadership reshuffled. This has created some uncertainty for investors, although the government is working to restore confidence through reforms and streamlined processes.

Despite these challenges, Vietnam remains a promising destination for technology investments. Its strategic location, competitive labor costs, and openness to innovation make it an appealing option for companies looking to diversify their supply chains. Proactive government measures to address investor concerns, including infrastructure improvements and enhanced incentives, are expected to further strengthen Vietnam’s appeal.

Visits by global tech leaders and strong FDI inflows underscore Vietnam’s potential to become a hub for high-tech industries. While the journey to becoming a leading destination for advanced manufacturing and technology will require significant effort, Vietnam’s strategic reforms and commitment to innovation signal a bright future for its economy.

Source: Financial Times