Hanoi – Vietnam's Leading FDI Destination

Vietnam's capital Hanoi has drawn more than US$5.3 billion in foreign direct investment (FDI) projects in the first half of 2019, establishing itself as the country's top FDI destination this year.

Representing 38.4 percent of Vietnam's total FDI inflow in the first quarter of 2019, Hanoi has outpaced the country's financial hub, Ho Chi Minh City, by US$1.57 billion.

Last year, the economic growth of the capital nearly doubled from that of a decade ago, earning a GDP per capita of US$5,134 – a two-fold increase from the figure in 2008. This contributed 16.46 percent to Vietnam's total GDP, while accounting for only one percent of the country's total area and 8.38 percent of the population.

FDI, however, has not always been so bright for Hanoi. Only a decade ago, FDI into the capital plummeted when it merged with its neighbor, Ha Tay province. The city's leaders had to invest most of their time into considering and approving planning schemes for the new region.

That work has begun to pay off in the past couple of years. Local authorities have committed to improving the investment environment in Hanoi, and tremendous strides have been made to support business operations within the city and in improving the region's Provincial Competitiveness Index (PCI).

How Hanoi became an FDI hotspot

The investment environment in Hanoi has been rapidly improving, partly because of Public Administrative Reforms (PAR), which are in effect nationwide.

Municipal authorities are trying to increase the use of information technology in handling administrative procedures in business and investment registration, tax, insurance, and land use. There has also been an increasing level of transparency in land and sector planning.

Last year, the city maintained an impressive 100 percent rate in online business registrations without any delay in administrative procedures. Hanoi has reduced the time needed for business registration from 10 days in 2005 to three today.

Further, 98 percent of tax declarations are processed online.

The city's implementation of its "one-stop-shop" mechanism is also evidence of its dedication to bring in a clearer and more transparent investment environment. In 2017, a separate Decree 74/2017/ND-CP was issued allowing the implementation of a different investment mechanism for Hanoi's Hoa Lac Hi-Tech Park.

Investment projects in the Hoa Lac Hi-Tech Park enjoy the highest level of incentives offered under Vietnamese law, including corporate income tax rates, duty rates, and import duty exemptions.

The tech park also allows for the application of "one-stop-shop" mechanism and prioritizes the allocation of land funds to developing housing for employees, further simplifying the process for foreign workers.

With projects like the Hoa Lac Hi-Tech Park in place, Hanoi investment authorities have also been proactive in searching for and acquiring high-quality FDI projects with credible investors.

For example, the capitol's officials have shown an interest in Japanese investors due to their expertise in building infrastructure projects such as urban railways, metro lines, underground parking lots, as well as satellite urban areas.

Beyond Hoa Lac Hi-Tech Park, investors find Hanoi a convenient place for investment given its infrastructure network, industrial parks, and export processing zones. Major northern ports, like the one in Haiphong, which handle 50 percent of Vietnam's cargo transportation, are only 75 miles (120 km) away from Hanoi.

Additionally, a good communication network for information sharing can be enjoyed in Hanoi as establishments like government headquarters, diplomatic missions, and international organizations – like the UN and the EU – are mostly located in Hanoi.

Top FDI industry investment in Hanoi

Manufacturing and processing

The manufacturing and processing industry accounts for the majority of investment capital in Hanoi, representing 37.2 percent of the total FDI approvals in 2018. This is followed by the real estate and trade-services industries that shared 31.2 percent of the total registered FDI capital.

Technology and R&D

FDI inflows from other industries are also increasing in Hanoi. The city is home to at least 3,530 tech companies, which generated a revenue of US$10.44 billion in 2018. A noteworthy FDI example is tech-giant Samsung Group's investment of US$300 million for a research and development (R&D) center in Hanoi.

This all comes as north Vietnam cements itself as the country's main hub for electronics and heavy industry investments, helping stir the development of reliable supply chains in the region.

Retail and wholesale

Aligning with the nationwide trend, retail and wholesale investments in the city have also increased as local authorities work with investors on large-scale projects to build commercial centers in Hanoi.

Earlier this year, for example, South Korea-owned Lotte Group made an investment of US$300 million in building and operating Ciputra Hanoi Mall.

Tourism

In March, the Hanoi People's Committee held a conference to promote investment and tourism cooperation with Japan, the country's third-biggest tourist partner. This comes as tourism in Hanoi, in the first seven months of 2019, earned its highest revenue over the past four years with 16.7 million visitors. Apart from Japan, key tourism promotion efforts are being aimed at the US, European, and South Korean markets.

The industry has attracted 117 new projects with a total registered capital of US$254.3 million this year. The city is emerging as an FDI magnet as international tourism businesses eye the growing Vietnam market.

The future of FDI in Hanoi

Hanoi aims to have a GDP growth rate of 7.5 percent and attract at least US$7.5 billion in FDI projects by the end of 2019.

Local officials want to further its development as a favorable investment and business environment for enterprises and investors carrying out their business and production plans.

In the coming two years, authorities in Hanoi want to focus on attracting investments in infrastructure development, high value-added services, as well as trade and education.

Further, Hanoi is set to get its master plan on smart city development approved next year.

The capital is seeking investments that can bring in key "industry 4.0" technologies. Local officials plan to outsource a majority of services related to software, the infrastructure of data centers, and security services to serve the smart city development plan.

Another master plan for developing industrial clusters within Hanoi was also approved last year. The plan included 159 industrial clusters that will be established by 2030.

Local officials are also driving to improve Hanoi's labor quality to work in important sectors. This year, in efforts to connect to businesses to vocational training institutions, the city's authority decided to pay unemployment insurance allowance to 546,000 people and vocational training support for 2,217 people.

But beyond local spending, FDI inflows have increased the capitol's ability to absorb more high-value investments. Labor skills in Hanoi have improved, with better products being produced due to technology updates. Meanwhile, the regional production chain is now integrated into the global economy much better.