FDI Qualities Review of Viet Nam

Executive summary

Over the past four decades, Viet Nam has achieved a remarkable economic transformation. Since the Doi Moi reforms of 1986, it has shifted from a centrally planned agrarian economy to an export-oriented manufacturing hub integrated into global production networks. With inflows among the largest in Southeast Asia, foreign direct investment (FDI) has been central to this progress: GDP per capita has risen steadily, productivity growth has ranked among the highest in ASEAN, and trade now equals nearly 200% of GDP – making Viet Nam one of the world’s most open economies. Amid recent supply chain disruptions, the government has set ambitious goals: advancing toward high-income status by 2045, accelerating digital transformation, and achieving net-zero emissions by 2050. To power this next growth phase, Viet Nam seeks not only more FDI, but higher-quality investment that deepens local value creation, technology transfer, skills, inclusion, and sustainability.

Powering Viet Nam’s next growth phase through foreign direct investment

Viet Nam’s sustained economic progress has been underpinned by openness to trade and investment. Joining the WTO in 2007 and concluding a wide network of free trade agreements accelerated export growth and strengthened the country’s position in global supply chains. Regulatory reforms have progressively liberalised the investment regime, and FDI inflows have remained resilient even as global flows declined. Legislative initiatives in 2025 – including amendments to the Law on Investment and landmark resolutions promoting innovation, private sector development, and digital transformation – demonstrated strong political commitment to structural reform.

Despite significant progress, barriers persist in knowledge‑intensive services, regulatory procedures remain uneven across provinces, and co‑ordination challenges limit the effectiveness of investment, innovation, skills, and green policies. Viet Nam also faces structural pressures: informality remains widespread, R&D expenditure is modest, digital adoption gaps persist, and climate risks are significant in a fossil fuel – intensive energy system.

Foreign multinational enterprises have played an outsized role in Viet Nam’s development. Although foreign firms represented less than 3% of formal enterprises between 2006 and 2023, they generated 27% of total revenues, 34% of wages and 29% formal employment, and accounted for 78% of manufacturing revenues and over 90% of manufacturing employment in 2023. They employed four out of 10 women, consistent with their concentration in export-oriented manufacturing that draws heavily on female labour.

Yet the prevailing FDI model – centred on assembly-based, low value‑added manufacturing – has reached its limits as a driver of productivity growth. While foreign firms outperform domestic peers within most sectors, they were on average about 18% less productive in aggregate in 2023 due to their heavy concentration in lower value‑added activities, despite paying wages 21% higher. Foreign firms also rely significantly on imported inputs: about 60% of their inputs are sourced locally, and 21% of those come from other foreign firms rather than Vietnamese SMEs. Greenfield FDI in R&D remains modest, representing 2% of capital expenditure in 2020‑2024, compared to 3.7% in OECD Member countries. At the same time, the sectoral composition of FDI is shifting rapidly, with roughly half of greenfield FDI in 2020-2025 directed to green or digital sectors, signalling an opportunity to upgrade the growth model – provided that policies better align investment with skills, innovation, inclusion, and sustainability objectives.

From quantity to quality investment: Key reform priorities

To unlock the next generation of FDI benefits, Viet Nam needs to strengthen policy coherence, modernise regulatory frameworks, rebalance incentives toward productivity-enhancing investment, and enhance investment promotion and facilitation. This report identifies four priority reform areas:

• Strengthen policy coherence through clearer mandates and improved alignment of investment-related strategies. Viet Nam has established a strong strategic foundation linking FDI to productivity, skills, inclusion and green growth, but overlapping frameworks and limited co‑ordination may reduce their effectiveness. Enhancing coherence across investment, innovation, skills and green policies, while translating strategic objectives into actionable measures with clear institutional responsibilities, could support more consistent implementation. Clarifying various national bodies’ roles between regulatory (state management) and investment promotion functions, alongside stronger inter-ministerial co-ordination and structured dialogue with the private sector, may further improve efficiency, reduce duplication, and better align FDI with national priorities.

• Modernise regulatory frameworks to enable quality investment. While Viet Nam has made significant progress in liberalising its investment regime, restrictions in knowledge- and digital-intensive services, as well as regulatory complexity, may constrain technology transfer and upgrading. Further easing barriers in high-skill sectors, alongside stronger enforcement of intellectual property rights and clearer digital regulations on data localisation, cybersecurity and cross-border data flows, could enhance investor confidence and innovation. Continued labour market reforms, including stronger collective bargaining, reduced informality and facilitated entry of skilled foreign workers, would help maximise FDI benefits, while integrating gender considerations can support inclusiveness. Strengthening environmental governance, including earlier and more robust impact assessments, improved renewable energy frameworks and more cost-reflective pricing, would better mobilise private investment in line with green growth ambitions.

• Tailor financial and technical support to strengthen linkages between MNEs and SMEs. Viet Nam has relied on generous income-based CIT incentives, which may entail significant fiscal costs while delivering limited productivity gains. Recent reforms, including the Investment Support Fund, signal a shift toward more targeted support, but uptake is constrained by administrative complexity. Gradually moving toward expenditure-based incentives, such as support for R&D, workforce training and green technologies, could better align FDI with national upgrading objectives. At the same time, enhancing transparency and coordination of SME support and supplier development programmes would help extend benefits beyond major industrial hubs. In parallel, reinforcing labour market information systems and skills anticipation mechanisms, with input from MNEs, would support better alignment of training with emerging needs in AI and green sectors.

• Promote quality FDI through targeted and data-informed approaches. Viet Nam is positioning FDI as a driver of digital transformation, green growth and broader socio-economic goals, in line with Politburo’s Resolution No. 50-NQ/TW of August 2019, but implementation is at early stages. Strengthening a value driven, data informed approach to promote sectors such as semiconductors, renewable energy, digital services including 5G, cloud computing and e-commerce, and higher value-added manufacturing, could increase spillovers. Reinforcing investor targeting, aftercare and coordination between the Foreign Investment Agency and relevant national and subnational institutions would support this shift. Streamlining procedures through digital one stop platforms and consistent provincial practices, alongside stronger monitoring and FDI impact assessment systems, developed with the National Statistical Office, would improve policy effectiveness.