Foreign direct investment – driver for Hanoi’s economy

Over the past ten years, Hanoi has proactively and creatively implemented the Party Central Committee’s directives on foreign affairs and external economic development as a whole, and foreign direct investment (FDI) attraction in particular, contributing to accelerating the process of shifting economic structures and the economic growth rate of the city.

A panorama of Hanoi.
A panorama of Hanoi.

Since the expansion of its administrative boundaries in 2008, the attraction of foreign direct investment (FDI) into Hanoi has registered superior growth in terms of both quantity and quality, especially the disbursed capital and the investment capital in the high technology sector, thus becoming a strong driver for the capital’s economic development.

In the period from 1989 to 2007, Hanoi attracted 1,253 FDI projects (equivalent to an average of 66 projects per year), with a total registered capital of nearly US$ 15 billion and a disbursed capital of US$5.13 billion, accounting for 35.2% of the registered capital. But between 2008 and 2017, the capital city drew 3,237 FDI projects, with a registered capital of US$19.1 billion and a disbursed capital of US$10.6 billion. By the end of 2017, Hanoi witnessed a total of 4,250 valid FDI projects, totalling US$27.64 billion.

Singapore was the largest foreign investor in Hanoi with an investment capital of US$5.5 billion, followed by Japan with US$5.38 billion and the Republic of Korea with US$5.34 billion. Eight industrial parks (IPs) in Hanoi now accommodate 629 investment projects, including 325 FDI ​​projects (a registered capital of US$ 5.4 billion) and 304 domestic projects (a registered capital of US$575.6 million), reporting US$6.5 billion in last year’s revenues (2.5 times higher than the 2008 figure) and contributing US$180 million to the budget (a three-fold increase). The FDI flow was mainly poured into the electricity and electronics sector (52.35%) and mechanics (16.98%). In the first six months of 2018, Hanoi led the country in terms of the number of newly licensed FDI projects, with the new FDI pledges reaching more than US$5.5 billion, accounting for 46.6% of the country’s total new FDI pledges.

FDI projects have created a driving force for growth and accelerated the process of shifting economic structures in a positive way. Hanoi’s economic structures were 56.6% for services, 28.7% for industry and construction, and 4.3% for agriculture in 2008, and 57.6%, 29.7%, and 2.9%, respectively, in 2017. The FDI sector generated hundreds of thousands of jobs, contributing 17% to the city’s gross domestic product (GDP) and representing roughly 30% of its export revenues. The sector’s budget contribution increased from 10% in the period of 2005-2012 to 13% in the 2011-2015 period, with the proportion of FDI projects in the manufacturing industry being on the increase.

Through the operations of FDI projects, Hanoi has received a number of advanced technologies and techniques in many important economic sectors, such as telecommunications, electronics, the manufacturing of automotive parts and automotive assembly, chemical production, high-quality education, consumer goods production, and high quality food processing, contributing to increasing labour productivity and values, while accelerating the economic growth of the city.

The aforementioned results have been attributed to the municipal authorities’ directions and issuance of documents related to international economic integration, together with the concretisation of unified management regulations over foreign affairs. The city has paid great attention to improving the investment environment, developing its infrastructure and business support services, accelerating labour training, and renovating investment promotion activities, with a focus on strategic partners, key foreign locations, and investors of projects in high technology industries that generate great added values. At the recent conference “Hanoi 2018 - Investment and Development Cooperation”, Hanoi handed over investment decisions and certificates to 71 projects, with a total registered capital of over VND397.3 trillion (US$17 billion), including 11 FDI projects worth more than US$5.4 billion.

From the results of FDI attraction over the past ten years, the capital city has drawn precious lessons and experience, while continuing to actively develop a number of special mechanisms and policies, as well as increasing the exploitation efficiency of the economic development drivers in line with the country’s common policy framework, the spirit of the Law on the Capital, and Hanoi’s agreements with international partners, thus improving its role as an economic locomotive of the country.