Vietnam's Push for Green FDI Signals a Shift to Sustainable Growth
Vietnam's Potential for Green FDI
It is clear that Vietnam has great potential for green FDI programmes, catching up with the global trend and requirements. Foreign investors will definitely demand more from local firms, with more innovative business models and strategies that meet both financial targets and sustainability goals.
Rise of FDI in Vietnam
For the last few years, Vietnam has risen as a safe destination for development with FDI. By December 2020, there were 33,070 FDI projects with a total value of 384 billion USD, in which 231.86 billion USD (60.4%) of the funding had been disbursed. The 2016–2020 period witnessed significant growth compared to previous periods despite the challenges from COVID-19, proving investors’ trust and confidence in the growth of Vietnam’s market, opportunities, and government support.
Transition to Sustainable FDI
The question now is, as the world is moving towards sustainability across all sectors of the economy, will the FDI flow be more towards sustainable industries that meet the urgent global demand as raised during COP26? The current three top sectors that receive FDI are Manufacturing and Processing, Real Estate, and Retail and Wholesale. According to the International Finance Corporation (IFC), the current climate finance in Vietnam is at only about 5% of the total bank loans (10.3 billion USD). The new government target towards a 9 per cent decrease in greenhouse emissions by 2030 will hence create a climate investment opportunity of 753 billion USD in the 2016–2030 period in Vietnam.
Current Successes in Green FDI
The processing and manufacturing industry still holds 1st place as the most attractive to foreign investors in the first six months of 2021. There have been significant deals with FDI in green sectors in Vietnam. Proparco, a French development finance organization, provided a 50 million USD loan for the Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank) to financially support sustainable projects. The International Financial Corporation (IFC) also made a deal of 100 million USD with Orient Commercial Joint Stock Bank (OCB) in May 2021 to enhance the green activities of the private sector, especially for SMEs to finance climate-friendly projects. Other major banks, including Agribank, BIDV, and Tien Phong Commercial Joint Stock Bank, recently received long-term loans from international financial institutions to fund sustainable projects in Vietnam.
Focus on Renewable Energy
As mentioned in HSBC’s report on Vietnam’s opportunities in a post-COVID world, Vietnam is focusing on the transition to sustainability, with goals in supply chain resilience, sustainability in textile and garments, energy transition, and renewable power. An outstanding example is the renewable energy sector. Being the world’s third-largest market for solar energy in 2020 and the highest level of investment in renewable energy in ASEAN, Vietnam is attracting numerous global investors. The country has secured an impressive deal of around 101,000 rooftop solar installations to date. This strong commitment to renewable energy is a foundation to attract more FDI and support foreign companies with reliable green sources.
Strategic Changes to Attract FDI
The Vietnamese government has outlined three key changes to attract more FDI in sustainable sectors:
Prioritizing Innovative and Environmental-Friendly Sectors: This includes renewable energy, logistics, education, and tourism. Attracting FDI should balance export growth with investment in value-added products, using domestic raw materials, developing supporting industries, and training human resources.
Focusing on Multinational Corporations: Attract FDI by forming clusters of industry linkages according to each value chain. In the short term, continue to attract FDI into industries like textiles, garments, and footwear while focusing on stages of creating high added value, associated with smart production processes and automation. Multi-lateralize and diversify FDI from potential markets and partners, focusing on strategic partners and leading developed countries with advanced technology and management.
Suitability with Local Conditions: FDI attraction must align with the advantages, conditions, development levels, and planning of each locality, ensuring overall economic, social, and environmental efficiency. For sensitive areas related to national defense and security, FDI must ensure national sovereignty comes first. Additionally, monitor and prevent FDI flows into Vietnam with outdated technology that risks environmental pollution.
Conclusion
Vietnam has great potential for green FDI programmes, aligning with global trends and requirements. Foreign investors will demand more from local firms, requiring innovative business models and strategies that meet both financial targets and sustainability goals.
Source: Vietnam Insider
