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Hanoi has emerged as the top destination for foreign direct investment (FDI) in the first half of 2023.
 

Representatives from foreign organizations and businesses in Hanoi recently shared their insights on the capital's investment and business environment with The Hanoi Times on the 15th anniversary of Hanoi’s administrative boundary expansion.

 

How do foreign businesses perceive the investment environment in Hanoi, one of Vietnam's largest economic and financial centers?

Takeo Nakajima, Chief representative of the Hanoi Office of the Japan External Trade Organization (JETRO Hanoi) and Vice Chairman of the Japanese Chamber of Commerce and Industry in Vietnam (JCCI)

For companies, the primary criteria for selecting investment destinations revolve around the potential for business growth. Among the active business areas in Vietnam, Hanoi and Ho Chi Minh City stand out as major players. 

In the northern region, Hanoi outperforms other cities in most aspects, making it the top choice for companies seeking to invest. They will consider other provinces and cities if Hanoi does not meet their requirements. 

For companies focused on exporting products, setting up a production base in Hanoi may not be necessary. However, proximity to Hanoi becomes crucial for those valuing access to a significant market.

Tran Duc, Head of International Subsidiary Banking North, HSBC Vietnam

As the capital of Vietnam, Hanoi offers a host of unique advantages that make it an attractive destination for foreign businesses looking to establish their presence in the region. 

These advantages include progressive policy developments, a diverse demographic, a skilled workforce, a well-developed infrastructure, and excellent connectivity to government agencies, business chambers, and associations. These key factors play a pivotal role in drawing foreign enterprises to set up their operations in Hanoi.

Furthermore, recent global events, such as the US-China trade tensions, the Covid-19 pandemic, and China's "zero Covid" policy, have prompted an increasing number of foreign manufacturers to shift their operations away from China. 

Vietnam has emerged as a potential destination for these manufacturers, especially in the electronics, textile & garment sectors. In this context, Hanoi's strategic location makes it an important gateway connecting to major industrial locations like Bac Ninh, Haiphong, Quang Ninh, Thai Nguyen, and other nearby provinces. 

The presence of tech giants such as Samsung, LG, Intel, Foxconn, and others who are investing heavily in Vietnam, with Samsung establishing its R&D Center in Hanoi, further highlights the city's capability to attract high-quality FDI.

In addition, with the reopening of China's economy in March, there has been a notable acceleration of Chinese investment in Vietnam, primarily focused on the northern region due to its proximity to China.

Sophie Mermaz, Head of the French Chamber of Commerce and Industry in Vietnam (CCIFV) in Hanoi:

The perception of Hanoi as an investment destination is overwhelmingly positive, owing to its strategic location within a thriving market and promising growth potential. This makes Hanoi an extremely attractive option for foreign companies seeking opportunities in the region.

Regarding French investment, our FDI ranks third among European countries investing in Vietnam, and they have established a robust presence in the country.

At the CCIFV, we have experienced a significant increase in inquiries and requests from companies seeking various types of investments, ranging from single office space to industrial entities. Demand for investments in northern Vietnam, particularly in Hanoi, has increased notably. As a result of this growing interest, in August 2022, we expanded our Hanoi Business Center to meet the escalating demand for business support and facilities. 

Dwayne Ong, Founder and CEO of Casugol

The investment environment in Hanoi has grown significantly in recent years, thanks to the government's proactive measures to promote FDI. Efforts to enhance the business environment and streamline processes have enabled foreign businesses to start operations quickly and efficiently.

Hanoi's strategic location adds to its appeal for businesses seeking access to regional markets, particularly in ASEAN countries. This connectivity has been beneficial to organizations like Casugol, an international certification body, allowing them to efficiently manage multiple training sessions and meetings across ASEAN countries, taking advantage of the frequent international flights from Hanoi.

Furthermore, Hanoi offers access to a cost-effective, young, and highly educated labor pool across various industry verticals. This factor is a key attraction for foreign businesses looking to establish regional offices or tap into the growing opportunities presented by the city's burgeoning middle-class and consumer market.

 

From your perspective, what are the pros and cons for foreign enterprises to do business in Hanoi?

Takeo Nakajima: Hanoi stands out as a superior city compared to its surrounding counterparts in various aspects. With a population nearing 8.5 million, the city boasts high incomes, a concentration of government agencies, large corporations, and prestigious universities, making it a hub of information and business opportunities. It offers well-developed airfields and road networks, ensuring seamless connectivity. 

Additionally, Hanoi offers a high-quality lifestyle, excellent education, medical care, and a vibrant entertainment scene, making it an appealing market.

Nonetheless, due to its popularity, competition among companies is intense, leading to challenges in recruiting skilled personnel and escalating labor costs. Moreover, office and property prices have surged, and the city faces increasing congestion and traffic jams due to its dense population. 

Air pollution and noise have emerged as pressing issues, and there are concerns about the reliability of water and electricity supplies. Despite these challenges, Hanoi remains an attractive destination for consumer markets, businesses, and government agencies.

Tran Duc: In addition to the advantages mentioned above, Hanoi stands out for providing a high level of information transparency and easy access to government offices. This accessibility allows foreign enterprises to obtain relevant information that is crucial for their business planning and investment activities, contributing to a favorable business environment.

However, it is worth noting that the Provincial Competitiveness Index (PCI) for 2022 indicates some areas that require attention and improvement from the Government and Hanoi authorities. Hanoi's current ranking is 20th, 10 positions lower than in 2021. This drop suggests areas requiring particular focus, such as administrative procedures for foreign investors, urban planning, and implementing digital transformation initiatives.

Furthermore, recent challenges, including the impact of El Niño, which led to power shortages in most of the northern region, have raised concerns among foreign enterprises r about the stability of their business operations.

Sophie Mermaz: As a capital city, Hanoi is of great importance as an investment destination, offering socio-economic advantages, a skilled and abundant workforce, diverse services, well-developed infrastructure, and comprehensive business support services. The business investment environment has improved significantly, which is highly appreciated by companies investing in the city.

However, it's important to note that while Hanoi offers many advantages, it may not match the level of modernity and dynamism found in major developed capitals. Given the unpredictable nature of the legal environment, it is advisable to engage a local expert to navigate the legal intricacies and ensure compliance with the evolving legal system.   

Dwayne Ong: Based on our experience in Hanoi, one of the intangible benefits that foreign enterprises can capitalize on is the willingness of its people to embrace new ideas, innovations, and best practices. 

The city's growing middle class and consumer market indicate strong purchasing power and a high demand for consistently high-quality goods and services.

The continuous improvement of Hanoi's infrastructure has greatly facilitated commuting for foreign companies.

For example, it is now possible to visit several locations in different districts on the same day, with commutes often taking less than 30 minutes.

However, there are also challenges that foreign businesses may encounter in Hanoi. The language and cultural barrier can pose difficulties, especially in day-to-day administrative work and processes. 

While English proficiency is generally prevalent in the technology training industry, other areas may face communication challenges.

Another key challenge is ensuring consistency in communication between different agencies. Despite the government's efforts to streamline processes and improve transparency in business operations, there is still room for improvement in maintaining consistent and clear communication channels.

 

Hanoi has emerged as the leading city in attracting committed FDI, with $2.26 billion in the first half of this year. How would you assess the city's efforts to attract investment?

Takeo Nakajima: Amid the current global and domestic economic uncertainties, with inflation, high interest rates, and a sluggish real estate market, both local and overseas factors, such as the economic slowdown in Europe, the US, and China, are contributing to the uncertainty in the Vietnamese economy. As a result, achieving the 6% target for this year is becoming increasingly challenging.

Despite these challenges, however, Hanoi continues to attract FDI. The city's appeal as a safe investment destination lies in its efficient administrative agencies and speedy procedures, allowing for a conducive investment environment.

Moreover, the western part of Hanoi has significant development potential and offers promising opportunities. Furthermore, the city has laid the groundwork to embrace change, especially in digitalization, sustainable practices, and overall modernization through research and development initiatives.

Tran Duc: In the first half of the year, Hanoi has achieved remarkable success in attracting FDI and maintained its position as the leading destination in this regard. This achievement is the result of concerted efforts by the Government and Hanoi authorities, who have implemented progressive actions and made significant commitments to drive positive changes in various aspects. 

These initiatives have enabled Hanoi to sustain its momentum in the second half of the year and work towards achieving its Gross Regional Domestic Product (GRDP) target of 7% in 2023.

A closer analysis of Hanoi's FDI statistics shows that foreign investors have shown strong interest in real estate development and the service sector. This interest has been demonstrated through the acquisition of shares in Vietnamese companies, indicating a growing trend that is likely to have a significant impact on Hanoi's economic development in the coming years.

Sophie Mermaz: In recent years, Hanoi has consistently ranked among the top cities with a favorable business and investment environment. Foreign companies investing in Hanoi have expressed their appreciation for the city's continuous improvement, openness, access to information, and improvement of infrastructure.

Dwayne Ong: This is undoubtedly a positive development for Hanoi's investment landscape. Unlike in previous years, the city's policies and agenda are now clearer, making it more welcoming to foreign investment.

In the past, obtaining consistent and accurate information on Hanoi's investment plans has been challenging, with varying and unreliable data on different websites. However, the government has taken significant steps to address this issue in recent years. They have implemented a strict framework to remove fake information from the Internet and consolidated reliable data into a "single source of truth" accessible through government and agency portals.

This centralized and reliable information has been a great help to business owners like you, providing a clear understanding of government plans, investment strategies, and relevant processes.

Hanoi's efforts to attract investment are commendable, and as more international brands invest and establish a presence in the city, there is significant potential for job creation. However, it is important to ensure that the jobs created are highly valued and aligned with the fast-paced digital economy. As Hanoi undergoes a sustained digital transformation, the demand for technical positions is expected to increase significantly.

However, the key challenge is ensuring the local workforce has the relevant skills to seize the opportunities created by this transformation. Investing in skills development and education to equip the workforce with the necessary skills for the digital economy will be critical to Hanoi's continued success as an investment destination.

 

What recommendations would you make to Hanoi to maintain its position as one of Vietnam's most appealing investment destinations?

Takeo Nakajima: Hanoi's ability to attract significant investment is commendable, but it now faces challenges as its infrastructure struggles to keep up with the growing influx of people, goods and capital. If this trend persists, the city will eventually reach its capacity limits.

To address these issues, I recommend the following measures:

Improve traffic and road infrastructure: The city's transit and road network, as well as its parking facilities and rail system, need significant upgrades to reduce travel time. Currently, it takes thirty minutes to cover a distance of only 5 km, which is excessively time consuming and costly; Transition to a circular economy: Immediate action to address escalating levels of waste, water and air pollution is essential for public health. Adopting renewable energy sources and cleaner, more sustainable distributed energy solutions will be critical to combating pollution and supporting environmental sustainability; Creating a Safe and Inclusive City: Develop wide sidewalks and parks while ensuring that buildings and sidewalks are designed to allow easy movement for people with disabilities. The vision of a city with clean riverside areas where children can play safely should be pursued; Strengthening MICE Capabilities: Improving facilities for meetings, incentives, conferences and exhibitions (MICE) is critical to the city's business prospects. This includes providing venues for international events and conventions, functional hotels, and environmentally friendly transportation.

Developing Hanoi's MICE capabilities will help internationalize the economy, attract diverse people and businesses throughout the year, strengthen urban functions, and promote urban innovation.

Tran Duc: First and foremost, addressing administrative procedures for foreign investors is critical to removing barriers and enhancing Hanoi's attractiveness as an investment destination. The government should conduct a thorough review and quickly implement improvements to streamline and simplify these procedures, making it easier and more efficient for international businesses to invest in the city.

Second, given Hanoi's strategic geographic location and connectivity to major industrial areas, it is essential to improve infrastructure and connectivity. Accelerating the development of high-tech parks will be instrumental in attracting more substantial foreign investment, particularly in research and development (R&D) and data centers.

Furthermore, given the high population density and growing middle class, developing a comprehensive and long-term plan for the health and education sectors is paramount. The government and Hanoi authorities should develop attractive investment policies to tap the significant potential these sectors hold for future growth.

Sophie Mermaz: To position itself as the ideal investment destination in Southeast Asia, Hanoi should continue to cultivate a business-friendly environment and offer enhanced incentives to attract foreign investors.

Addressing businesses' concerns about complex legal procedures and high costs is essential. Implementing more supportive policies for foreign businesses, such as an improved regulatory environment and lower corporate tax rates, will be key to fostering a conducive investment climate.

Investors are looking for modern and easily accessible industrial parks with state-of-the-art infrastructure. Therefore, Hanoi should focus on developing such industrial zones to meet the needs of foreign companies.

Continued efforts to digitize administrative procedures and provide multilingual services, especially in English, will increase efficiency and ease of doing business for international investors.

The role of higher education and universities in a city's success cannot be underestimated. By prioritizing the development of strong universities, Hanoi can foster innovation and talent, thereby increasing its competitiveness on a global scale.

A critical issue to address is environmental sustainability. Hanoi should prioritize reducing pollution, promoting the use of renewable energy, and improving waste management. By taking steps to create a cleaner and greener city, Hanoi can further enhance its attractiveness as a desirable place to invest and live.

 

Dwayne Ong: Education indeed holds the key to sustaining Hanoi's position as a sought-after investment destination in Vietnam. In today's fast-paced digital economy, it is critical for Hanoi to continuously cultivate a skilled pipeline of talent proficient in technology and digital literacy.

Efforts to educate and upskill the workforce, especially small and medium enterprises (SMEs), are vital. There should be a consistent initiative to inform and educate local businesses about the various programs and initiatives available to support their growth and competitiveness.

Currently, we have observed that larger conglomerates and government agencies are more proactive in upskilling and training their staff compared to SMEs. This disparity in skills development among businesses can pose a potential roadblock for SMEs to remain competitive.

To accommodate the influx of talent, both local and international, it is crucial for Hanoi to fast-track and prioritize the development of infrastructure and housing. This will not only attract talents from overseas but also facilitate the integration of job seekers from outside Hanoi.

In the coming years, with the increasing adoption of AI and automation technologies, Vietnam may see a mass exodus of workers due to job consolidation. To address this, employment policies must remain up-to-date, agile, and flexible to adapt to the changing nature of the digital economy.

Thank you for your time!

 
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