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.

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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.

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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.

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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.

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