• The escalation of the Communist Party’s anti-corruption campaign has resulted in the removal of high-profile politicians from the party and administration. As the investigations expand, additional changes to central and local government personnel are expected, potentially delaying the decision-making process.
  • Notwithstanding Vietnam’s political uncertainty, economic growth has continued apace. The country registered 5.7 percent year-on-year growth in the first quarter of 2024, making the government’s 6-6.5 percent annual growth target more feasible.
  • Foreign direct investment is increasing. Vietnam attracted $6.2 billion in the first quarter — a surge of 13.4 percent year on year. The government is calling for investment in semiconductors, artificial intelligence, high-tech and green projects.
  • Australia has become the sixth country to establish a comprehensive strategic partnership with Vietnam. Hanoi continues to conduct “bamboo diplomacy” to balance Beijing’s and Washington’s influence.
  • The government will extend its 2 percent reduction in the value-added tax (VAT) until the end of the year to support businesses. The VAT, special consumption tax and corporate income tax laws will be amended in 2024 and 2025.
  • Important legislation, including the laws on credit institutions, telecommunications, electronic transactions and consumer protection, will take effect July 1, likely impacting businesses. Companies are advised to monitor the laws’ implementation.
  • The government will endorse the launch of the investment support fund, which is expected to prioritize high-tech, innovation and green development. The criteria to qualify for funding is reportedly difficult to meet.
  • Political competition continues to escalate leading up to the Communist Party’s 14th national congress, scheduled to take place in the first quarter of 2026. Personnel purges at the central and local levels will likely intensify as the meeting approaches. Nevertheless, Vietnam’s economy is resilient, and the country continues to be a promising destination for foreign investment.

Vietnam Market Overview and Forecast

Political Climate

Unprecedented Political Purge

The Communist Party is expected to bolster its personnel roster in the latter half of 2024 and beyond. A new state president and a new chairman of the National Assembly were named in May. Substantial attention will be directed toward grooming high-level officials for the upcoming term (2026-2030), especially candidates for the Politburo, whose membership was reduced from 18 to 12 following the recent political purge. Four new members were added to the ruling body in mid-May.

As the investigations into high-profile corruption cases expand, further personnel changes are expected at the central and local levels. New cadres will emerge to fill senior positions. Public security officials, who are leading the investigations, will likely play an important role in deciding future membership in the party and administration.

The turnover in Vietnam’s top leadership, coupled with changes in the central and local governments, may temporarily impact the confidence of foreign investors in the country. Nevertheless, Vietnam will continue its efforts to develop a more open market and integrate into the global economy. Foreign investment will remain an important economic driver.

Macroeconomic Climate

Economy Remains Stable Despite Political Turmoil

The economy performed well in the first quarter, with growth of 5.7 percent — the highest year-on-year growth since 2020. The International Monetary Fund projects economic growth of 5.8 percent for the full year, bringing the GDP to $469.7 billion. If this forecast is correct, Vietnam will maintain its status as the fifth-largest economy in Southeast Asia.

Since the second half of 2023, interest rates have been reduced repeatedly to stimulate investment and manage inflation. The State Bank of Vietnam will continue to maintain the interest rate and credit growth until the end of the year to keep inflation below 4 percent. Public sector salary reform, which will take place in July, is expected to exacerbate inflation to a certain extent. The Ministry of Planning and Investment believes the gradual salary increase will add an additional 0.21 percent to inflation each year.

Business support measures implemented since 2023 are expected to last into the latter half of the year. These include the 2 percent VAT reduction, VAT deferral options and land rental fee reductions. At the same time, the government plans to amend three tax laws — the VAT Law, the Law on Special Consumption Tax and the Law on Corporate Income Tax — to enhance revenue from certain goods and services. The legislative amendments were expected to be reviewed and approved at parliamentary sessions in May or in October 2024, respectively. Once approved, they will take effect in either July 2025 or January 2026.

Vietnam aims to elevate its securities market to the “emerging” level by 2025. The Financial Times Stock Exchange Group expects the country to achieve a secondary emerging market status in either September 2024 or March 2025. The World Bank estimates that a successful upgrade of Vietnam’s stock market will attract as much as $25 billion in foreign investment by 2030.

Investment Environment

Investments in High-tech and Green-tech Sector Are Encouraged

Vietnam received $6.3 billion in foreign direct investment in the first four months of 2024 — the highest year-on-year increase in the last five years. The processing and manufacturing industry attracted the most investment, nearly $4.9 billion and more than three-quarters of the total inflows. The government continues to encourage foreign investment, with a focus on high-technology, innovation and green growth.

Vietnam is gearing up for a bigger carbon market as it strives for net-zero emissions by 2050. Efforts to develop the market and necessary regulations are in progress, with proposed amendments to the Law on Corporate Income Tax that offer incentives for carbon credit projects.

The government plans to introduce an investment support fund in the latter half of the year. Created using additional revenue from the global corporate minimum income tax Vietnam adopted in January, the fund plans to promote and offer incentives for investment projects in the high-tech and green-tech sectors. Qualifying projects will receive cash support. However, the proposed eligibility requirements, especially those regarding investment capital and revenue, are set so high that most projects will likely not qualify.

Power Development Projects To Be Accelerated

After a long delay, the government has finally approved the implementation of the 2021-2030 power development plan, which will serve as a basis for investors. With less than seven years remaining until 2030, Vietnam will be challenged to fulfill the plan and complete all the listed projects within the designated timeframe. Although significant progress has been made in approving the plan’s implementation, some regulations will need to be issued or revised for new projects. Vietnam faced a serious power shortage last year, which hurt the economy and investor confidence. Vietnamese officials in May asked industries to voluntarily reduce power use by 30 percent due to continuing shortages this year. Authorities, who are aware of the need to address this issue promptly, will seek to upgrade existing projects and develop regulatory frameworks for new ones.

We will continue to keep you updated on developments in Vietnam as they occur. If you have any comments or questions, please contact BGA Vietnam Managing Director Ha Nguyen at vietha@bowergroupasia.com.

Best regards,

BGA Vietnam Team