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Vietnam, officially the Socialist Republic of Vietnam, is the easternmost country on the IndoVietnam Peninsula in Southeast Asia, with China to the north, Laos to the northwest, Cambodia bordering it to the southwest and the South China Sea to the east.  With a population of over 88 million, Vietnam is the 13th most populous country in the world and it is now the fastest growing country in Southeast Asia with the GDP growth coming in at 8.4% in 2006, according to the International Monetary Fund.  It is also a member of ASEAN and the newest (150th) member of the World Trade Organisation with the investment bank Citigroup hailing it as "the new powerhouse of southeast Asia".

After the devastation of war and the restrictions of a centrally planned economy, Vietnam has managed to make substantial progress towards liberalising its markets.  Since 1986 Vietnam has continued its internal improvements by increasing the number of privately owned businesses and by attracting foreign investment.  The immense size of Vietnam, its unique business culture and its diversity of ethnic groups, can make it appear to be a daunting place in which to do business.  In reality, it is little different from other countries with long traditions of conducting business in a manner influenced by culture and tradition.

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In 1986, the Fifth Congress of the Vietnamese Communist Party made a turning-point decision in the country’s development strategy to build a market-oriented economy under state control.  The Vietnamese Communist Party and State, whilst attempting to mobilise all domestic resources, pursued the policy of strengthening international economic relations to seek new opportunities for Vietnam’s economic co-operation and development.

In late 1987, the Vietnamese leadership began moving the economy away from a centrally planned economy to a more market-oriented system. Whereas the system still operates within a political framework of strict Communist control, the economy is increasingly moving towards one governed by free market forces.

Growth averaged around 9% per year from 1993 to 1997.  The 1997 Asian financial crisis highlighted the problems in the Vietnamese economy and temporarily allowed opponents of reform to slow progress towards a market-oriented economy.  GDP growth of 8.5% in 1997 fell to 6% in 1998 and 5% in 1999.   Growth then rose to around 7.5% from 2000 – 2006, even against the background of global recession, making it the world’s second-fastest growing economy.  Simultaneously, investment grew threefold and domestic savings quintupled. 

As part of foreign economic relations activities, foreign direct investment (FDI) was placed high on the agenda.  As domestic capital-raising possibilities are limited, FDI constitutes an important part of the Vietnamese economy. The major goal of Vietnam’s FDI policy is to attract capital, advanced technology and management skills, in order to effectively develop the country’s potential.

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By 2000, Vietnam had established diplomatic relations with most nations and economic growth had been among the highest in the world for a decade.  Vietnamese authorities were committed to economic liberalisation and enacted the structural reforms needed to modernise the economy and to produce competitive, export-driven industries.  The stock market was created in July 2000 with a daily trading volume of about US$50m.  This is relatively small in scale in comparison with other countries in the region, but seventy large state-owned companies are set to list by 2010.

Foreign investment is now actively encouraged and 2006 saw the passing of the Common Investment and Unified Enterprise Laws that aim to give more confidence to those wishing to take advantage of the increasingly buoyant business environment.  Hanoi still retains control over all major institutional organs in the country, but significant efforts are now being made to delegate authority to the main regional cities such as Ho Chi Minh and Da Nang, as well as the provinces, in order to speed up the processing of foreign business links.

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Foreign Investment Agency figures show that Vietnam’s newly pledged and expanded FDI capital was US$12 billion in 2006 and US$21.3 billion in 2007. The new fund reached US$46.3 billion in the first eight months of 2008.  The country is listed among the “Next Eleven” economies, according to government figures.  GDP growth was 8.44% in 2007, the second fastest growth rate among countries in East Asia and the fastest in Southeast Asia. 

Political stability and the encouragement of foreign investment policies helped Vietnam’s FDI to grow steadily.  These efforts culminated in Vietnam joining the World Trade Organization in 2007 and its successful bid to become a non-permanent member of the United Nations Security Council in 2008.  The Vietnamese government is now allowing major tax incentives to those wishing to invest in certain industries such as manufacturing, high technology and training, or in remote areas that desperately need economic stimulus.  An increasing number of industrial zones and parks are being opened to provide benefits to foreign business.

According to the Department of Foreign Investment of the MPI, FDI attraction in the first seven months of 2008 doubled the figure of 2007 to US$42.6 billion, demonstrating foreign investors’ trust in Vietnam’s investment environment, despite the impact of high inflation and price fluctuations on foreign investment activities.  Given the decentralisation of FDI activities in accordance with the Investment Law passed in 2005, local governments have done a good job in attracting and accelerating FDI project implementation, resulting in sharp rises in investment since then.

Manufacturing industries in particular, due to the very low labour costs, have posted major gains and ‘Money Week’ said that deregulation, political and religious stability, as well as a growing middle class, all add up to a very attractive investment story.  American giants like Intel and Nike have been committing more and more resources to the country, aiming to expand their influence in the Southeast Asia region.  In addition, a Merrill Lynch regional strategist pointed out that Vietnam is a "ten-year buy" and that the new Asian "Tiger" is now ready to take off.

Vietnam has adopted a radical economic reform model including:

• Abundant natural resources: significant reserves of oil, gas, minerals, and a beautiful coastline.

• Accelerated equitisation process.

• Attractive tax regime: Vietnam has an internationally comparable tax regime and incentives for investors.

• High growth rate: second highest growth rate in Asia.

• Highly skilled workforce: Vietnam has one of the highest literacy rates in the world.

• Implementation of a large number of new laws and regulations.

• Investment climate: the government is committed to improving the investment climate.

• Key to larger Asian and Mekong sub-regional markets: Vietnam is geographically and politically close to the region.

• Large domestic market: population of over 88 million Vietnamese offer the opportunity of the timeline.

• Low cost labour: the average monthly salary is only US$50.

• Membership of Asian AFTA agreement/free trade zone.

• Membership of the WTO.

• Political stability: one of safest locations for business and investment.

• Reform of the tax system (VAT, CIT, PIT).

• Revision of commercial law, assurance of Unified Enterprise Law and Common Investment Law, effective from 1 July 2006.

• Significant legal reform.

Taiwan remains Vietnam’s largest investor with 82 projects worth US$8.4 billion in total, representing 18.9 percent of registered capital.  It is followed by Japan with 65 projects valued at US$7.2 billion, Malaysia with 28 projects worth US$5.07 billion, Brunei with 14 projects capitalised at US$4.3 billion, Canada with 4 projects worth US$4.2 billion and Singapore with 48 projects valued at US$4.02 billion.

Vietnam also continues to receive a large amount of economic aid from institutions such as the World Asian Development Bank.  The result has been an increasing pace of growth and rising living standards, especially in the major cities of Hanoi and Ho Chi Minh and in the provinces immediately surrounding them. By 2013, a subway system should be completed in Ho Chi Minh City to relieve the rapidly growing traffic congestion caused by the high growth in the number of vehicles appearing on the roads every year.