Investing in Ho Chi Minh City: Why the Megacity’s Industry, Economy and Policy Are Key to Development

Posted by Written by Celina Pham Reading Time: 7 minutes

Ho Chi Minh City is a key economic hub located in the heart of the Southern region of Vietnam. With a strategic position and an abundant workforce, Ho Chi Minh City, formerly Saigon, is one of the two only ASEAN cities to make it to the top 10 most dynamic cities globally. Vietnam Briefing provides an overview of Ho Chi Minh City and the major industries of this metropolis.


Ho Chi Minh City (HCMC), also known as Saigon, is Vietnam’s most dynamic metropolitan area. The city is Vietnam’s center of economy, culture, science, and technology; an intersection where different cultures cross; and a strategic political point of the country.

Vietnam’s HCMC was the world’s third most dynamic in 2020, after India’s Hyderabad and Bangalore as per JLL’s City Momentum Index. The city is praised for its diversified demographic background and export-driven economy, making the city an attractive destination for FDI.

Saigon stats

The city generated up to 23 percent (2021) of Vietnam’s GDP while it is home to 35 percent of all FDI projects in the country.

Despite outstanding economic growth, HCMC surprisingly ranked low on the 2021 Provincial Governance and Public Administration Performance Index (PAPI). The metropolis itself scored a low of slightly over 40 points, compared to the top place taken by Thua-Thien Hue at 48 and Binh Duong province at 47.

Meanwhile, it is also worth looking at the Provincial Competitiveness Index (PCI) which measures the business and regulatory environment in Vietnam. HCMC remained 14 out of 63 in 2021 at 67.50 points, marking its third consecutive year in the same ranking. Most of the categories of the index saw slight growth but remained at an average level of 5-7 points. 

PCI Factors 2019 2021
Incentive policy for enterprises 7.39 8.54
Time-efficiency in administrative formalities 6.88 7.58
Legal framework 5.39 6.39
Flexibility in legal procedures 5.57 6.22
Transparency 6.79 5.45
Ease of market entry 7.24 6.16
PCI score 67.16 67.50
Ranking 14 14

Source: PCI

HCMC has strived to create a favorable environment for businesses by proposing a host of incentive policies, faster administrative formalities, and a simplified legal framework. However, the city also saw lower transparency and ease of market entry compared to previous years, indicating the need for a new development plan to remedy the worse-performing categories.

Economy-wise, HCMC shows immense growth potential in four key industries: mechanical and automation; electronic and IT; chemical products; and food processing. The city is also home to Saigon port, a type I port, which serves as a pivotal gateway for Vietnam’s international trading and maritime transportation while HCMC’s Tan Son Nhat airport is among the five biggest international airports in the country.

Vietnam Briefing summarizes the current infrastructure and the four key industries in HCMC.

Infrastructure: Current situation and challenges

HCMC is a strategic political and economic hub of Vietnam as it houses an international airport and Saigon Port. However, the airport has been operating well over capacity while plans for adding another terminal have yet to be implemented.

To address this, the government has started the construction of Long Thanh International airport, in Dong Nai – a neighboring province of HCMC. The opening of the new airport is scheduled for September 2025 and will be deemed to be the largest international airport in the country.

While the initial purpose of Long Thanh airport is to replace Tan Son Nhat, latest developments from the government indicate that operations at Tan Son Nhat will continue but as a supporting airport to Long Thanh. Thailand’s Bangkok follows a similar model where Don Mueang Airport serves mainly domestic and low-cost flights and helps the main Suvarnabhumi International Airport from overcrowding.

The transportation infrastructure in HCMC has also not been able to keep up. The construction of the first metro line in the city, initiated in 2012, got its completion date delayed further until Q4 2023. A year of delay means the span of the project is extended to more than a decade, putting a burden on public locations and state management.

HCMC is also infamous for worsening traffic congestion, especially post-pandemic. During rush hours early morning and late into the afternoon, vehicles are seen moving inch by inch and a distance of 1 km can take up to 20 to 30 minutes on busy streets. There has yet to be any clear plan from city authorities on addressing the issue.

The drainage system of the city has recently been under discussion in the past few months due to serious flooding. During the months of heavy rain, the city has been severely flooded, adversely affecting the quality of life and safety concerns. Although the city announced a total of three anti-flooding projects, none of them have been completed or put into operation. The tardy implementation of flood protection projects has been a factor of chaos for the city itself.

Mechanical and automation industry

The automation and mechanical industries are the backbones of economic development for HCMC. Automation has transformed other key industries including food processing, electronics, and textiles. Since the adoption of automation, these industries have witnessed growth rates between 11 percent and 35 percent annually.

HCMC is also reputed for its skilled workforce in the mechanical and automation industries. The city especially prioritizes financial and technical support for universities and training departments of mechanical engineering.

The People’s Committee of HCMC recently issued a support program for the development of mechanical/automation enterprises for the 2020-2030 period. The program promotes the following missions:

  • Identifying the list of key and potential products in the mechanical/automation sector
  • Eyeing private investment in the industry;
  • Developing a skilled workforce, especially highly skilled engineers, through investments in universities and training institutions;
  • Plans for stimulating demand;
  • Credit incentives for businesses to access greater capital sources, fueling technology advancement; and
  • Preferential land rental policies.

Recently there has also been support by multinational companies in the automation industry for telecom companies and universities in Vietnam. Siemens – Germany’s biggest industrial equipment manufacturer, has partnered with Vietnamese telecom companies VNPT, FPT, and Vingroup to implement technology transfer while sponsoring the laboratory of HCMC University of Technology and Education. Meanwhile, Mitsubishi – Japan’s prominent automobile manufacturer, also funded the upgradation of the Industrial University of HCMC laboratories.

Electronic and IT industry

Electronics and information technology (IT) have been identified as key industries of HCMC as the city has plans to allocate up to 2 percent of its budget to develop these sectors by 2025.

HCMC’s significant investment in the electronics and IT sector is a rational move as the sector itself has recorded an annual growth rate of approximately 20 percent, contributing to the city’s economy. 

In May 2022, HCMC issued the Science and Technology Research and Development Program for the 2021-2025 period. The program aims to accelerate technology transfer to facilitate the development of a smart city. Mr. Dung, the president of HCMC Department of Science and Technology, urged businesses of all fields to implement digital transformation in production and management while assuring that HCMC will financially assist IT businesses in R&D. It is estimated that the program will provide around US$34 million to support research in IT, of which US$30 million will be sourced from the state budget.

HCMC is also a hot spot for electronics manufacturing, especially for foreign players. Currently, up to 90 percent of the export turnover of electronics of HCMC is from FDI enterprises while domestic manufacturers are mainly involved in assembling simple components. This indicates a rather low level of sophistication in the industry and a lack of orientation for manufacturers in the city.

In the 2020-2025 period, the emphasis is placed on scaling up the production of computer parts and telecommunication devices. By 2025, the city eyes the upgradation of manufacturing technologies to reach world-class sophistication in three major products: hardware, software, and digital content.

Chemical industry

The chemical and pharmaceutical industries of HCMC have witnessed outstanding growth, with growth rates in 2020 at 17.7 percent and 7.2 percent respectively. The city is now home to over 1500 companies in the chemical industry.

The chemical industry provides input materials for other industries and holds significant importance in maintaining the supply chain of HCMC. To this end, the government issued Decision No. 726/QD-TTg in June 2022 on the development strategy of the chemical industry by 2030.

However, HCMC’s chemical industry is not without challenges. Regarding the pharmaceutical segment, most manufacturers in the city still depend on raw materials from India and China. Besides, according to the HCMC Department of Health, there are currently 31 GMP-qualified pharmaceutical manufacturers, but they mainly produce medicines that are no longer under drug patents.

In response to the current situation, in 2021, the HCMC Department of Health issued the Development Strategy of the Pharmaceutical industry for the 2020-2025 period to promote the manufacturing of more specialized and patented drugs, and independence in input supplies.   

Meanwhile, the city also recognizes the importance of state divestments from the chemical industry. HCMC has encouraged private investments, especially FDI, through land rental reductions, preferential tax rates, and credit incentives for businesses in the industry.

Food processing industry

Industrial food production is among the four key industries that HCMC prioritizes. In the first six months of 2022, HCMC’s industrial production of food recorded a significant increase of 27 percent year on year, with the sub-sector of food processing at 11.9 percent.

Industrial food production makes up 14 percent of the total industrial production value in HCMC, with an annual growth rate of around 7 percent. However, during the months of COVID-19, the growth rate fell below 7 percent, indicating a need for a new orientation for the industry.

This year, the People’s Committee of HCMC issued a development program to support businesses in the food industry for the 2020-2030 period. The program aims to recover the growth rate to 7 percent while creating a more favorable playground for both domestic and foreign food companies in the city.

The program includes:

  • Training skilled human resources for the food industry;
  • Support businesses in introducing their products to domestic and foreign markets through trade fairs; and
  • Support food companies in digital transformation in production by technical and financial aid.

From October 20th to October 22nd, for the first time, the People’s Committee of HCMC will organize the International Food Industry Exhibition 2022 in collaboration with the Investment and Trade Promotion Center of HCMC (ITPC) and the Food & Food Stuff Association of HCMC (FFA). The exhibition is a new playground for both domestic and international food companies to introduce their products and attract private investments.

Despite positive signs, the food industry of HCMC still encounters major problems. The biggest challenge currently preoccupies the food industry is the surging costs of input amid a global input shortage. Costs of raw materials for animal feed imported from Russia and Ukraine have surged by 30-40 percent while logistics costs also add to increasing costs affecting bottomlines.

Another challenge to watch is the fierce competition from Indian and Thailand food producers. Food businesses in HCMC are encouraged to quickly implement digital transformation to catch up with foreign competitors. At the same time, they should thoroughly examine the local tastes of the countries they are exporting to, to accurately choose a market that shows constant demand.  

Takeaways

HCMC is rising as an economic hub of the ASEAN region, presenting evident growth potential. With a host of industrial parks, attractive investment incentives, and a massive workforce, HCMC is a prominent destination for investors looking to diversify their production out of China amid US-China trade tensions.


About Us

Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in HanoiHo Chi Minh City, and Da Nang. Readers may write to vietnam@dezshira.com for more support on doing business in Vietnam.

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