What Hanoi’s FDI, Infrastructure Tell Us About its Business Environment
- Hanoi continues to be a leading FDI destination, attracting investment despite the pandemic.
- The capital city boasts a good business environment, infrastructure, and top-sourced talent.
- To further attract investment, the government has announced an economic recovery plan for the next five years, with a vision towards 2030.
Vietnam’s capital Hanoi is the largest economy of the Northern Key Economic Region (KER) with six other provinces and cities including Hai Phong, Quang Ninh, Vinh Phuc, Bac Ninh, Hai Duong, and Hung Yen.
It is home to 8.2 million people, second largest to Ho Chi Minh City with 8.8 million people. Its business environment, infrastructure, and a higher percentage of trained employed workers in the labor force making it highly competitive.
Hanoi continues to attract FDI
Despite COVID-19, Hanoi continues to be one of the leading localities in foreign direct investment (FDI) attraction. In 2020, Hanoi ranked top three nationwide in terms of FDI attraction with US$3.83 billion.
In the first 11 months of 2021, the city’s total registered FDI capital was US$1,467 million, including US$798 million added to 343 new projects and 93 existing ones. Within the same period, Hanoi ranked second in the number of new projects and paid-in capital for share purchase.
In the first three quarters of 2021, Hanoi’s gross regional domestic product (GRDP) increased by 1.23 percent over the same period in 2020. Its growth in the fourth quarter is expected to expand by 6.69 percent year-on-year, taking the growth rate in 2021 to 2.92 percent.
Hanoi and Ho Chi Minh City are two localities with the largest number of enterprises in Vietnam. In 2021, Hanoi attracted over 201,000 businesses of all economic sectors operating in the city, accounting for 23.7 percent of the total number of operating enterprises in the country.
In the first two months of 2021, the investment capital from the State budget of Hanoi took the lead in the country. By February, it reached approximately US$230 million (VND5.3 trillion), up 22.1 percent over the same period last year and was five times that of Ho Chi Minh City.
Ranking high in the PCI
For three years in a row, Hanoi ranked ninth out of 63 provinces in the 2020 Provincial Competitiveness Index (PCI), maintaining its position in the five-tiered ‘High’ category of the PCI.
Although Hanoi is highly favored by investors for having a good investment and business climate, the unchanged ninth place, with some sub-indexes falling, means that city needs to make more effort to improve its business environment.
To address this, the Hanoi People’s Committee issued Directive No 14/CT-UBND on improving Hanoi’s PCI ranking to reach the topmost ‘Excellent’ tier. It highlights the need to implement drastic measures to tackle two important sub-indexes that experienced a fall last year: “entry costs” (down 51 places) and “access to land” (down 15 places).
This pertains to having all business registration dossiers handled online, and ensuring the settlement of business registration procedures completed on schedule or ahead of schedule and so on.
Government reforms to promote investment
The government’s priority is to increase investment promotion in fields that bring high added value such as manufacturing and processing, logistics services, tourism, education, healthcare, high-tech projects, preservation and processing industry, and clean energy among others.
Regarding trade promotion and agriculture, attention is being given to developing export markets, helping Hanoi’s goods to be more competitive and enter effectively into potential markets.
Hanoi has also issued many policies and reforms to assist businesses in overcoming economic downturns due to COVID-19. In November 2021, the city issued Plan No.246/KH-UBND on safe, flexible economic recovery and adaptive development, and effective control of the pandemic in the fourth quarter of 2021 as well as 2022 and 2023.
In light of the plan, Hanoi will continue to boost the healthcare system, maintain sustainable economic development, and ensure budget balance. Meanwhile, the city aims to implement more administrative reforms and improve investment and business environments.
In particular, within the first quarters of 2021, Hanoi supported 1.82 million employees and employers with funds of over US$43 million. It also exempted and reduced taxes and extended payment schedules worth over US$980 million, benefiting 38,000 businesses.
Economic recovery plan for key industries
Hanoi aims to be one of five leading localities in the country for digital transformation, information technology, innovation, and cybersecurity by 2025. Hanoi has adopted the National Digital Transformation Programme by 2025, with a vision towards 2030, to develop digital government, digital economy, and a digital society.
The capital has set the target to raise the contribution of the digital economy in the city’s GRDP to 30 percent, with a 7-7.5 percent growth in labor productivity while facilitating the city’s startup ecosystem.
Under the plan, the city aims to have all households with registered digital addresses and 95 percent owning at least one smartphone by 2025 while 4G/5G services and smartphones are commercialized. This falls under Hanoi’s plan to become a smart city with the most advanced technology landscape.
In the upcoming years, transport construction projects are expected to continue to be prioritized. As per local authorities, the construction of high buildings will be tightly controlled while universities, factories, and hospitals will gradually move to the outskirts.
The authorities propose that land area for transport projects will make up between 12-15 percent of total land for all construction projects by 2025, up nearly 50 percent compared to 2020.
This is highlighted by the launch of the country’s first metro line in Hanoi in November 2021. The Cat Linh – Ha Dong line, spanning across 13.1 km and consisting of 12 stations, has a total investment of approximately US$886 million.
Hanoi authorities hope the metro will help reduce the chronic traffic congestion caused by 5.7 million motorbikes and nearly 700,000 cars whilst minimizing the pressure on road transport. By 2030, Hanoi plans to construct nine more lines, aiming to drastically reduce traffic congestion and pollution.
Local authorities have also taken attentive measures to improve the life quality of Hanoians. Recently, Hanoi approved a plan for housing development between 2021 and 2025, in which, apartment projects are expected to account for 90 percent of the city’s housing development plan. Additionally, Hanoi will allocate a budget of US$21.74 million (VND500 billion) in 2021-2025 to conduct inspections and assess the quality of all old apartments.
Within the first nine months of 2021, tourism was one of the most impacted industries with the number of domestic visitors decreasing by 18.9 percent and international visitors by 85.5 percent over the same period in 2020.
However, with the ease of restrictions and COVID-19 gradually under control, Hanoi expects strong tourism recovery and development for the foreseeable future.
Hanoi authorities have developed many new product packages while innovating and improving the quality of tourism services. Resolution No. 50/NQ-CP issued by the government on promoting the tourism industry within 2021-2025 outlines seven key tasks including digital application and infrastructure investment to develop tourism, improvement of service quality, and human resources.
As a result, the number of domestic tourists increased by 2.6 percent in November compared to the previous month. As Vietnam has not fully opened to foreign tourists, foreigners coming to Hanoi have been experts and workers. Hanoi will continue to boost the recovery of the industry by focusing on serving domestic tourists while preparing for further reopening measures.
Priorities to boost growth
Hanoi wants to attract up to US$40 billion in FDI over the next five years. Within this period, Hanoi will coordinate with local and foreign organizations to promote urban planning and development. In the 2021-2025 socio-economic development plan, Hanoi outlines its aim to provide all households with access to clean water by 2025 and reach 50-55 percent in the rate of treated urban sewage.
In its 2021-2025 development strategy and direction to 2030, the Hanoi’s People Committee has put science, technology, and innovation as one of the 10 pillars. Under this strategy, it will focus on digital transformation, smart city, and supporting start-ups on digitalization and innovation, hi-tech agriculture.
In the next five years, Hanoi targets to create another 150,000 enterprises, or an average business creation growth of 10 percent per year, equivalent to 30,000 newly established ones.
The city also aims to address issues such as the slow development of industrial zones and clusters, high land rentals, and small-scale support industry, to attract high-quality FDI projects. Hanoi recently announced a target program on mitigating traffic congestion in the city for the 2021-2025 period with total funding of US$80 million (VND1.8 trillion).
Specifically, each year, Hanoi targets to resolve seven to ten traffic congestion hotspots and gradually cut traffic accident rates down by 5-10 percent. This will contribute to improving the air quality and environment while reducing pressure on road transport, facilitating Hanoi’s position in the national battle against traffic congestion.
Due to Hanoi’s fast development, the city has suffered from chronic air pollution. In 2020, Hanoi had the highest annual average of particular matter (PM) 2.5 among all Vietnam localities as per researchers from the University of Engineering and Technology. PM2.5 are airborne pollutants that are harmful and are easily absorbed in the bloodstream when inhaled.
In recent weeks, Hanoi has recorded an Air Quality Index (AQI) of 200 or more. A reading of 100 and above is considered harmful. The issue is exacerbated in the winter season which is dry with less winds. While the metro and the debated motorcycle ban have been discussed, more needs to be done so the issue does not become chronic. If it does recruiters may find it challenging to source top-level talent, while business leaders may consider shifting their operations to less polluted cities.
To accelerate economic recovery, Hanoi aims to prioritize implementing higher disbursement of public funds, pushing for administrative reforms, and effective budget management.
As the country’s political-economic-cultural hub, Hanoi can further address issues related to environmental pollution, traffic congestion, or the lack of quality human resources. Another strategy for Hanoi is to strengthen cooperation with neighboring localities to utilize their respective advantages in terms of the workforce or supporting industries.
In the coming time, Hanoi aims to attract high-quality FDI from South Korea, Singapore, Taiwan, the US, Europe, Australia, and New Zealand. In the meantime, the city is stepping up its efforts in preparing for the incoming wave of investment capital, including a plan to develop supporting industries by 2025, with a vision to 2030.
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