May 124 min read

[Van Pham LLC] Vietnam Monthly Report - APRIL

Market Outlook

The European Chamber of Commerce in Vietnam's Business Confidence Index reached 52.8 points in Q1 2024, marking a significant increase in confidence among the Vietnamese business community. Optimism increased by 6 points to 45%, with over half of respondents expecting higher orders and revenues. 40% plan to expand their workforce, and 71% of businesses are optimistic about their long-term prospects in Vietnam. Vietnam's skilled workforce attracts European investors.

Vietnam Indicators

Vietnam Manufacturing Increases in April

The S&P Global Vietnam Manufacturing PMI increased to 50.3 in April 2024, marking the fourth time of growth in factory activity so far this year. New orders and foreign sales rebounded, while output increased marginally. However, job creation fell for the first time in three months, and backlogs of work accelerated. Delivery times remained unchanged, and input costs rose at a muted pace.

Vietnam's Inflation Rate Reachs 4.4%, a 15-Month High

Vietnam's annual inflation rate reached 4.4% in April 2024, the highest since January 2023. Food prices rose the most in eight months, with transport, housing, clothing, and health services also experiencing increased costs. Education costs moderated, while communication costs dropped. Core inflation increased to 2.79%, and consumer prices edged up 0.07% in April.

FDI in Vietnam Rose 7.4% YoY in January–April

Foreign direct investment in Vietnam increased to USD 6.28 billion in the first four months of 2024, while FDI pledges rose 4.5% to USD 9.27 billion.

Government Direction

Green transformation is a difficult path but cannot be avoided

Deputy Prime Minister Tran Hong Ha emphasized the necessity of green and circular economies in Vietnam, stating that while it is a challenging path, it is necessary for the country to adapt to the changing trends. Vietnam has implemented high-level documents, such as Resolution 24, strategies for green growth, climate change, and environmental protection, and is currently amending laws related to the electricity sector. The government plans to create a legal environment for green transformation and encourage businesses in technology, energy, and circular economy sectors.

Planning to attract semiconductor chip corporations to invest in Vietnam

Vietnam's Deputy Minister of Planning and Investment, Do Thanh Trung, emphasized the need to improve institutions, infrastructure, and human resources to attract large technology and electronics corporations. Vietnam has made progress in improving the legal system and business investment environment, and is currently researching an incentive mechanism for these corporations. The country is also developing high-tech industrial parks and national innovation centers to create an exceptional business environment.

Potential Industries:

Semiconductor

Lam Research Semiconductor Group, a leading chip manufacturing tool supplier, plans to develop a billion-dollar semiconductor factory and phase 1 supply chain in Vietnam. The company, headquartered in California, aims to expand its operations and diversify its supply chain in Asia. The group plans to cooperate with Seojin Company, which has factories in Bac Ninh and Bac Giang, and invest directly in Vietnam after phase 1.

Nvidia and FPT are investing $200 million to establish an AI factory in Vietnam, aiming to expand the country's cloud computing ecosystem. The factory will use Nvidia's latest technology platform, including the AI development application and framework in AI Enterprise and the H100 Tensor Core GPU graphics chip. The factory will focus on generative AI, vehicle autonomy, and green transformation. FPT plans to introduce Nvidia training content into university and high school teaching to develop high-tech human resources, with a goal of having at least 30,000 students access the program within five years.

Nvidia Group may also build an AI centre in Ho Chi Minh City, Vietnam, according to Vice-President Keith Strier. The city is currently working on a roadmap for applying AI to various fields, including administrative management, healthcare, education, and urban management. Nvidia plans to establish a research team, bring equipment, and relocate production departments to Vietnam. The city has the potential to develop and master the AI industry, with about one million IT engineers and a business ecosystem for IT and semiconductors. With over 100 universities, including Ho Chi Minh City National University, the city has the capacity to train AI professionals. Strier recommends investing in infrastructure, particularly cloud computing, to accelerate the construction of data centres and become one of the top-five global AI cities.

Legal Updates

Expedite the implementation process of Land Law

The Ministry of Natural Resources and Environment (MONRE) has drafted a proposal for a Resolution of the National Assembly amending and supplementing Article 1 of the Land Law No. 31/2024/QH15 (“the New Land Law") to allow the New Land Law to take effect from 01 July 2024, instead of 01 January 2025. The early implementation of the Land Law will facilitate the mobilization of land resources, timely resolution, and definitive handling of lingering land issues.

Additionally, the MONRE has prepared and submitted to the Government for issuance of Decrees guiding the implementation of the Land Law or regulations on land prices in accordance with the schedule set by the National Assembly.

VAT reduction extension

Based on the evaluation of the achieved results of the Value-Added Tax (VAT) reduction solution that has been implemented, the Government is currently submitting to the National Assembly for consideration, to allow the continuation of the policy of reducing the VAT rate by 2% for certain groups of goods and services currently subject to a VAT rate of 10% in the last 6 months of 2024 (from July 1, 2024, to December 31, 2024), and assigning the Government to organize and implement this policy. The simultaneous reduction of VAT across various sectors is an effort to support the overall economy of the Government of Vietnam. However, for sectors still subject to the 10% VAT rate, adjustments to pricing policies are necessary. Up to the present time, only sectors listed in the permission list are eligible for the 8% VAT rate, while specific sectors such as information technology, real estate, and insurance are still subject to the 10% VAT rate.