What Hanoi’s FDI and Infrastructure Tell Us About Its Business Environment

• Despite the pandemic, Hanoi remains a top FDI destination and continues to attract investment.
• The capital city has a great business environment, infrastructure, top-sourced talent, and a great business environment.
• The government announced an economic recovery plan that will last five years and has a vision for 2030 to attract more investment.

Vietnam’s capital Hanoi is home to the largest economy in the country. Northern Key Economic Region (KER).With six other provinces or cities including Hai Phong.

It is home to 8.2million people, second only to Ho Chi Minh City’s 8.8 million. It is highly competitive because of its infrastructure, business environment, and higher percentages of trained, employed workers in the workforce.

Hanoi continues to attract FDI

Despite COVID-19 Hanoi is still a leading destination for foreign direct investments (FDI). With US$3.83 million, Hanoi was ranked number three in the country for FDI attraction in 2020.

The city’s total registered FDI capital reached US$1,467 millions in the first 11 months 2021. This includes US$798 million that was added to 343 projects and 93 existing projects. Hanoi was second in terms of the number and amount of share-purchase projects.

Hanois gross domestic product (GRDP), grew by 1.23 per cent in the first three quarters (2021) compared to 2020. It is expected that its fourth quarter growth will increase by 6.69 percent year on year, bringing the 2021 growth rate to 2.92 percent.

Hanoi and Ho Chi Minh City have the highest concentration of Vietnamese enterprises. Hanoi attracted more than 201,000 businesses from all sectors of the economy to the city in 2021, accounting for 23.7 per cent of the total number operating enterprises in Vietnam.

The investment capital from Hanoi’s State budget took the lead in Vietnam within the first two months 2021. It had reached US$230 million (VND5.3 Trillion) by February. This was an increase of 22.1 percent over the previous year. It was five times higher than that of Ho Chi Minh City.

The PCI ranks high

Hanoi was ranked ninth among the 63 provinces of the 2020 Provincial Competitiveness Index (PCI) for three consecutive years, maintaining its position within the five-tiered High Category of the PCI.

Investors love Hanoi for its excellent investment and business climate. However, Hanoi remains in ninth place with some sub-indexes dropping. This means that the city must make more efforts to improve its business environment.

This is why theHanoi Peoples CommitteeIssued 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 includes allowing all business registration dossiers to be handled online and ensuring that business registration procedures are settled on time or ahead of schedule.

Reforms by the government to encourage 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.

In terms of trade promotion and agricultural, Hanois is paying attention to developing export markets. This will allow Hanois goods be more competitive, and help them enter potential markets.

Many policies and reforms have been issued by Hanoi to help businesses overcome economic downturns caused by COVID-19. In November 2021, the city published Plan No.246/KH-UBNDa safe, flexible, and adaptable economic recovery, and effective control over the pandemic in both the fourth quarter of 2021 and 2022.

Hanoi will continue to support the healthcare system, maintain sustainable economy development, and ensure balance in the budget in light of this plan. The city also plans to implement more administrative reforms, improve investment and business environment.

Hanoi supported 1.82million employees and employers with funds in excess of US$43 millions during the first quarters 2021. 38,000 businesses were also benefited by the exclusion and reduction of taxes and extended payment times.

Key industries need an economic recovery plan

Technology

Hanoi hopes to be one the five most prominent localities in Vietnam for digital transformation, information tech, innovation, cybersecurity, and other related matters by 2025. Hanoi has adopted the National Digital Transformation Programme (by 2025), with a vision towards 2030 to develop digital government and digital economy as well as a digital society.

The capital has set the target to raise the contribution of the digital economy in the citys GRDP to 30 percent, with a 7-7.5 percent growth in labor productivity while facilitating the city’s startup ecosystem.

The city plans to have all households with digital addresses registered by 2025, and 95 percent of the population owning at most one smartphone. While 4G/5G services are commercialized, smartphones and other 4G/5G devices will be commercialized. This falls under Hanoi’s plan to become a smart city with the most advanced technology landscape.

Construction projects

In the future, priority will be given to transport construction projects. Local authorities have stated that the construction of high-rise buildings will remain under strict control, while universities, factories and hospitals will move to the outskirts.

According to authorities, land area for transport projects should make up between 12-15% of all construction land by 2025. This is nearly 50 percent more than in 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.

The metro is expected to reduce traffic congestion in Hanoi caused by nearly 700,000 cars and 5.7 million motorbikes. Hanoi plans to build nine more lines by 2030, with the goal of drastically reducing traffic congestion and pollution.

Local authorities have also taken careful measures to improve Hanoians’ quality of life. Hanoi recently approved a plan to develop housing between 2021-2025. Apartment projects will be responsible for 90% of the city’s housing development plan. Hanoi will also allocate US$21.74million (VND500billion) in 2021-2025 for inspections and quality assessments of all existing apartments.

Tourism

Tourism was the most affected industry in the first nine months 2021. The number of domestic visitors decreased by 18.9 percent, while international visitors declined by 85.5 percent.

Hanoi expects strong tourism development and recovery with the gradual removal of COVID-19 and restrictions.

Hanoi authorities have created many new product packages and improved the quality of tourism services. Resolution No. 50/NQ-CPThe government has issued seven key tasks to promote the tourism industry between 2021-2025. These include infrastructure investment, digital application, and infrastructure investment to improve tourism and human resource quality.

In November, the number domestic tourists increased by 2.6% compared with the previous month. Vietnam has not yet fully opened its doors to foreign tourists. Therefore, most foreigners who visit Hanoi are professionals and workers. Hanoi will continue its efforts to improve the industry’s recovery by focusing its efforts on domestic tourists, while also preparing for further opening measures.

Priorities to stimulate growth

Over the next five year, Hanoi hopes to attract as much as US$40 billion in foreign direct investment. Hanoi will work with foreign and local organizations to promote urban planning. Hanoi has stated its aim to provide clean water for all households by 2025, and to treat urban sewage at 50 to 55 percent of the rate in the socio-economic development plan 2021-2025.

The Hanois People Committee included science, technology and innovation in its 2021-2025 strategy and direction to 2030. This strategy will place emphasis on digital transformation, smart city, supporting start-ups in digitalization, innovation, and hi-tech agriculture.

Hanoi plans to create 150,000 more enterprises in the next five-year period, which is equivalent to 30,000 new ones.

To attract high-quality FDIprojects, the city will also address issues such as slow development of clusters and industrial zones, high land rentals and small-scale support industries. Hanoi recently announced a targeted program to reduce traffic congestion in the city for the 2021-2025 periods with total funding of US$80million (VND1.8 trillion).

Hanoi aims to eliminate seven to ten congestion hotspots each year and to gradually reduce traffic accident rates by 5-10%. This will help improve the environment and air quality, while reducing road transport pressure. Hanois’ position in the national struggle against traffic congestion will be facilitated.

Air pollution

The city has been plagued by chronic air pollution due to Hanois rapid development. According to researchers from the University of Engineering and Technology in Hanoi, Hanoi had the highest level of particular matter (PM2.5) among all Vietnam cities in 2020. PM2.5 are dangerous airborne pollutants that are easily absorbed into the bloodstream.

Hanoi has seen an increase in the Air Quality Index (AQI), to 200 in recent weeks. A reading above 100 is considered to be dangerous. This problem is magnified in winter, when there is less wind and dryness. The metro and the controversial motorcycle ban have been discussed. However, more must be done to ensure that the problem does not become a chronic one. If it does, then recruiters might find it difficult to source top-level talent. Business leaders may also consider moving to cleaner cities.

Outlook

Hanoi intends to accelerate economic recovery by prioritizing higher disbursement public funds, pushing for administrative reforms and effective budget management.

As the countrys political-economic-cultural hub, Hanoi can further address issues related to environmental pollution, traffic congestion, or the lack of quality human resources. Hanoi also has the option of strengthening cooperation with neighbouring communities to leverage their respective strengths in terms workforce or supporting industry.

Hanoi aims at attracting high-quality FDI from the US, Europe and Australia in the future. The city is working to prepare for the next wave of investment capital. It has a plan to develop supporting industries by 2020 and a vision for 2030.