As of April 20, Vietnam attracted US$12.25 billion in foreign direct investment (FDI), equivalent to 99.3 per cent compared to the same period last year, according to the Ministry of Planning and Investment’s Foreign Investment Agency (FIA).

The four-month figure shows the FDI inflow was slowing down, said the FIA.

However, the agency noted the average size of newly-licensed projects and those registering to adjust their capital increased by less than $7 million per project in comparison with the same period last year.

The four-month period saw FDI projects disburse $5.5 billion, up 6.8 per cent over the same period last year, thanks to the recovery of production and business operations.

Related: How to acquire a company in Vietnam as foreign investors

Currently, Vietnam has 33,463 valid foreign investment projects with total registered capital of $394.9 billion. These projects disbursed $238.36 billion, or 60.4 per cent of the total valid registered investment capital, FIA reported.

FDI inflows to the country expanded by 18.5 per cent to $10.13 billion in the first three months of this year, the FIA said.

Of the figure, newly-registered capital reached $7.2 billion, up 30.6 per cent year-on-year, while adjusted capital increased by 97.4 per cent to $2.1 billion.

Meanwhile, capital contributions and share purchases by foreign investors stood at more than $1 billion, down 57.8 per cent from the same period last year.

The capital inflows cover 17 sectors, in which processing and manufacturing took the lead with $5.2 billion, accounting for 42.4 per cent of the combined investment, followed by electricity generation and distribution with $5.1 billion. Property and retail sectors accounted for $778 million and $464 million, respectively.

Among 67 countries and regions with newly licensed investment projects in Vietnam during the period, Singapore was the largest source of registered capital with $4.8 billion, accounting for 39.6 per cent of the total registered capital, followed by Japan with $2.5 billion, accounting for 20.5 per cent of the total registered capital and the Republic of Korea (RoK) with nearly $1.5 billion, accounting for 12.1 per cent of the total registered capital.

Foreign investors have invested in 53 provinces and cities nationwide, in which Long An Province took the lead with total registered investment capital of nearly $3.3 billion. Cần Thơ and HCM City were second and third with over $1.3 billion and $1.1 billion, respectively.

Export turnover including crude oil is estimated at over $80.6 billion, up 38.7 per cent over the same period last year, accounting for 78 per cent of the country’s export turnover. The import turnover is estimated at over $66.2 billion or an increase of 32.8 per cent compared to the same period last year, according to Vietnam News Agency.

Vietnam may be familiar to the American public, thanks to a long war fought in the 1960s and 1970s, but the country has begun to attract the attention of investors.

After shifting from a highly centralized planned economy to a socialist-orientated market economy, the country has become significantly more attractive to international investors looking to diversify into frontier markets.

Here is a look at Vietnam’s changing economy, how investors can gain exposure, and some important benefits and risks to consider.

Vietnam’s Changing Economy

Vietnam’s economy began as a largely agricultural feudal system until French colonization in the mid-19th century. After the country’s regions developed very different economies, they became further politically divided in 1954, with the north embracing communism and the south embracing capitalism, eventually setting the stage for the Vietnam War.

Between the 1970s and 1990s, Vietnam was a member of Comecon and heavily dependent on the Soviet Union and its allies. The dissolution of Comecon led to trade liberalization, currency devaluation, and a policy of economic development. Throughout the ensuing 1990s, tens of thousands of businesses were created and the economy grew at a rapid clip.

The growth briefly came to an abrupt halt during the Asian Financial Crisis in 1997, pushing the country to focus on macroeconomic stability rather than growth. Since then, the economy has grown to a gross domestic product (GDP) of $219.8 billion, stable credit rating, strong exports to the U.S., and modest public debt relative to its growth rates.

The country’s economy is heavily reliant on foreign direct investment to attract capital from overseas, but that capital has been producing strong economic growth. PricewaterhouseCoopers recently estimated that the country may be the fastest-growing of the world’s economies with a potential annual GDP growth rate of 5.2%, which would make it the world’s 20th largest economy by 2050.

Investing in Vietnam with ETFs

The easiest way to invest in Vietnam is by using exchange-traded funds (ETFs), which provide instant diversification in a single U.S.-traded security. With $387.7 million in assets under management and a modest net expense ratio of 0.7%, the Market Vectors Vietnam ETF (NYSE: VNM) is the most popular fund for investors looking for exposure to the country.

The Market Vectors Vietnam ETF offers exposure to publicly traded companies that are primarily domiciled and listed in Vietnam and/or generate at least 50% of its revenues from the country. As of December 2015, the fund held approximately 30 different companies consisting of 44% financials, 15% energy, and 14% consumer staples, among other sectors.

While this is one of the only ETFs offering exposure to Vietnam, investors should be aware that the fund is heavily weighted in financials (44%) and small-cap stocks (68%). These factors may make investors in the fund overexposed to financial concerns – such as interest rate changes – while experiencing greater volatility than larger blue-chip equities.

Benefits & Risks of Investing in Vietnam

Vietnam’s economy involves a number of different benefits and risks that international investors should carefully consider. While the country’s rapid growth rates may attract investors, they should carefully consider the higher risk profile, government controls, and reliance on key industries to support that growth over the long-term. These factors may make the country too risky for some portfolios.

The Benefits of Investing

• Rapidly Growing Economy. Vietnam’s economy has been growing at between 4% and 8% since its recovery from the Asian Financial Crisis of 1997.
• Self-Powered Economy. Vietnam relies on the petroleum industry for its domestic energy consumption and for export; crude oil production is expected to gradually decline.

The Risks of Investing

Socialist-orientated Economy. Vietnam may have transitioned from a centrally planned economy, but the government still controls many key industries.

Early Stage Market Economy. Vietnam remains at an early and vulnerable stage of its economic development and is, therefore, riskier than developed markets.

In related development, webinar Inside Out will be organised to provide business briefings and insights for Vietnam’s post-Covid investment opportunities.

Global Business Services (GBS) LTD and Vietnam Insider join hands to present the “Inside Out” webinar series, shedding light on Vietnam’s situation during the Covid-19 period to support foreign investors dealing with a dynamic business, regulatory, legal and operational landscape.

In the initial Inside Out webinar on 01 October, there will be presentations and Q&A from speakers as follows:

• Conditions in the Real Economy – Richard Burrage, Managing Director of Cimigo Vietnam
• Debtor Management in Covid-19 conditions: Oliver Schwartzhaupt, Chief Risk Officer, Vietnam Maritime Bank (MSB) and Dmytro Kolechko, Head of Risk Management Division, Vietnam Prosperity Bank (VP Bank)
• Legal framework & process – Tran Minh Thu (Katleen), Principal Lawyer, GBS
• Moderator: Rahn Wood, Partner of GBS
• The main focus of the webinar will be on the success of Vietnam in combatting the Covid-19 pandemic, the ongoing economic challenges, and Vietnam’s policies to recover and develop the economy.

The webinar aims to attract over 500 real-time viewers, who are individual investors, business owners and representatives from several investment funds, enterprises in different countries.

If you are a foreign investors, expatriate or business partner, who is hungry for insights about Vietnamese business conditions, this is where you can hear directly from leaders across sectors!