Vietnam’s auto industry saw its highest level of foreign direct investment thanks to loosened tax policies and rising personal incomes.

In 2016, total foreign direct investment capital of Vietnam reached USD24.4bn, an increase of USD1.7bn on previous year. The disbursement rate also increased with USD15.8bn disbursed compared to USD14.5bn in 2015.

Manufacturing industry continued to top the list as FDI increased annually with over 1,000 investments. The auto industry rose from fourth or fifth rank to second, above real estate, as it also received a substantial amount of investments last year with over 505 projects.

According to the Business Registration and Management Agency, loosened tax policies but more importantly, business opportunities from Vietnam's auto market due to rising personal incomes contributed to this change.

Auto industry receives huge FDI investments

Many firms have expanded their businesses with more branches and agencies instead of expanding production such as Mercedes, Audi, BMW and Ford. Mercedes opened 12 more distribution centres and Toyota increased its distribution outlets to 44. Ford opened 7 more distribution centres to 27 last year.

Many other high-end brands also have plans to expand business in Vietnam even though they do not have local manufacturing factories such as Porsche and Audi.

Car prices have dropped sharply and firms have to face tougher competition. Firms may not assemble cars in Vietnam but import completely built units when duties on imports, or completely built units from Southeast Asian countries is exempted in 2018.

However, 12 of 63 provinces and cities failed to attract any FDI projects last year, including many provinces with potential such as Hau Giang, Lam Dong and Ben Tre. Many localities only attracted modest numbers of investors with a capital of USD1m to USD5m per project.

Pham Chi Lan, member of the Advisory Group of the Vietnam National Assembly’s Economic Commission, said provinces failed to attract FDI projects because of their development planning.

"You can't blame the infrastructure or human resources forever because many localities have found solutions to their problems. This begs question about the capability of these provinces. What can they do asides from asking for financial support from the government while state budget revenues are being limited?" she said.