The FDI angle

• Vietnam attracted $460m in FDI for data centres in the first half of 2024, surpassing Thailand and the Philippines.
• Power outages and limited subsea cables hamper Vietnam's infrastructure, risking future FDI growth.

Why it matters: Vietnam's regulatory reforms have sparked FDI in data centres, but infrastructure gaps pose risks. Addressing power and connectivity issues is crucial to sustaining this momentum and enhancing regional competitiveness.

Foreign investors have begun to show interest in Vietnam’s emerging data centre market as the government eases regulatory barriers, but infrastructure challenges risk slowing the south-east Asian country’s ability to catch up with its regional rivals.

New projects in the sector have been announced at record pace in the first half of 2024. However, blackouts have previously failed to “inspire investor confidence” and the “national power grid remains a short- to medium-term constraint”, notes Daryl Cox, a partner at international law firm King & Wood Mallesons. 

Nascent market

In the first six months of 2024, Vietnam attracted three FDI projects to build data centres, compared with just seven projects in the previous seven years, according to fDi Markets, a greenfield investment monitor.

The three facilities announced in 2024, with an estimated capital investment of $460m, place Vietnam above Thailand and the Philippines and on par with Singapore for data centre projects so far this year, while Malaysia and Indonesia are the only nations to achieve higher capital investment flows.

These FDI projects have been followed by an amendment to the country’s Telecommunications Law, which came into effect in July 2024, removing the previous cap that limited foreign companies to no more than 49% ownership of Vietnamese data centres.

Thuy Anh Nguyen, director at Vietnam-focused asset manager Dragon Capital, tells fDi that the amended law “is seen as an exciting development that could herald the start of a wave of foreign investment in this market”.

Infrastructure deficiencies

Despite these early signs of FDI interest, infrastructure bottlenecks continue to hamper the potential of the Vietnamese data centre market as regards two of its main factors of success: a stable power supply and high-speed international data connections.  

The national power grid has struggled to keep up with peak demand, which led to power outages, particularly in the north of the country. The World Bank estimates that power outages in May and June 2023 have cost the Vietnamese economy $1.4bn, or 0.3% of its GDP. 

Daniel Nicholls, managing director of FDI consultancy Destination Strategies, tells fDi that power outages are most prevalent in the north of the country, with steps being taken to increase “[power] supplies from neighbouring regions such as central Vietnam to the south, and Laos to the west”.

One of these steps is the development of the $916m Circuit-3 transmission line, which connects Hung Yen province in the north to Quang Binh in central Vietnam.

Mr Cox from King & Wood Mallesons also highlights recent reforms that enable data centre operators to strike direct power purchase agreements with renewable energy suppliers.

At the same time, five submarine fibre optic cables connect Vietnam with the  international data network. All of these existing routes went down simultaneously in 2023, while three of the five experienced outages in June 2024. At least 10 new subsea cable routes are now planned for completion by 2030. 

More on data centers and tech investment in Europe:

• Aragon primed to become Europe's new data centre hub
• Big tech tussles boost US clout in emerging markets
• Mipim 2024: Is Europe's data centre boom coming to tier 2 markets?
• UK's Virtus invests €3bn in AI data campus in Germany

Big Tech interest 

While the government takes steps to address these issues, Big Tech companies are taking their first steps in the country’s data centre market. China-based e-commerce multinational Alibaba set out plans for a data centre in May, while fellow Chinese firm Huawei will build a data centre when the “market demand reaches a certain threshold”, according to Huawei Vietnam Solutions director Dao Quang Vinh when speaking to local news outlet VietNamNet.

A major development has been the possible market entry of Google, with the company weighing up plans for a hyperscale data centre near Ho Chi Minh City that, if given the go-ahead, will commence operations by 2027. The company declined to comment on fDi’s questions.

Ms. Anh Nguyen suggests Vietnam “represents a very attractive market for Big Tech” because of the local population, which is a “force for consumption”. This force has been awakened and achieved near-uninterrupted growth during the 21st century, with the percentage of the population using the internet starting at just 2% in 2002 and reaching 73% by 2022.

In July 2024, the Ministry of Information and Communications stated that internet usage rate is expected to hit 78.1%. While the number of people who have not used internet infrastructure remains “relatively large”, there has been growth across several metrics, including mobile and fixed broadband subscriptions, and smartphone users.

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