Harnessing further FDI to Vietnam

Since national reunification in 1975, Vietnam’s economy has grown from strength to strength. Senior economist Nguyen Mai writes about how the economy has developed in that time, with foreign direct investment serving as one of the key driving forces.

1489p7 harnessing further fdi to vietnam
Senior economist Nguyen Mai

Vietnam achieved its national reunification on April 30, 1975, fulfilling its strong aspirations, with the sacrifice of many generations of Vietnamese people.

Currently, the country is fighting another enemy – the global coronavirus pandemic, demonstrating its people’s brainpower, creativity, and discipline. This has become a role model for many nations to apply.

During its national construction and development, attraction of foreign direct investment (FDI) has become a bright colour in the Vietnamese economic picture as it has been an important and stable impetus for the economy over the past three decades and more.

As of March 20, Vietnam had nearly 31,670 valid foreign-invested projects registered at $370.1 billion, of which 58.3 per cent, or $215.6 billion, has been disbursed. Some 19 out of 21 economic sectors have been home to FDI, with processing and manufacturing achieving $216.7 billion registered FDI (58.6 per cent of the economy’s total), property business $58.6 billion (15.8 per cent), and electricity production and distribution $27.7 billion (7.5 per cent).

As many as 136 nations and territories have been investing in Vietnam, including South Korea with $68.6 billion in registered capital (18.5 per cent), Japan $59.7 billion (16.1 per cent), followed by Singapore, Taiwan, and Hong Kong. In 2018 and 2019, Vietnam was among the world’s list of top 20 largest FDI attractors.

All 63 cities and provinces have also attracted FDI, including Ho Chi Minh City with registered $47.5 billion (12.8 per cent), Hanoi $34.64 billion (9.4 per cent), and the southern province of Binh Duong $34.61 billion (9.3 per cent).

Foreign-invested enterprises (FIEs) have been providing jobs for 4.5 million direct local labourers and millions of indirect labourers. They hold 23-25 per cent of total national development investment capital, and create over 50 per cent of industrial production value, while helping the country develop a modern financial and banking system. They also hold 70 per cent of the nation’s total export turnover, and are responsible for 20 per cent of state budget and 20 per cent of GDP.

FIEs have helped Vietnam engage further in international integration since doi moi and the opening door policy were launched, contributing to supporting Vietnam to get out of international embargo, and recover its relations with many nations and international organisations. Moreover, FIEs have also helped Vietnam enhance its status and prestige in the region and the wider world.

However, FDI has also created burning issues about environmental protection, transfer pricing, tax evasion, low technology, labour dispute, goods origin, and even national security and defence. This would need improvements in state management capacity and sound policies to ensure the benefits of both Vietnam and investors.

1489p7 harnessing further fdi to vietnam
Foreign direct investment makes up a fifth of Vietnam’s GDP, illustrating its position as an economic driver. Photo: Freepik.com

Recent performance

Over the past three months, coronavirus has had negative impacts on the Vietnamese economy, with first-quarter GDP growing only 3.82 per cent on-year, and attracted FDI reduced on-year.

From January to March 20, disbursed FDI hit $3.85 billion, equal to 93.4 of that in the same period last year. Newly-added and stake acquisition-based FDI touched $8.55 billion, tantamount to 79.1 per cent of that in the corresponding period last year.

However, thanks to the Bac Lieu liquefied natural gas plant registered at $4 billion, the total registered FDI in the period reached $5.5 billion for 758 new projects. Thus the remaining 757 projects were registered with $1.5 billion, meaning about $2 million for each project – equivalent to 50 per cent of the same period last year.

In the first quarter of this year, FIEs’ production and business suffered from different impacts as they are in different sectors. The sectors of garments and textiles, beer, fisheries, hotels, and leased offices have been hit harder than the sectors of electronics and computers, for example.

Production developments in January and February differed from those in March. Many enterprises faced difficulties in importing materials in the first two months due to the outbreak in China, which is Vietnam’s key supplier of materials of garments and textiles, footwear, and electronic components. Many enterprises stopped operation in mid-March.

However, since early March when Vietnam and China resumed their trade activities, the pandemic has attacked Europe and the US which are also major partners of Vietnam. This has forced many partners in these markets to reduce or cut orders from Vietnamese firms, making it hard for Vietnam to produce and export goods to Europe and the US.

For example, Tan Thuan Export Processing Zone in Ho Chi Minh City has 168 operational enterprises with 56,000 Vietnamese employees and 585 foreign employees. So far, 33 enterprises are hit by COVID-19, leaving almost 6,000 workers in temporary unemployment and 1,000 in permanent unemployment.

 

In the first quarter of this year, FIEs’ total export turnover, including crude oil exports, hit $40.4 billion, equal to 97.1 per cent of that in the same period last year, and occupying 70.8 per cent of the economy’s total export turnover.

FIEs’ total import turnover sat at $33.18 billion, down 0.8 per cent on-year, and accounting for 59 per cent of the country’s total import turnover.

It has been for the first time that FIEs’ export-import turnover has seen a drop after many years of consecutive increases. However, the economy still witnessed a trade surplus of $7.2 billion, though locally-invested enterprises saw a trade deficit of $4.4 billion.

A brighter future

It is now difficult to forecast the sabotage level of the pandemic on the global economy, including the Vietnamese economy.

The International Monetary Fund and the World Bank have recently forecast that the global economic growth this year may be below zero, while Vietnam is expected to grow below 5 per cent.

However, some optimistic signals have been seen as China has begun to recover its economy, with many enterprises bouncing back. South Korea has also seen a reduction in new positive cases. This is contributing to a bright outlook for the sectors of aviation, tourism, and trade and investment between Vietnam and these nations.

Meanwhile, Vietnam’s fight against the pandemic is also witnessing positive development. The government and the State Bank of Vietnam have asked commercial banks and localities to deploy financial and fiscal packages to support enterprises and people. The packages are worth many billions of US dollars via direct loans and reductions and exemption of assorted taxes and fees, as well as simplified administrative procedures.

In addition, the business community has also been implementing activities for mutual support, with business associations instructing their member enterprises to conduct new production and business plans and strategies, in line with the government’s post-pandemic plans, in which there will need a boost in innovation, renewal of growth model, with a stress laid on improving the quality and effectiveness of socio-economic development. This is aimed to translate the nation’s aspiration for prosperity into a reality.

In 2020, despite massive difficulties facing enterprises, IT and digital technology are strongly developing, with 5G to be deployed nationwide. Meanwhile, many enterprises are greatly interested in applying solutions related to the circular economy, and localities are reaping achievements in their shift to a digital economy, with many successful models about organic agricultural production.

This year is also the second one for the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, while it is expected that the EU-Vietnam Free Trade Agreement will take effect in July. These will create new opportunities for Vietnam to expand trade and investment ties with the wider world.

Regarding economic growth, the Ministry of Planning and Investment forecast that the economy may grow 5.32 per cent this year if the pandemic ends in the second quarter of the year.

However, some economic experts hold that if the government’s policies are well implemented, and enterprises have good conditions to recover their performance, it is likely that the economy can grow 6.8-7 per cent this year.

Foreign investors are showing their big confidence in the Vietnamese economic outlook thanks to the country’s sturdy actions to help them out of difficulties and cope with the pandemic.

According to the Politburo’s resolution on attracting foreign investment, prioritising high-tech and clean sectors, it targets FDI of $30-40 billion a year in 2021-2025 and $40-50 billion a year in the 2026-2030 period, and disbursement rates of at least 66 and 75 per cent respectively.

Now is the time for the nation to boost its institution and simplify its administrative apparatus, and rev up innovation. This will determine the speed of economic recovery after the pandemic, and implement the target of attracting more high-quality FDI inflows. VIR

Nguyen Mai

COVID-19 presents opportunities to attract more FDI

COVID-19 presents opportunities to attract more FDI

The COVID-19 pandemic has had a serious impact on Vietnam’s economy but it’s also believed to create the conditions to attract more FDI as there have been signs of a switch in capital flows away from China and to ASEAN member countries.

Grounds for new hope to unfreeze FDI process

Grounds for new hope to unfreeze FDI process

Vietnam’s foreign investment picture in the first quarter of 2020 showed the hardest downtrend in over a decade since the 2003 SARS pandemic, as the current coronavirus continues to thrash manufacturing, real estate, retail, services, and tourism.

 
 

Other News

.
Proper mechanism needed to export farm produce by sea to China
Proper mechanism needed to export farm produce by sea to China
BUSINESSicon  15/01/2022 

The Ministry of Agriculture and Rural Development and the Ministry of Transport recently co-hosted a conference on promoting the export of agricultural products through maritime transport as a way of devising a proper mechanism for farm exports.

Hanoi to establish 2-5 new industrial parks by 2025
Hanoi to establish 2-5 new industrial parks by 2025
BUSINESSicon  15/01/2022 

The Hanoi government has approved a plan to establish an additional two to five new industrial parks (IPs) in the 2021-2025 period.

What’s behind Tan Hoang Minh’s sky-high bidding price?
What’s behind Tan Hoang Minh’s sky-high bidding price?
BUSINESSicon  15/01/2022 

Tan Hoang Minh won the bid in a ‘duel’ to buy the 3-12 land plot in Thu Thiem new urban area in HCM City, but finally gave up.

Vietnamese FDI attraction likely to hit US$40 billion this year
Vietnamese FDI attraction likely to hit US$40 billion this year
BUSINESSicon  15/01/2022 

Amid rapid economic recovery following the COVID-19 pandemic, Vietnam’s foreign direct investment (FDI) attraction this year is anticipated to record positive signs and hit US$40 billion, according to insiders.

Agriculture Ministry denies that cross-border exports are low-quality products
Agriculture Ministry denies that cross-border exports are low-quality products
BUSINESSicon  15/01/2022 

Vietnam exported $3.52 billion worth of vegetables and fruits in 2021, an increase of 8.6 percent over the year before. China remains the biggest client consuming 54.5 percent of the exports.

Online shoppers warned of cunning tricks
Online shoppers warned of cunning tricks
BUSINESSicon  15/01/2022 

Along with the popularity of online shopping in Vietnam come several cunning tricks of criminals to steal money from consumers. 

Vietnam to be Asia's next startup hub
Vietnam to be Asia's next startup hub
BUSINESSicon  14/01/2022 

In an interview with Bloomberg recently, Binh Tran - co-founder of Ascend Vietnam Ventures - said that Vietnam's nascent start-up sector is developing and Vietnam is becoming the next technology hub of Southeast Asia.

Police ask for documents of 11 Hanoi-based projects of Tan Hoang Minh Group
Police ask for documents of 11 Hanoi-based projects of Tan Hoang Minh Group
BUSINESSicon  14/01/2022 

The Police Agency for Investigation of Crimes on Corruption, Economy and Smuggling (C03) of the Ministry of Public Security has asked the Hanoi People's Committee to provide documents related to projects based in Hanoi of the Tan Hoang Minh Group.

US$15 billion bailout package a stimulus to economic recovery
US$15 billion bailout package a stimulus to economic recovery
BUSINESSicon  15/01/2022 

Given the severe impact of COVID-19, the National Assembly’s recent approval of a VND350 trillion (US$15 billion) economic recovery package is considered by businesses and experts as an extremely important leverage and motivation moving forward.

HAGL sells over 48 million shares to pay debts
HAGL sells over 48 million shares to pay debts
BUSINESSicon  14/01/2022 

Hoang Anh Gia Lai Joint Stock Company will sell more than 48.1 million shares of its subsidiary HAGL Agrico (HNG) from January 17 to February 15 to pay debt.

Lang Son to stop receiving fresh fruit vehicles from Jan 17 to Tet
Lang Son to stop receiving fresh fruit vehicles from Jan 17 to Tet
BUSINESSicon  14/01/2022 

The northern province of Lang Son has announced that it would stop allowing vehicles transporting fresh fruits to its border gates for export to China from January 17 until the lunar New Year holiday or Tet.

VIETNAM BUSINESS NEWS JANUARY 14
VIETNAM BUSINESS NEWS JANUARY 14
BUSINESSicon  14/01/2022 

Cashless payments account for over 70 percent of retail transactions in 2021

Stock market sets new record on billion dollars of capital inflow
Stock market sets new record on billion dollars of capital inflow
BUSINESSicon  14/01/2022 

The Vietnamese stock market continued to reach another historic record, with the largest number of new accounts opened in December after 21 years of operation.

WB forecasts Vietnam’s growth at 5.5 percent in 2022
WB forecasts Vietnam’s growth at 5.5 percent in 2022
BUSINESSicon  14/01/2022 

The World Bank (WB) has forecast that Vietnam’s economic recovery is likely to accelerate in 2022 as GDP growth is expected to rise to 5.5 percent from 2.6 percent in the year just ended.

Vietnam reconsiders electricity sources after making international energy commitments
Vietnam reconsiders electricity sources after making international energy commitments
FEATUREicon  14/01/2022 

Vietnam’s commitments at 26th United Nations Climate Change Conference of the Parties (COP 26) will have a big impact on the country’s energy system. 

Vietnam’s economic growth forecast to rebound strongly in 2022
Vietnam’s economic growth forecast to rebound strongly in 2022
BUSINESSicon  13/01/2022 

Some foreign financial organisations have issued relatively positive predictions for Vietnam’s economy this year, with growth expected at 6.5 - 6.7 percent.

Three factors behind FDI attraction in Vietnam
Three factors behind FDI attraction in Vietnam
BUSINESSicon  13/01/2022 

Low labour costs, a geographical location close to Asian supply chains, and Japan and the Republic of Korea (RoK)'s efforts to promote greater overseas investment are considered as three factors in boosting Vietnamese foreign direct investment (FDI).

Live streaming attracts young people to earn money
Live streaming attracts young people to earn money
BUSINESSicon  13/01/2022 

Making money on online platforms and social networks is increasingly popular in the labor market, streamer jobs have become popular keywords for many young people.

Ample room for Vietnam's aviation investment
Ample room for Vietnam's aviation investment
BUSINESSicon  16/01/2022 

Private investors will have more options to invest in aviation infrastructure, which has been dominated by state-owned enterprises. 

Power Development Plan VIII under revision again
Power Development Plan VIII under revision again
BUSINESSicon  13/01/2022 

The draft Power Development Plan VIII is being revised again and expected to be submitted to the Prime Minister for approval in the first quarter of 2022.

 
 
 
Leave your comment on an article

OR QUICK LOGIN