FDI relocation "wave" still unclear as Vietnam faces competition from India, Thailand, Indonesia
Vietnam has a great opportunity to receive new FDI, but it has been warned of the ‘the other side of the coin’.
According to the General Statistics Office (GSO), foreign investors registered $15.7 billion of FDI in the first six months of the year, a 15.1 percent decrease compared with the same period last year.
As many as 1,418 new investment projects were licensed with total registered capital of $8.5 billion.
This included $8.5 billion worth of 1,418 newly registered projects, which represented a decrease of 17.7 percent in number of projects and the increase of 13.8 percent in registered capital.
|Singapore was the biggest investor with $4.3 billion worth of investment capital, which accounted for 51.3 percent of capital of newly registered capital, followed by China, Taiwan and Hong Kong.|
Singapore was the biggest investor with $4.3 billion worth of investment capital, which accounted for 51.3 percent of capital of newly registered capital, followed by China, Taiwan and Hong Kong.
According to Pham Dinh Thuy from GSO, the first signs of the tendency of relocating FDI to East Asia and Southeast Asia, including Vietnam, were seen in 2018.
He agrees with analysts that Vietnam can receive investment benefits from the US-China trade war and Covid-19, but it will still need time to observe and analyze statistics to assess the movement.
Foreign invested enterprises (FIEs) receive big benefits from Vietnam’s policies which allow them to enjoy low taxes and access land and human resources at low costs.
However, other regional countries also have advantages like Vietnam’s, including Indonesia, India and Thailand. Foreign investors have a large choice of which countries to set their factories.
“It is not simple to relocate investment from one country to another. Investors will have to thoroughly consider the relocation costs and incentives offered by countries where they plan to move,” Thuy said.
An analyst said it takes manufacturing enterprises 2-5 years to implement the relocation, because global supply chains have been fixed for many years.
Nguyen Van Toan, deputy chair of the Vietnam Association of Foreign Invested Enterprises (VAFIEs), said that Vietnam has a great opportunity to catch the FDI relocation wave, but it needs to reform to attract high-quality investments.
However, Toan said Vietnam needs to be very cautious when attracting FDI. “it may happen that foreign investors declare that their machines and technologies’ prices are higher than the real value to avoid tax.
“This is a type of transfer pricing, a fraud that all FDI attracting countries need to be vigilant about, ” Toan said.
Nguyen Xuan Phu, chair of Sunhouse Group’s board of management, said Vietnam at furst had to do outsourcing for foreign businesses. However, now enterprises need to upgrade, master technologies and better understand clients to build their brands and export products.
COVID-19 outbreak to accelerate relocation wave from China to Vietnam
While COVID-19 will have a negative impact on Vietnam's economic growth in 2020, it will boost the relocation of manufacturing facilities from China to Vietnam.
Land price escalates on news about FDI 'wave'
“Someone said the land rent in IZs has surged to $150-200 per square meter. But rent of $100 is considered high already,” said Do Nhat Hoang, director of the Foreign Investment Agency (FIA).