Foreign Investment: Creating New Economic Integration Opportunities

Foreign Investment: Creating New Economic Integration Opportunities

This is the 17^th year since the Law on Foreign Investment has been implemented in Vietnam, symbolising a 17-year history of the formation and development of a new economic sector in Vietnam. 

According to the General Statistics Office, from early this year to late June, Vietnam licensed 280 foreign-invested projects with a total registered capital of US$806.6 million. Of this figure, the industrial and construction sector accounts for 71.8 per cent in the number of projects and 59.5 per cent in capital; the agricultural, fisheries and forestry sectors, 13.2 per cent in number and 25.7 per cent in capital; and the services, 16.2 per cent and 15.8 per cent, respectively. This is a significant result, but experts say that foreign investment flows into Vietnam in the first half of this year and recent years are still lacking compared to other countries in the region. This is holding back Vietnam’s efforts for further international economic integration.

Despite some shortcomings, achievements in attracting foreign investment have created new opportunities for Vietnam to boost its international economic integration and to access the World Trade Organisation (WTO) in 2005. When this target is achieved, foreign investment activities in Vietnam will receive a great impetus.

Foreign investment has had significant results in Vietnam. Immediately after the Law on Foreign Investment was approved by the National Assembly in December 1987 to take effect on January 1, 1988, foreign investors arrived in Vietnam. In 1993, international donors resumed their official development assistance (ODA) for Vietnam. Furthermore, in July 1995, Vietnam accessed the Association of Southeast Asian Nations (ASEAN) and the Vietnam-EU Economic and Technical Co-operation Frame Agreement was signed. Since then, hundreds of bilateral trade, investment protection and encouragement agreements, including agreements with Japan and the US, have been signed. These agreements have a large impact at the macro level of the WTO.

Vietnam’s international relations policy of becoming a friend of all countries for peace, national independence, and mutual development, which is expressed via the openness of the country’s Law on Foreign Investment, has been welcomed and highly appreciated by the international community. As a result, Vietnam began to receive investment capital from many countries and territories. Internal and external strength earned Vietnam a high economic growth rate in the region and Vietnam recorded great achievements in its 1991-1995 and 1995-2000 five-year plans.

So far, except projects that have been terminated, total registered investment capital of operating foreign-invested projects has reached US$43 billion, higher than Vietnam’s 2003 gross domestic product (GDP) of about US$42 billion. Of this figure, more than US$25.5 billion has been realised. If disbursed ODA capital and capital of projects that have terminated are added, total foreign investment capital realised in Vietnam over the past 17 years has reached US$40 billion. This is an impressive sum, which has played an important role in helping Vietnam’s economy to gain a high growth rate of more than seven per cent per year for the past 15 years.

The openness of an economy is measured by the ratio between import and export turnover and GDP. Statistics show that Vietnam’s 2003 import and export turnover exceeded GDP by seven per cent and export turnover alone was equal to 47 per cent of GDP. This is also an indicator for Vietnam’s international economic integration. Notably, the foreign-invested sector has made great contributions. Comparisons made against previous years show that the export value of the domestic economic sector in 2003 increased by 33 per cent against that of 2000, while the foreign-invested sector saw an increase of 90 per cent. The foreign-invested sector’s export turnover (including crude oil) began to attain more than that of the domestic sector (51 per cent compared with 49 per cent). In June, Vietnam’s export turnover exceeded US$2 billion (US$2.05 billion) for the first time. In 1995, Vietnam earned US$500 million in monthly exports. By 2000, this figure reached US$1 billion. This high rise in the export turnover is driven by the high increase in industrial production in which the foreign-invested sector plays a leading role.

• P.V