Golden Opportunity to Catch FDI Wave

9:20:21 AM | 6/29/2020

With its successful containment of the Covid-19 pandemic, Vietnam has become a bright spot for world investment flows. Besides, investment flows have started to move out of China. Many foreign business delegations have already arrived in Hai Phong, Dong Nai and Binh Duong to seek investment opportunities. This is a golden opportunity for Vietnam to catch this redirected FDI wave. Our reporter has an interview with Mr. Do Nhat Hoang, Director of the Foreign Investment Agency (FIA), the Ministry of Planning and Investment (MPI). Ha Thu reports.

What do you think about FDI attraction into Vietnam over the past time amid the Covid-19 pandemic?

The Covid-19 pandemic has caused a negative impact on the world economy, in which stalled production, disrupted global supply chains, increasing global costs, and preventive measures (such as lockdowns, social distancing and business closure) have immobilized social and economic activity in many countries. The United Nations Conference on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development (OECD) both agreed that the pandemic is expected to reduce global FDI by at least 30% in 2020-2021, the lowest level in two decades.

In Vietnam, hit by Covid-19, potential investors delayed their work to explore investment opportunities, including (i) exploring investment opportunities at seminars, business forums, investment promotion forums and other events; (ii) the entry and travel of investors; and (iii) the transfer of capital, machinery, equipment and production lines. However, with its drastic and effective solutions, highly appreciated by the world, foreign investment flows into Vietnam are expecting to rebound toward the end of the year and generate momentum for 2021.

As of May 20, 2020, the total foreign investment capital reached US$13.89 billion, 83% that of the same period in 2019. Disbursed investment is estimated at US$6.7 billion, 91.8% that of the same period of last year. The above result is lower than that of the same period, but given the context of the sharp global investment decline due to the impact of the Covid-19 pandemic, it is better than that of many other countries, showing the attractiveness of Vietnam in the eyes of international investors.

By value, the registered capital is still higher than that of the same period in 2016-2018 (40.3% higher than in 2018, 11.5% higher than in 2017 and 36.7% higher than 2016). The average value for a registered project increased from US$4.7 million in 2019 to US$6.1 million in 2020. Newly registered capital increased by 15.2% and additional capital increased by 31.4% over the same period in 2019.

Regarding current FDI flows, among Southeast Asian countries considered by investors as new destinations, what are Vietnam’s competitive advantages?

The shift of supply chains and investment restructuring of multinational corporations have been taking place for years, but become more vibrant in recent years due to: (i) trade conflicts among major economies, and; (ii) risk avoidance of dependence on the supply chain in a country or a partner. The recent Covid-19 pandemic has accelerated this transition process, quickened the investment repatriation to home countries or redirected investment to other countries with a competitive advantage.

In Asia, China still attracts most foreign direct investment (ranking second in the world only behind the United States in 2019). However, in the context of multilateralization and diversification trends, multinational corporations are still looking to other new economies such as India, Indonesia and Vietnam to restructure the supply chain to optimize return on investment. In this trend, Vietnam is highly appreciated by the international community as an attractive and safe investment destination.

According to international experts and investors, Vietnam has outstanding competitive advantages like stable political background, high and stable economic growth for many years, competitive investment costs and high incentives as compared to regional countries, extensive integration into the world economy with active entry into and signing of new generation free trade agreements, and an abundant dynamic and skilled workforce that accounts for 65% of the population. Other pluses include a giant market of nearly 100 million people, ranking 15th in the world by population, of which the middle class is increasing; active administrative reforms and investment environment improvement; and a strategic geographic location in the heart of Asia that bridges China and ASEAN countries. Furthermore, it takes 3-5 hours to fly to major and dynamic economic centers such as China, India, Singapore, Japan, South Korea, Taiwan and ASEAN countries.

According to recent remarks by international organizations, the business investment environment in Vietnam has improved dramatically and gained high appreciation. The magazine U.S. News & World Report ranked Vietnam No. 8 among the 20 best economies in the world for investment in 2019, climbing 15 places over 2018. In October 2019, the World Bank ranked Vietnam’s ease of doing business at No. 70 out of 190 economies in 2019-2020. According to the World Economic Forum (WEF) in October 2019, Vietnam's Global Competitiveness Index 2019 ranked No. 67 out of 141 economies, 10 places higher than in 2018).

With the successful containment of the Covid-19 pandemic, Vietnam has been highly appreciated by the international community and become a safe and attractive investment destination for foreign investors.

To recover and develop the economy in the post-Covid-19 period, to facilitate enterprises to invest and do business, the Government issued Resolution 84/NQ-CP dated May 29, 2020, on tasks and solutions to further tackle difficulties against enterprises, increase public investment disbursement and ensure social security and Resolution 68/NQ-CP dated May 12, 2020, on the regulatory reduction and simplification program for business in 2020-2025.

Recently, the National Assembly of Vietnam also ratified the EU - Vietnam Free Trade Agreement (EVFTA) and the EU - Vietnam Investment Protection Agreement (EVIPA). These agreements, together with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), effective from January 2019, opened vast room for cooperation, formed an expressway connecting Vietnam with major economies in the world. Made-in-Vietnam products will be entitled to special tariffs in member states.

In the latest gathering, the lawmaking National Assembly adopted some laws concerning investment and business such as the amended Law on Investment, the amended Law on Enterprises, and the Law on Public-Private Partnership (PPP). These laws are very important to socio-economic development of Vietnam. Particularly, the amended Law on Investment supplements clear, transparent regulations, simplified procedures, increased decentralization, and added special preferences for quality investment projects. Priority is given to high-tech, innovation, influential investment projects that pledge to engage Vietnamese enterprises into supply chains and cooperate in human resource training; have high added value and contribute positively to the socio-economic development of Vietnam.

With all of these competitive advantages, along with strong and determined reforms of the entire political system, I believe that Vietnam will be regarded by foreign investors as an attractive, safe and effective investment destination.

Despite being proven to have many opportunities, this FDI flow shift also poses numerous challenges. What do you think about the challenges?

The movement and restructuring of FDI flows will open up opportunities for many countries including Vietnam in the coming time. However, there are still many difficulties and challenges.

The biggest challenge from the Covid-19 epidemic is the decline in FDI flows amid rising demands for FDI, expressed by following six manifestations: (1) delaying new investment decisions, adding investment fund to existing investments or expanding investments; (2) affecting movement and restructuring plans of multinational corporations; (3) M&As/takeovers of troubled enterprises; (4) increasing trade fraud, origin and shadow investment; (5) the risk of receiving low-tech, resource-intensive and environmentally-unfriendly projects in the wave of supply chain shifting and restructuring; and (6) fiercer competition for FDI among countries during the Covid-19 period.

Vietnam will face challenges to its absorption and selection of FDI flows, as expressed in nine following bottlenecks: (1) Lack of stability and diversity of inputs, increasing investment costs; (2) Ineffective industry-specific economic development strategies, absence of independent supply chains; (3) insufficient supply capacity and competitiveness of domestic enterprises; limited ripple effects and connectivity; (4) shrinking land bank with available industrial infrastructure for industrial production; (5) technical and social infrastructure behind globalization trends; low logistics capacity; (6) Shortage of skilled labor force; (7) no “outstanding, flexible" incentive packages to catch the fancy of projects moving away from China; (8) the slow application of electronic investment procedures, low ratio of online investment procedures implemented; and (9) unsatisfactory answers to questions raised by FDI enterprises.

What should Vietnam do to capture this shifting FDI flow?

To catch investment flows of large-scale corporations in the world, Vietnam has been preparing to: (1) make clean land fund for industrial investors; (2) train skilled and qualified human resources; (3) adopt policies on domestic business development and upgrade for engaging in supply chains; (4) amend laws and policies to provide special preferential packages for new investment projects or investment transfers to achieve the goal of selective foreign investment cooperation, and; (5) establish a working group to advise the government on investment mechanisms, policies, criteria, and standards in international competition, and approach and negotiate with large corporations with advanced technologies, lead or operate value chains (supply chains and distribution chains) in order to mobilize, promote and fulfil Vietnam’s mutual benefit requirements of investment cooperation.

With the above positive preparations, plus efforts for a better business investment environment in the coming time, Vietnam will actively approach and readily support large corporations and foreign investment projects in line with the foreign investment attraction orientation to carry out favorable and effective business investment activities in Vietnam.

Thank you very much!

Source: Vietnam Business Forum