Foreign Investment Capital Rebounds

The foreign investment capital into Vietnam showed signs of recovery in the first seven months of 2023, after experiencing a prolonged decline due to the global economic downturn.

The People's Committee of Hai Phong city holds a conference to present a certificate to LG Innotek approving its additional capital of US$1 billion from 2023-2025, raising the company's total investment to over US$2 billion

The LG Innotek Hai Phong Project, which added US$1 billion to the total, was a major contributor to this positive trend. According to the latest data from the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, the foreign investment inflow in the first seven months of 2023 increased by 4.5% year on year, reaching nearly US$16.24 billion as of July 20.

The registered value in July 2023 alone was over US$2.8 billion, which was an increase of 8.9% from June, 41.9% from May, and 85.7% from July 2022.

Investors maintain confidence in Vietnam’s growth potential

The FIA reported that despite the challenges posed by the global economic recession, foreign investors continued to invest in Vietnam, demonstrating their confidence in the country’s future growth prospects. Some large-scale projects were evidence of this optimism. Moreover, the FDI disbursement value also rose slightly by 0.8% compared to the same period in 2022, reaching an estimated US$11.58 billion. This indicated that the Government and the Prime Minister’s effective measures to support investors in accelerating their investment disbursement in the first months of the year had paid off.

By the investment capital structure, the FIA noted that the growth rate of new investment capital was higher than in the previous months of the year. The number of new investment projects also surged significantly over the same period of 2022. In fact, the growth rate of new projects was almost twice as high as the growth rate of investment value.

The majority of new projects (69.4%) had a registered investment fund of less than US$1 million, but their combined investment fund only accounted for 2.7% of the total investment fund in the first seven months of 2023.

This indicated that small and medium foreign investors were still interested and confident in Vietnam’s investment environment and made new investment decisions. This contrasted with large corporations, which were more cautious about making new big investments in Vietnam amid the impacts of the global minimum tax policy, according to FIA.

The value of the revised investment fund in the first seven months of 2023 dropped by 42.5% year on year, but this was a smaller decline than in the previous months of the year, as reported by FIA.

Specifically, the decline rate was 57.1% in the first six months, 59.4% in the first five months, 68.6% in the first four months, 70.3% in the first three months, and 85.2% in the first two months of 2023. The number of existing projects that revised their registered investment value was higher than in the same period of 2022, which reaffirmed investors’ confidence in Vietnam’s investment environment. “Therefore, foreign investors continued to expand their existing projects,” FIA stated.

Despite the challenges and uncertainties in the global economy and the increasing competition among countries for foreign investment, Vietnam’s FDI value in the first seven months of 2023 was positive in both the registered and the disbursed aspects. This reflected the Government’s efforts to enhance cooperation and support for FDI firms, as well as to improve the investment environment and policy response, which boosted the confidence of international investors.

Mr. Cho Ji Tae, Vice Chairman of LG Innotek Group, attributed business environment reform as one of the main reasons for expanding their investment in Vietnam.

 “By further improving the business investment environment and reforming administrative procedures, Hai Phong City continues to be an ideal destination for new investment projects and investment expansions,” he emphasized. Mr. Torben Minko, Vice Chair of the European Chamber of Commerce (EuroCham) in Vietnam, also expressed his optimism about Vietnam’s economic prospects. He said that the confidence of European investors had recovered thanks to Vietnam’s inflation control, macroeconomic stability and the Government’s efforts to manage monetary and fiscal policies.

Further improvement of the investment environment needed

The survey on the current situations of Japanese overseas companies in 2022, released by the Japan External Trade Organization (JETRO) in mid-February, also revealed positive evaluations of foreign investors on the investment and business prospects in Vietnam. About 60% of respondents said that they would expand their business in Vietnam in the next 1-2 years. This rate was the highest in ASEAN and only behind India and Bangladesh in the region.

“Japanese companies plan to expand their business as they anticipate increased revenue from market expansion, export growth and high growth potential of the Vietnamese economy,” the report stated.

However, foreign investors also identified some shortcomings of Vietnam’s investment environment in the past period. According to EuroCham, Vietnam needs to develop appropriate and competitive preferential policies to attract investors, especially before the global minimum tax regulation is about to be implemented. Moreover, the harmonization of administrative procedures and tax policies is very important to boost trade growth within the framework of the European Union-Vietnam Free Trade Agreement (EVFTA).

Source: Vietnam Business Forum