FDI Flow into Vietnam and Obstacles it Faces

Vietnam is regarded as not only having a stable political situation but also as a compelling country for foreign investors. Many economists have assessed that the Foreign Direct Investment (FDI) flow into Vietnam will grow in the near future, especially in 2006. High tech, IT and some other services are predicted to attract remarkable sums of investment. Will Vietnam explore this investment flow to its full extent?

 

Today, there is a new trend on the horizon. Big international enterprises now prefer investing abroad. The destinations they like best are Asian countries. In which, China, India, Thailand, and Singapore are really successful in drawing FDI. Fortunately, Vietnam is one of those potential compelling countries

 

After his visit to Japan in the middle of November 2005 of Vietnam Corporation of Investing Promotion, Mr. Vo Hong Phuc, Minister of Plan and Investment Department, said: “Japan is determined to create a new FDI flow into Vietnam”. Mr. Oka Motoyuki, President of Vietnam – Japan economic committee enthusiastically said: “Japan has been focusing on Vietnam’s market seriously”.

 

At the talk with presses in November 11^th 2005, American Deputy Minister of Trade, Mr. David A.Sampson also reckoned that more and more American corporations wanted to invest in Vietnam. They are mostly like to invest in such fields as IT, high tech and services such as finance, insurance, banking and so on.

 

At the Vietnam Forum of Cooperation and Investment 2005 (Vietnam Forinvest) held from 6th to 7th December 2005, Deputy Prime Minister Vu Khoan declared: “Thanks to many advantages of rich, hardworking and well trained labour resources as well as diverse natural resources and stable politic situation, Vietnam could attracted a considerable foreign investment flow”.

 

“At present, total registered capital has reached roughly US$50 billion. Most of this is from many countries and far off regions. It has also contributed to more than 15 per cent of Gross Domestic Products. On the other hand, FDI considerably contributed to achievements of renewal process (doi moi cause) in Vietnam. On the threshold of the social economic development plan in the next 5 years (2006 – 2010), Vietnam intends to escape from the group of lowest income countries by 2010. That should mean that there would be a growth of income, maybe from US$640 to US$1000”, he added.

 

Khoan also affirmed that investment capital is one of the main factors to ensure these achievements. It is forecasted that Vietnam needs roughly US$139.4 Billion in FDI.

 

According to Deputy Prime Minister of Planning and Investment, Mr. Nguyen Bich Dat, Vietnam is pushing up promoting investment activities, improving investments in both quantity and quality. Vietnam is able to implement foreign investment as it is a safe and stable destination while its investment environment has continuously been improving. Vietnam is also completing the WTO negotiation process. Moreover, Vietnam has young and dynamic labour resources.

 

One of reasons that multinational corporations are afraid to invest in Vietnam is the backward scientific field and poor research infrastructure. The renovation of enterprises is still weak.

 

Mr. Jonathan Pincus, high-level executive of UNDP in Vietnam assessed: “Vietnam hasn’t received huge investment yet though it has a lot of advantages. In the high tech field, Vietnam has many good policies. However, its administration system isn’t good yet. Therefore, obtained results have not unequalled potentials”.

 

Mr. Pincus added that, one of the biggest obstacles that Vietnam need to quickly improve is confusing procedures. These procedures not only make registering investment more difficult but also have not linked between ministries, provinces as well as regions. Moreover, the fees of transportation or telecommunication are still really expensive.

 

Mr. Jess Puchalski, President of America Chamber of Commercial said that Vietnam still needs to introduce many big renovations in commercial and investment policies with products and services that meet WTO standards. He also expressed the sentiment that many investors worry about the limited infrastructure, production situation in industrial zones, goods transportation capacity and other services such as: electric and water supply. Besides, the labour market is also a troublesome problem for investors. Quality labour recruitment and retention has become more difficult.

In fact, infrastructure development is still low and has not adapted to economic growth well and that is a real burden for every investor in Vietnam. In order to combat this, Vietnam should positively attract investment in infrastructures with ports, airports, electric plants and telecommunications. The opening of telecommunication will help Vietnam develop its potential in this field.

Answering partly the worried questions of investors, Minister of Industry, Mr. Hoang Trung Hai confirmed: “These disadvantages are not too serious and improvement is possible. In the future, Vietnam will give priority to developing milestone industries such as: electrics, metallurgies, and chemicals to ensure the sovereign economy and promote the economic infrastructure development. The renewal is clearly showed by uniting the fees of electricity and transportation. Moreover, both the common investment law and united enterprises law have been adapting to erase inequalities between enterprises which belong to various economic components, particularly foreign invested enterprises”.

 

Facing difficulties and challenges, Vietnam has been implementing series promoting investment activities with other countries that show the new strategy of Vietnam in positively attracting and receiving foreign investment flows. It is hoped that in 2006, Vietnam will catch more opportunities as well as overcome challenges to draw more foreign investment flows.