Adjustment of FDI attraction to conform with reality

Monday, 2021-08-16 18:40:42
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The manufacturing of electric motors at Toshiba Industrial Products Asia Co., Ltd at Amata Industrial Park in Dong Nai province. (Photo: THIEN VUONG)
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NDO – Vietnam has been listed in the Top 20 countries attracting the largest foreign direct investment (FDI) in the world for the first time, but FDI inflows into Vietnam are on a strong downward trend due to the adverse impact of the COVID-19 pandemic. The new requirement is to urgently adjust solutions to attract more FDI in accordance with reality in the future.

Unable to receive "eagle"

The statistics released by the Foreign Investment Agency under the Ministry of Planning and Investment showed that the decline of FDI inflows into Vietnam has become more obvious in the first seven months of 2021.

During the past seven months, total newly registered capital, adjusted capital and capital contribution and share purchase by foreign investors to Vietnam reached US$16.7 billion, down 11.1% over the same period in 2020. Of which, capital contributions and share purchase by foreign investors decreased sharply by 55.8% and adjusted capital fell by 3.7%. Only newly registered capital rose by 7%.

Notably, the growth rate of disbursed FDI capital has slowed down since July this year with an increase of only 3.8% compared to the increase of 6.8% in the first six months of the year.

“The complicated developments of the COVID-19 pandemic in the country led to reduced capacity or suspension of a number of factories, resulting in the reduction in the disbursement of FDI capital in July,” according to a representative from the Foreign Investment Agency.

However, FDI capital flow into Vietnam is still considered positive amid a decline in global FDI flows. Dr. Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV), said that global FDI decreased by 35% in 2020 according to the United Nations Conference on Trade and Development (UNCTAD). It is forecast it will recover 10-12% in 2021 but will still be lower than the rate of 25% in 2019.

In Vietnam, total registered FDI reached US$28.5 billion in 2020, down 25% compared to the same period in 2019 but disbursed capital only decreased slightly by 2%. Vietnam's FDI attraction in 2021 is expected to be equivalent to 2020 at about US$28 - US$30 billion.

In the past two years, the concept of "making a nest to welcome eagles" has been mentioned with the aim of attracting more high-quality FDI sources into Vietnam. In fact, Vietnam has attracted a number of large projects such as the Bac Lieu liquefied natural gas (LNG) power project of Singaporean investors with registered capital of US$4 billion, the Southern Petrochemical Complex project by Thai investors with supplemented capital of nearly US$1.4 billion, the West of West Lake Urban Area project in Hanoi by Republic of Korea investors with supplemented capital of nearly US$0.8 billion.

It can be seen that foreign investors are increasingly interested in investing in Vietnam, especially in areas such as the processing industry, manufacturing, and renewable energy but these have all yet to meet expectations.

According to the World Bank, the recent lower commitment of FDI inflows to Vietnam may reflect seasonal factors, but also the caution of foreign investors due to the outbreak of the pandemic.

Adjusting for appropriate solutions

Recent reports from the Ministry of Planning and Investment have noticed the decrease in foreign capital inflows into Vietnam and the reduction in the number of registered projects as well as the slow progress of implementation of proposed solutions. In the report submitted to the Government, Minister of Planning and Investment Nguyen Chi Dung also mentioned the possibility that the Vietnam’s attractiveness to foreign investors has decreased and it is one of the causes of the FDI declines.

The reasons for this situation may be Vietnam’s policy of selective investment attraction and ineffective investment promotion activities.

Thus, the Ministry of Planning and Investment said it is necessary to adjust the solutions to attract FDI in accordance with the new situation.

Several proposed solutions include the reorganisation of investment promotion in a more proactive manner to understand and support partners and large corporations to explore investment opportunities in Vietnam in addition to preparing conditions to welcome further investment waves.

It is also important to focus on policy dialogue and on-the-spot investment promotion to take timely and appropriate measures to remove difficulties for FDI enterprises operating in Vietnam, particularly in administrative procedures and land.

According to Dr. Can Van Luc, registered FDI capital from China to Vietnam increased by 65% and from Hong Kong (China) to Vietnam in 2019 increased by 143% compared to 2018 but this pace decreased sharply from the beginning of 2020 until now.

Specifically, FDI registered capital from China to Vietnam decreased by 39% in 2020, fell by 20% in the first six months of 2021. Meanwhile registered FDI from Hong Kong (China) fell by 65% in 2020 ​​but increased again by nearly 25% in the first six months of 2021.

This data shows that the complicated COVID-19 pandemic in Southeast Asia has greatly affected the movement of FDI inflows into Vietnam.

According to Dr. Can Van Luc, the decline in FDI inflows is a general trend globally due to the impact of the pandemic over the past two years. But it is clear that the reception of FDI inflows has not been as expected and we still have a lot of work to do.

In the short term, it is necessary to quickly control the pandemic and accelerate the rate of vaccination to achieve herd immunity in the first or second quarter of 2022. This is a prerequisite to maintaining and promoting the attractiveness of Vietnam to foreign investors.

At the same time, it is advisable to soon review the implementation of Resolution 50-NQ/TW of the Politburo on orientations to perfect institutions and policies to improve the quality and effectiveness of foreign investment with updates and appropriate adjustments to current policies and solutions.