FDI continues enhancing its big role in economic growth

Tuesday, 2021-04-27 16:35:57
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Foreign investment has been serving as one of the key drivers of economic development in Vietnam
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NDO - Since the national “Doi moi” was launched in 1988, Vietnam has been attaining significant economic achievements. This has been partly fueled by foreign investment, which has been targeted to continue is role as an important driver of the domestic economy.

In its April analysis, global analysts FocusEconomics forecast that the Vietnamese economy will grow 7.4% this year, topping Southeast Asia – where the rate will be 5.3% for the whole region, 3.2% for Brunei, 5.6% for Cambodia, 4.7% for Indonesia, 5.4% for Laos, 5.9% for Malaysia, 4.3% for Myanmar, 7.3% for the Philippines, and 5.7% for Singapore.

According to FocusEconomics, one of the key driver for Vietnam’s industrial growth and economic growth in general is foreign direct investment (FDI) which is hunting new potential markets including Vietnam.

The Ministry of Planning and Investment (MPI) has reported that from the start of January to April 20, 2021, the total newly-registered capital, added capital and capital contributions, as well as share purchases, reached US$12.25 billion, equivalent to 99.3% of that in the same period last year.

Of these, 451 projects - down 54.2% year-on-year – were granted new investment certificates, registering close to US$8.5 billion, up 24.7% year-on-year. As many as 263 projects, which were down 21.5% year-on-year, increased their investment capital by more than US$2.7 billion, down 10.6% compared to that in the same period last year.

Also during January - April 20, 2021, foreign-invested projects disbursed US$5.5 billion, up 6.8% year-on-year.

According to the MPI, though causing grave consequences in Vietnam, the region, and the wider world, COVID-19 seems not to be able to prevent FDI inflows to Vietnam in the long term, and a rising manufacturing industry here. These are big drivers of Vietnam’s economic growth this year and beyond. Many major foreign invested enterprises are eyeing the Vietnamese market, which has now basically succeeded in reining in the health crisis. Thus, strengthening their confidence in the market. COVID-19 is only slowing down the FDI inflow into Vietnam. Many projects are temporarily halted, and will be vehemently carried out when the pandemic is subdued.

Recently, general director of Samsung Vietnam Choi Joo Ho worked with authorities of Quang Ninh Province, saying that in addition to helping Vietnam attract more satellite foreign-invested projects, Samsung is focusing investment into the provinces of Bac Ninh, Thai Nguyen, and Ho Chi Minh City, with total capital of over US$17.5 billion, besides a US$230 million research and development (R&D) centre currently under construction in Hanoi.

A few weeks ago, South Korea’s GS Engineering & Construction also worked with the Quang Ninh authorities, saying that it is planning to expand investment to the northern region, in addition to some large-scale projects currently implemented in the south.

In early February, LG declared that it will add about US$750 million to its LG Display Vietnam facility in the northern port city of Haiphong, raising its total investment capital to US$3.25 billion.

A big contributor

The government’s drive towards an open economy also included domestic reforms. In 1986 the country launched its hallmark Doi Moi, or national renovation. Then in late 1987, Vietnam created its first Law on Foreign Investment, enabling foreign companies to enter Vietnam. Since then, the law has been revised a number of times, largely to adopt a more pro-investor approach while aiming to pare down administrative bureaucracy and better facilitate FDI into Vietnam.

In fact, over the more than three decades of national construction and development, FDI attraction has become a bright colour in the Vietnamese economic picture as it has provided an important and stable impetus for the economy.

According to the MPI, as of April 20, Vietnam had 33,463 valid foreign-invested projects registered at US$394.9 billion. Some 19 out of 21 economic sectors have been home to FDI, with processing and manufacturing achieving US$231.16 billion registered FDI (58.5% of the economy’s total), property business at US$61 billion (15.4%), and electricity production and distribution at US$33.56 billion (8.5%).

As many as 139 nations and territories have been investing in Vietnam, including South Korea with $71.58 billion in registered capital (18.1%), Japan $62.9 billion (15.9%), followed by Singapore, Taiwan, and Hong Kong. In 2018 and 2019, Vietnam was among the world’s list of top 20 largest FDI attractors.

All 63 provinces and cities have also attracted FDI, including Ho Chi Minh City with registered US$48.94 billion (12.3%), Hanoi with US$36.36 billion (9.2%), and Binh Duong Province with US$35.87 billion (9.1%).

Foreign-invested enterprises (FIEs) have been providing jobs for 4.5 million direct local labourers and millions of indirect labourers. They occupied 25% of Vietnam’s total development investment, 55% of industrial output, 18% of the state budget revenue, and 20% of GDP.

According to the General Statistics Office, in the first quarter of 2021, FIEs’ total export turnover, including crude oil exports, hit $59 billion, up 28.5% year-on-year and holding 76% of Vietnam’s total export revenue. This is manifested by a climb in exports largely created by FDI, such as mobile phones and spare parts (more than 99%), equipment (over 93%), and footwear (nearly 82%), and textile and garment (close to 63%).

In addition, FIEs have also helped Vietnam participate deeper in in international supply chains for the past more than 30 years, contributing to assisting the country to get out of international embargo, and resume its relationship with many countries and international organisations. Furthermore, FIEs have also helped Vietnam promote its regional and international stature and prestige.

A new path for FDI

Under the resolution of the recent 13th National Party Congress, the Party determined some strategic breakthroughs for Vietnam to become a developing country with modernity-oriented industrial development by 2025; a developing nation by 2030 with modern industrial development and upper-middle income; and a developed economy with high income by 2045.

For this ambitious goals to become true, the Party has specified that FDI will continue acting as an important component of the domestic economy, and it has a big role in mobilising investment capital, technology, modern governance, and enlarging Vietnam’s export markets.

“A shift is to be made from attracting FDI in quantity to quality. Priority is to be given to projects with high technology and high added values, and with modern governance models, high spillover effects, connecting with domestic enterprises,” read a report adopted at the 13th National Party Congress.

Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi, said that foreign investors, including those from the US are optimistic about business prospects in Vietnam.

“We support efforts to create a modern economy that will attract future investment and high-paying jobs for Vietnamese people. We will continue to work on lowering trade barriers, to help the Vietnamese government make it easier to do business, and to create a high-standard, transparent, and stable business environment to ensure that all investors have fair access to that opportunity,” Adam said.

Marko Walde, chief representative, Delegation of German Industry and Commerce in Vietnam, said that the Vietnamese government creates the most favourable conditions for foreign investors and businesses, and this commitment will boost the economic growth of this country and attract further investors to Vietnam.

“Vietnam has been implementing a number of activities and effective methods in order to achieve the dual objectives of promoting socioeconomic development and effectively preventing the pandemic from taking hold,” Walde said. “German companies expect that the EU-Vietnam Free Trade Agreement and Investment Protection Agreement will improve economic policy in Vietnam in the long run. Firms could enjoy the protection of investments with trade facilitations and increase investment in Vietnam.”

According to Walde, for the mid-term, there will be many investment flows for high-valued projects into Vietnam. German investors would bring their well-known technology in management and training to this country, allowing more value-added production and less waste of material and resources.

There are currently a lot of expansion plans for German enterprises from China to Vietnam. They are complementary to their existing Chinese operations with new activities in Vietnam regarding sourcing and investments. This trend had started before the US-China trade conflict as German investors in China were already looking to diversify their operations by adding another location in Asia.