Attracting FDI: From a good start to a long-term strategy

FDI attraction in the beginning of 2020 achieved positive results. Photo: Internet

Good start

Contrary to the gloomy trend of the same period last year, newly registered FDI inflows recorded a breakthrough in the first month of 2020. Data from the Foreign Investment Agency, Ministry of Planning and Investment, shows that by the end of January 2020, the total newly registered capital, adjustedcapital and contributed capital to buy shares of foreign investors in Vietnam reached US$5.33 billion,up nearly 2.8 times over the same periodin2019. Implemented capital of foreign direct investment projects is estimated at US$1.6 billion,up 3.2% over the same period in 2019.

Specifically, the whole country had 258 new projects granted investment registration certificates, an increase of 14.2% in quantity; the total newly registered capital reached US$4.46 billion, an increase of 5.5 times compared to the same period in 2019. The newly registered capital increased sharply becausethe liquefied natural gas power plant (LNG) in Bac Lieu was granted a new investment registration certificate with a total investment of US$4 billionin January. As a result, the average registered capital size of the new project also increased sharply, from US$3.6 million in January 2019 to US$17.3 million in January 2020.

The appearance of the liquefied natural gas (LNG) project in Bac Lieu has highlighted the "thirst" of high-value FDI projects throughout the year. In 2019, the total newly registered capital decreased because the average registered capital size of the project decreased from US$5.9 million in 2018 to US$4.3 million in 2019. Moreover, excluding the form of capital contribution,the highest newly granted FDI project is only US$650 million of Techtronic Tools Co., Ltd. (Hong Kong)with the goal of building a factory and research and development centerproducing accessories and smart hand-held electrical appliances used in industry and the civil sector in Ho Chi Minh City.

The Foreign Investment Report 2019 of the United Nations Conference on Trade and Development (UNCTAD) commented that global FDI was declining but FDI into developing countries increased by 2% in 2018, accounting for 54% of global investment capital (2017 was 46%).Therefore, half of the world's top 20 FDI-attracting economies were developing and transforming. In spite of many difficulties,Vietnam is still facing a great opportunity to attract FDI in the medium and long term.

The "sweep" of Covid-19

Entering February, the world in general and Vietnam in particular are “wobbly” because of the complicated situation of acute respiratory infection caused by new strain of coronavirus (Covid-19). The Ministry of Planning and Investment assessed thatfor Vietnam, the Covid-19 epidemic directly affected agriculture, industry, construction, trade and services, so when the manufacturing sector was affected,the operation investment would be immediately impacted, reducing investment of the whole economy in the short and long term, especially investment of foreign invested sector and non-state sector. New investors stopped looking for investment opportunities,especially FDI, affecting investment attraction in the near future.Invested projects are likely to postpone the increase of investment capital.

According to a recent report by the Training and ResearchInstitute of the Bank for Investment and Development of Vietnam (BIDV), China was currently the 7th largest foreign investor in Vietnam, with 2,875 validity projects, total registered capital was US$16.3 billion, accounting for 4.4% of total registered FDI in Vietnam.Among the 17 Chinese industries with investments in Vietnam, the industrythat attracted the most projects was the manufacturing and processing industry (accounting for about 54% of the total number of projects). Moreover, in Vietnam today, many Chinese-owned projects and investors employ a large number of Chinese experts and workers involved in many important stages in production and administrationfor projects and enterprises. The fact that these workers were restricted to return to Vietnam after the New Year holiday due to the measures to prevent the spread of Covid-19 epidemic had a direct impact on the projects, the production and business situation of these enterprises, as well as the income and life of workers in the project andinvolvedenterprises.

However, objectively, according to many experts, the Covid-19 epidemic may also provide opportunities for Vietnam to receive more new FDI projects.Asmany investors are concerned about the disease, it will promote the consideration to transfer capital flows for FDI projects from China and related territories (Hong Kong, Macau),which have been moving due to theUS-China trade tensions. Although Vietnam is considered as one of the most vulnerable countries to bear the risk of spreading the Covid-19 epidemic,the international community highly appreciates Vietnam's proactive and drastic measuresin preventing and controlling epidemics, as well as the Government's determination to improve the business environment, so it will continue to be an ideal destination for investors.

Grow with the right strategy

Regardingthe above difficulties, Dr. Nguyen Duc Thanh (Director of the Institute for Economic and Policy Research – VEPR) said that we must identify the disease as a force majeure risk, so in order to minimize losses, industries and fieldsmustacceptandtake their own measures,then, it takes into account the technical assistance of the State. Aneconomic expert also said thatthe authorities must stabilize market sentiment, provide useful information andsupportive policies to maintainthe psychology of investors. It means that if the authorities find suitable solutions as well as combining measures to improve the investment environment, foreign investment activitieswillrecover.

Therefore, in the long-term, BIDV experts forecast that FDI attraction in Vietnam in 2020 could still increase by about 5 percent, but 2.2 percentage points lower than the increase in 2019. However, in order to maintain this increase,experts believe that there must be coordination inmany other policies, such as laws and investment incentive mechanisms. In particular,the law should continue to take measures to protect investor interests.Because many investors from abroad considerit a preconditionwhen choosing Vietnam to implement an investment project,this is also a commitment of the State’s responsibility on receiving investmentfor the rights of investors.

In fact, the attraction of FDI in Vietnam has made many important moves and many localities are ready to reject large-value projects with a negative impact to prioritize high-tech projects using advanced technology, and only select projects that have a positive impact on the local economy,society andenvironment. There have been FDI projects over US$4 billion just licensed for about a year, the license was withdrawn, because investors took advantage of the trust of local leaders to be licensed to operate, then sought to resell the project for profit; when they can't do a project, they give up.

Especially, in the past year, FDI attraction activities have been mentioned with the growth of capital contribution, share purchase, business cooperation contracts, joint ventures and mergers and acquisitions (M&A). For example, Vingroup cooperates with some of the world's leading technology groups such as GM of the US and Siemens of Germany to produce cars at the VinFast Plant. In addition, some investors will enter Vietnam through the non-capital contribution (NEM) method first, when the business is profitable and reacha consensus with domestic partners, they will change to the method of capital contributionto participate in administration.

Moreover, M&A has many advantages compared to new investments, because investors look to enterprises that can bring profits to them based on the monitoring and research of the financial statements of the enterprises selling their share; project execution timeis much faster because of simpler procedures. Therefore, the future of attracting FDI in Vietnam is still wide open,whether favorable or difficult, we still have to find ways to overcome, but the attraction must be appropriate and wise for sustainable development.