Can Vietnam absorb increased FDI capital flow?

Vietnam has never before had the opportunity to receive such large investment flows. In the first eight months of the year alone, total FDI registered capital had reached $22.62 billion.

Young Vietnamese businesses received $246 million worth of venture capital in the first half of the year, an increase of 48 percent over the same period last year.

Economists said with the wave of foreign investors relocating their factories out of China, in addition to Vietnam’s joining next-generation FTAs, foreign capital will continue flowing into Vietnam in the time to come.

However, they have expressed concern if Vietnam can absorb the huge capital and grab the opportunity.

Many problems still exist, including the underdevelopment of infrastructure.

Speaking at a meeting between the Binh Duong provincial People’s Committee and the business community on September 24, the manager of a laser equipment manufacturing company complained that the inter-region transport system has not been upgraded, so it takes hours to travel from HCM City to Binh Duong province.

The representative of another enterprise in Dong An 2 IZ in Binh Duong also complained that many workers of the company who live in HCM City quit because they have to spend four hours a day because of traffic jams to travel a distance which is just tens of kilometers long.

Amanda Rasmussen, managing director of ITL Corp and chair of AmCham HCM City, said the infrastructure problems in Vietnam, including air traffic congestion, the underdevelopment of waterways, and the heavy reliance on road transport all affect the foreign investors’ decision to relocate their investment to Vietnam.

She said that logistics costs in Vietnam now account for 21 percent of GDP which is a very high figure compared with the US, Japan and other countries in Southeast Asia.

Another bottleneck which may hinder Vietnam is the lack of effective supporting industries.

The director of a glass processing enterprise in Binh Duong said the localization ratio of their products in Vietnam is almost zero percent.

The company even has to import bolts used to decorate products from other countries, which cost one-third of the domestic price.

“Developing supporting industries is the most important condition to attract investment capital,” he said.

However, investors highly appreciate the goodwill of local authorities to listen to businesses to find problems and settle them. HCMC and satellite provinces such as Dong Nai, Binh Duong, and Long An have set up a task force to discuss a plan on developing a transport system for the entire region.