Foreign capital into Vietnam decreases but still very optimistic

VCN - In the first 10 months of 2019, newly registered and increased foreign direct investment (FDI) capital decreased compared to the same period last year. According to experts, this is a trend of the world and Vietnam may also be affected non-significantly, because the quality of FDI in Vietnam has been deeper and more substantive.
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LG Display's capital raising project in Hai Phong is worth $410 million. Photo: collected.

General trends

According to the General Statistics Department (Ministry of Planning and Investment), in the first 10 months of 2019, total newly registered capital, adjusted capital and contributed capital to purchase shares of foreign investors was US$29.11 billion, up 4.3 percent compared to the same period in 2018. However, total newly and additionally registered capital in the first 10 months of this year reached $18.3 billion, down 15.2 percent compared to the same period in 2018. The Foreign Investment Department (the Ministry of Planning and Investment) said that newly registered investment capital decreased compared to the same period due to the reduction of the project size, in the first 10 months, the largest investment project was $420 million and there were many FDI projects with billions of US dollars in the same period of 2018.

About the cause of the slowdown of FDI registered capital, economist Assoc. Pro. Dr. Dinh Trong Thinh said Vietnam has put more stringent requirements in the selection of FDI projects and investors. Accordingly, the authorities have considered investors more carefully, requiring financial capacity, experience as well as related factors such as tax incentives, market access conditions, environmental impacts, political security. Moreover, the decrease of FDI was also due to the slowdown and the stagnation of the world economies. Therefore, although Vietnam has decreased, it is still considered a "bright spot" in attracting FDI because many countries in the ASEAN region such as Thailand and Indonesia only attract 1/4, even 1/10 of the total value of Vietnam.

In addition, experts of SSI Securities Company also analyze that when considering the figures, many signs show that the decline is not worrying, even still in a positive trend. Specifically, in spite of the decrease in value, the number of FDI projects has increased. The number of newly registered projects and increased FDI projects(excluding capital contribution and share purchase) in the first 10 months increased by 26 percent and 20 percent (the same period increased by 18.7 percent and decreased by 4.7 percent). For the manufacturing and processing industry which is the "backbone" for economic growth, continues to attract FDI inflows well with $9.1 billion of newly registered and US$ 4.7 billion of capital increase in 10 months, up by 33 percent and 1 percent respectively. The average new registration value of one project in the field of manufacturing and processing is $8.7 million per project, higher than the same period in 2018 of $8 million. Therefore, according to SSI, in the first 10 months of this year, FDI is more substantive when large-scale projects are in the field of manufacturing and processing. For example, LG Display's capital raising project in Hai Phong is worth $410 million, and the new registration project of Goertek (Hong Kong - China) in Bac Ninh producing electronic equipment is worth $260 million.

In addition, although newly registered FDI capital and increasing FDI capital decreased in 10 months, there were more than 7,500 times of capital contribution and share purchase by foreign investors with a total value of capital contribution of $10.8 billion, up 70.5 percent over the same period in 2018. According to experts, this is a very positive trend for domestic enterprises to have conditions to "change blood", expand and gain more momentum in administrative management, creating momentum for more sustainable development.

Still need attention

The above results are very positive, making experts optimistic about the contribution of FDI to the overall growth of the economy in 2019 as well as subsequent years. However, there are still many issues related to FDI that need attention from authorities to take remedies as well as enhance the performance of FDI.

According to Nguyen Van Toan, Vice Chairman of the Association of Foreign Investment Enterprises (VAFIE), it should be noted that in countries investing in Vietnam, markets like the US and EU remain normal as before. If US enterprises invest abroad with a total capital of $300 billion, the investment in Vietnam is only about $500 million, ranking 10th among countries and territories investing in Vietnam. Moreover, Vietnam is looking forward to the EU-Vietnam Free Trade Agreement (EVFTA) but the investment of EU investors is still modest, there is no signal of increase to catch this FTA.

Besides, SSI experts also assessed that with optimistic, it must be viewed with the negative reality of infrastructure bottlenecks and increasing prices of inputs. Land rents and labor costsrise when the influx of FDI continues to decrease Vietnam's attractiveness which is heavily based on “cheap labour". Congestion of goods circulation on roads and in ports will also discourage many investors. This is a paradox when the public investment disbursement is slow, the traffic congestion situation is becoming more and more common. This requires more effective policy changes so that Vietnam can realise the opportunities from FTA in attracting investment.

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Besides, Assoc. Pro. Dt Dinh Trong Thinh emphasized the risks when foreign investors turned to capital contribution and share purchase. According to this expert, investors buy large quantities of shares in domestic enterprises to have the right to participate in the management and administration of enterprises. Since then, there will be a situation where some foreign investors take advantage to control enterprises, switch to importing components from other countries, “wash" the origin of goods, fraud, disguise, change designs...to take advantage of the incentives and opportunities from the FTAs ​​that Vietnam has signed. This will seriously affect the reputation and quality of Vietnamese goods. Therefore, Thinh recommended that the management of enterprises, quality management and origin of goods should be strengthened, helping investment activities in accordance with targeted goals and objectives.

By Huong Diu/ Binh Minh

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