Vietnam could receive fresh FDI inflow amid COVID-19 epidemic

Vietnam is trying to attract FDI despite of the coronavirus epidemic

The COVID-19 epidemic is already causing the flow of foreign direct investment (FDI) into the country to slowdown. Indeed, statistics from the Ministry of Planning and Investment (MPI) indicate that as of February 20, total foreign investment capital nationwide had suffered an annual slump of 23.6% to nearly US$6.5 billion. Singapore represented the largest foreign investor, funneling over US$4.2 billion in FDI, followed by China, Hong Kong (China), the Republic of Korea, and Japan.

Capital shifting

In a report recently submitted to the government, the MPI claims that many potential investors have been forced to cancel fact-finding trips to the country as a result of the COVID-19 outbreak. Demands for public consumption, particularly for inessential products, have fallen dramatically, leading to a period of stagnation regarding production and full inventory.

Despite this, Nguyen Bich Lam, Head of the General Statistics Office (GSO), believes that the nation still has prospects of attracting further FDI, citing the fact that financiers are still keen to shift their investment into country due to the ongoing tensions from the trade war between the United States and China. Moreover, Vietnam has also signed a number of “new-generation” free trade agreements, including one with the European Union.

A recent survey conducted by the Bank for Investment and Development of Vietnam (BIDV) indicates that the COVID-19 epidemic could offer the nation a chance of receiving new FDI projects. BIDV experts believe that the epidemic could prompt investors to change their minds regarding shifting any projects from China and related territories, including Hong Kong and Macao.

Two FDI attraction scenarios

In the light of the ongoing global epidemic, the GSO have developed two scenarios which are suitable for FDI attraction in the year ahead. The first scenario outlines if the epidemic is contained during the first quarter, with FDI for the entire year being at an estimated US$38.6 billion, an annual increase of 7.3% but down 2.7% against the initial plan. The other scenario profiles if the epidemic is brought under control during the second quarter of the year, FDI capital would therefore be forecast to rise by 6.2% compared to last year, yet still representing a slump of 3.8% against the initial plan.

As things stand, many investors cancelled fact-finding trips to the country when the epidemic broke out, whilst experts fear the situation will continue to affect the nation’s overall attractiveness to FDI over the coming months. In addition, the spread of the epidemic has served to badly affect the operation of foreign-invested firms, especially Chinese companies and those dependent on material imports from the northern neighbour.

However, the Nikkei Asian Review recently brought good news in light of the epidemic, with global digital giants Google and Microsoft expressing a desire to shift their electronic production bases from China to Southeast Asia, in which Vietnam has been made a priority.

Elsewhere, the New York Times also forecasts that future FDI will shift from China to Vietnam in a bid to avoid US tax imposition. Indeed, this will be hastened due to the coronavirus epidemic.