According to a report of the Ministry of Planning and Investment (MPI), as of August 20, Vietnam’s FDI attraction reached US$19.54 billion, which is equal to only 86.3% of the figure from the same period last year, but is seen by experts as a sign of a new wave of investment in Vietnam.
However, in order to take advantage of this new investment wave, experts have suggested that Vietnam continue to reform institutions to create favourable conditions in the business environment, as well as remaining proactive and consistent in investment attraction policies. At the same time, domestic enterprises must be more proactive as well.
Only in this way can Vietnam utilise the golden opportunities to welcome foreign investors to come for cooperation and investment, thus turning potential into economic power while participating further in the global value chain.
Positive signals
Do Nhat Hoang, Director of the MPI’s Foreign Investment Agency, said that according to the assessment of the United Nations Conference on Trade and Development (UNCTAD), global investment in 2020 could slump by up to 40%, and the world’s economies may register declining and even negative growth. Meanwhile, as of August 20, the total FDI inflows in Vietnam reached nearly US$20 billion, down only 13% year-on-year, which is a very low level of decrease compared to the rest of the world and other countries in the region. In particular, the disbursed capital stood at US$11.3 billion, down only 5.1% from the same period in 2019.
These positive signals show foreign investors’ faith in the investment environment in Vietnam. The country’s FDI sector only reported a slight fall in its trade revenue, with export turnover reaching US$113.3 billion, down 4.5% year-on-year, and import turnover decreasing by 5.3% to US$90.7 billion. This proves that despite the numerous difficulties brought by the COVID-19 pandemic, FDI enterprises have still maintained their production and business activities in a relatively good manner, without suffering sharp declines.
The aforementioned figures also demonstrate that the Vietnamese Government has made effective efforts to improve the domestic investment environment in recent years and has been effectively implementing the dual goal of fighting the disease and promoting economic development.
According to Do Nhat Hoang, the attractiveness of Vietnam’s current business climate stems from internal economic factors and the impacts of external factors.
In terms of internal factors, Vietnam currently holds advantages in its investment environment, including political stability, rapid and sustainable economic growth, abundant human resources, a large market, competitive costs, attractive incentive policies, extensive economic integration, and favourable geographical location.
An additional factor is the effort of the whole political system, from the central to local levels, in improving the business climate and reforming administrative policies and procedures to create the most favourable conditions for foreign investors to operate successfully in Vietnam.
In particular, Vietnam’s efforts to effectively control the COVID-19 pandemic in recent times have also helped to strengthen faith among foreign investors and increase the country’s reputation as an attractive and safe investment destination.
Regarding external factors, firstly, the trade conflict between major economies has caused international corporations and enterprises to relocate their production establishments to avoid high tax rates. In addition, the pandemic and its serious consequences have driven countries and international corporations to accelerate investment restructuring, aiming to lessen dependence on a single country or partner.
Some developed countries, such as the United States, Japan and the Republic of Korea, have issued preferential policies and support packages to call on companies to move their production lines back home or invest in a third country to diversify the supply chains. In particular, Vietnam has many opportunities to catch this shifting wave thanks to the country’s advantages in terms of the investment environment as well as its recent success in containing the disease.
Utilising ‘golden’ opportunities
Touching upon the supply chain restructuring trend among major corporations in the world, Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM) and member of the Prime Minister’s Economic Advisory Group, said that the restructuring of the global value chains stems from three factors.
The first is the need to create jobs for domestic workers of countries. The second is the impact of the trade war between China and the United States. According to the assessment, such tensions may be prolonged even further, thus promoting the shift in investment. The third factor is the influence of the COVID-19 pandemic, which makes the shift faster, clearer and more comprehensive.
In that context, Cung stated that Vietnam is seizing many advantages, the most prominent of which is the country’s signing of many free trade agreements with partners who are major markets in the world.
“In my opinion, this is the most distinctive feature of Vietnam in competing against other countries for investment attraction,” he noted.
Experts suggest that Vietnam should develop high-quality human resources to attract FDI capital.
However, in order to take advantage of golden opportunities in the race to attract FDI enterprises, Director of the MPI’s Foreign Investment Agency Do Nhat Hoang stressed the need for Vietnam to work out breakthrough solutions and new ways of doing, and implement them in a rapid, timely and synchronous fashion.
Besides the advantages in attracting FDI companies to invest in Vietnam, Vice Chairman of the Association of Foreign Invested Enterprises Nguyen Van Toan also pointed out that there is still a ‘worrisome’ issue on the side of Vietnamese businesses. Vietnamese firms remain very weak in connecting together to jointly take advantage of opportunities. Many businesses, especially small-sized ones, still only have short-term visions.
According to Toan, another weakness is that Vietnam currently depends too much on a single market supplying raw materials and semi-finished products. In addition, the big domestic enterprises, despite their great potential, have yet to show the role of leading small- and medium-sized enterprises to participate in the link chain.
To utilise opportunities from the attraction of high-quality FDI, Toan suggested that Vietnamese businesses must have strong determination and long-term visions, in addition to improving their qualifications, strengthening links and especially building a high-quality core in human resources to attract FDI.
