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Vietnam Today

Maintaining momentum

Released at: 11:27, 20/03/2014

Maintaining momentum

A stunning comeback in 2013 ended three consecutive years of declining FDI but sustaining the achievement is another matter entirely.

by Minh Tien

A series of new foreign direct investment (FDI) records were set last year. While the largest FDI project in 2012 was the $1.2 billion Tokyu Binh Duong Garden City, developed by Japan’s Tokyu Corporation, 2013 saw five projects with larger registered capital. The gold medal, should there be one, would go to the giant Nghi Son Oil Refinery in Thanh Hoa province and its registered capital of more than $9 billion and newly-registered capital of $2.8 billion.

When looking back on 2012 at the very beginning of 2013, many analysts expressed concern that the “mini” retreat of foreign investors, especially painful given that they were heading to other countries in the region, would continue for a least a few years. After a decade of being dubbed the “Dragon of Southeast Asia”, it seemed somewhat inevitable that Vietnam’s FDI growth would decline as foreign investors began to broaden their horizons and look at other emerging investment destinations such as Myanmar. “It seems that some regional countries are now doing better than Vietnam in this regard,” one analyst with extensive experience in researching FDI said at the time.

Recognising the new circumstances, policymakers and local authorities quickly made changes to adapt. “The government anticipated the difficulties and put in place measures to ensure a more favourable business environment for enterprises, with preferential policies in terms of tax and interest rates, to create easier access to capital, while curbing inflation and stabilising the exchange rate,” said Mr Nguyen Hong Truong, Deputy President of IDG Ventures Vietnam. Such efforts resulted in the spectacular achievements of the last 12 months.

Regaining its allure

The figures tell it all. Registered FDI as at December 15 was $21.6 billion, up more than 77.3 per cent against the same period of 2012, according to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI). The remarkable result came from 1,275 new projects with combined registered capital of $14.3 billion and 472 existing projects pumping in additional capital of $4.92 billion, increases of 97.2 per cent and 48.4 per cent, respectively, against 2012.

The sectoral composition of FDI has been better-rounded following government intention. After extensive investment went into the real estate sector in the pursuit of quick returns, investors have now shifted their attention to the manufacturing and processing sector, settling for smaller yet more sustainable development over the long run. The sector managed to secure top position by the end of 2013, with a total of 557 new projects, raising the aggregate figure for both newly-registered and additional capital by 89.2 per cent to $16.08 billion, accounting for 74.4 per cent of all FDI during the year. Power, water and gas took second place, with more than $2 billion or some 9.4 per cent of the total, pushing real estate into third place, with a mere $750 million, or 3.47 per cent of the total. Investments in other sectors totalled $2.77 billion, or 12.73 per cent.

Such impressive results were achieved with the appearance of familiar investors from China, South Korea, Singapore and Japan. In selecting Vietnam for its strategic manufacturing facility, Samsung set solid ground for South Korea to be one of the leading investors in the country, with $4.129 billion, or 19.8 per cent of the total. Japan and Singapore held on to their first and second places, with $5.682 billion and $4.278 billion, or 27.3 per cent and 20.6 per cent, respectively.

When asked about FDI inflows into Vietnam during 2013, Mr Le Dang Doanh, former Director of the Central Institute for Economic Management (CIEM), said that along with the global economic recovery there are two other factors behind the surge. “It is important to note that Vietnam has a significant advantage regarding low labour costs,” he said. The second is that it has become necessary for multi-nationals to invest in more than just one foreign country. “Multi-national giants usually choose to invest in Vietnam, Thailand, Indonesia and Malaysia besides China, in order to reduce the risk by not putting all their eggs in one basket,” he explained, adding that labour costs in China have been increasing significantly over the last few years.

Agreeing that such factors play a role, Ms Nguyen Thi Ngoc Bich, General Director of Maersk Line Vietnam & Cambodia, also emphasised Vietnam’s strategic geographical location and deep water port infrastructure, together with the country’s long-term political stability and the strong commitment of the government to enhance trade and economic development. With the Trans-Pacific Partnership (TPP) expected to be signed in early 2014, Ms Ngoc firmly believes that Vietnam is in the process of integrating further into global economy and many foreign investors have been pouring money into the country in order to access the preferential tariffs to come from TPP members, including major markets such as the US, Canada, Australia, Japan, and Singapore. Of the 12 prospective TPP members, Vietnam offers the lowest labour costs, making it among the most competitive countries and giving it a significant advantage over China, who will not be a signatory.

Despite the mooted advantages, Vietnam’s investment environment is still blighted by many problems that need to be addressed to ensure sustainable development in the future.

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