Situation of FDI attraction in Vietnam Period 1988-2016

Situation of FDI attraction in Vietnam Period 1988-2016

By the end of 2016, after 30 years since Law on Foreign Investment Policy was adopted by National Assembly in 1987, foreign direct investment (FDI) inflows into Vietnam are on the rise, increasingly assert its important role in implementing goals of economic development, an important role for the achievement of economic development goals in Vietnam.

Investment in Vietnnam - The following will an overview of the process of attracting FDI in Vietnam

FDI attraction according to investment scale

Vietnam has many advantages in attracting FDI, such as stable politics, rich natural resources, abundant human resources and rapid market growth. The Law on Foreign Investment in Vietnam was promulgated in 1987. In the first three years of 1988-1990, FDI attraction was limited, with only 211 projects with a total registered capital of US$ 1,603.5 million. Foreign investment in this period has not really affected the socio-economic situation.

However, in the period 1991-1995, FDI into Vietnam increased significantly with 1,409 projects, with a total registered capital of US$ 18,379.1 million. This can be seen as the beginning period of the FDI boom in Vietnam. In this phase, the investment climate in Vietnam is becoming more attractive to investors due to lower investment and business costs compared to other countries in the region, cheap labor available, many unexploited potential markets.

In addition, external factors have contributed to increasing FDI such as: the wave of FDI flowing to emerging markets in the early 1990s; foreign capital inflows into the transitional economies of the socialist bloc.

Vietnam is a country in Southeast Asia, also enjoying many advantages from these factors. In this period, the annual growth rate of FDI was quite high, reaching over 50% in many years, especially in 1995 attracting 415 projects, with a total registered capital of US$ 7,925.2 million, 85,95% growth against the registered capital in 2014.

In the period 1996-2000, FDI decreased both in registered capital and project scale. The highest growth rate of registered FDI in this period was in 1996, an increase of 21.58% compared to 1995. In the next 3 years (1997-1999), the rate of FDI attraction decreased, most significantly in 1997 by 38.19%.

Cause of the situation is due to the impact of the Asian financial crisis in 1997. In addition, Vietnam's investment environment was slowly improving, while it was bearing strong competition from the other countries like China.

Then, in the period 2001-2005, FDI inflows into Vietnam started to recover but the pace was slow. Most typically, in 2004 and 2005, the growth pace of FDI attraction was achieved highest rate (42.94% and 50.86%,) due to a number of newly licensed large scale projects such as the Nui Phao Mining and Mineral Processing Joint Venture Company (total investment of US$ 147 million), Thanh Cong Investment and Development Company (total investment capital of US $ 114.58 million), Shing Mark Vina Co., Ltd (total investment capital more than 50 million USD) ...

In the period of 2006-2010, FDI fluctuated abnormally. In 2006, the total registered capital was US$ 12,004 million, an increase of 75.5% compared to 2005. In 2007 and 2008, FDI inflows into Vietnam increased rapidly since in January 2007, Vietnam became Official member of the World Trade Organization (WTO).

In addition, the domestic investment and business environment has been increasingly improved and the legal framework for investment has become more and more consistent with international practices, resulting in large waves of investment from Korea, the United States and Japan to pour capital into Vietnam. In 2009 and 2010, due to the impact of the global economic crisis, FDI inflows into Vietnam also decreased significantly

FDI increased slightly in the period 2011-2015. In 2011, there were 1,186 newly licensed projects with total registered capital of US$ 15,589 million (down 21.57% compared to 2010). The decline in FDI is attributed to the global economic downturn, investors have lost confidence; Besides, inflation and rising input costs have made it difficult for site clearance of the projects. However, from 2012 to 2015, the number of FDI projects and total registered capital tended to improve.

In 2016, with a series of Free Trade Agreements (FTAs) came into effect, the flow of FDI capital started to increase. In general, the total registered capital of newly licensed projects, supplementary capital and investment in the form of capital contribution and share purchase in 2016 reached over US$ 24.3 billion, an increase of 7.1% compared to 2015. It is worth noting that implemented FDI capital in 2016 is estimated at US$ 15.8 billion, an increase of 9% compared to 2015, reaching the highest level of FDI disbursement ever.

2017 marks a very significant milestone - 30 years of foreign investment in Vietnam. In the first eleven months, total foreign direct investment (FDI) newly registered and increased and contributed capital and purchased share is US$ 33.09 billion, up 82.8% over the same period of 2016. It is highlighted that disbursed capital has reached to US$ 16 billion and is expected to reach US$ 17.5-18 billion in the whole year, an increase of 12-15% over last year.

Thus, from 1988 up to now, FDI inflows to Vietnam have fluctuated but increased over time in total.

FDI into Vietnam is classified by investment partners

In the period 1988 - 2016, there were 78 countries and territories in the world have the amount of FDI poured into Vietnam. Of the total, the country with the largest FDI was South Korea with 5,773 projects and a total registered capital of US$ 50,553.9 million.

Although the average capital per project is US$ 8.76 million, lower than the average capital size of a FDI project in Vietnam of US$ 13 million, a number of the enterprises with typical FDI capital of South Korea such as Samsung, LG or Lotte ... are always an important part of our economy.

The second biggest investment partner of Vietnam is Japan with trade brands such as Honda, Toyota ... with 3,292 projects and total registered capital of US$ 42,433.9 million. Aeon Group has built three Aeon Mall centers in three of Vietnam's largest cities: Hanoi, Danang and Ho Chi Minh City. Following position is Singapore with the FDI capital investment into Vietnam tending to increase strongly. This amount of capital is most concentrated in the processing industry and real estate business.

Taiwan is the fourth largest investment partner with 2,516 licensed projects with a total registered capital of US$ 31,885.5 million invested in 21 economic sectors,  of which, the processing and manufacturing industries make up the most (over 90% of total capital), followed by the waste treatment sector (7%).

After these partners, the British Virgin Islands, Hong Kong Special Administrative Region (China) are the major investment partners of Vietnam.

FDI into Vietnam by kind of economic activity

Accumulated to 31/12/2016, industry and construction was the most attracted FDI sector with 13,312 projects and registered capital of US$ 199.781,8 million, accounting for 68.2% of total FDI capital.

This source of capital has contributed to forming some key industries of the economy such as telecommunications, oil and gas exploitation, processing, electronics, information technology ... contributing significantly to the process of economic restructuring, diversification of products, raising the value of export goods, absorbing advanced technologies, contributing to the improvement of infrastructure in localities.

Next, the service sector has attracted 8,760 projects with a total registered capital of US$ 90,344.8 million, accounting for 30.76% of total FDI. FDI in this region has contributed to the creation of new aspect in high-quality services such as hotels, offices, banks, insurance, etc. These services have contributed to the creation of new ways of in the distribution of goods, consumption, stimulating domestic trade activities and contributing to increase the export turnover of goods.

In addition, the agro-forestry and fishery sector has attracted 522 projects with a total capital of US$ 3,576.8 million (accounting for 1.22% of total registered FDI). The investment projects are fairly diverse and homogeneous, focusing on all fields such as cultivation, animal husbandry, afforestation and forest product processing, forestation and production of paper materials, sugarcane production. It contributes to creating new jobs, improving income for local people, improving the socio-economic life of many agricultural and rural areas, improving infrastructure, contributing to poverty reduction.

It can be seen that since the opening of the economy, especially since the promulgation of the Law on Foreign Investment in Vietnam, FDI inflows into Vietnam have been increasing. It is expected that in the near future, with Vietnam's bilateral and multilateral Free Trade Agreements (FTAs) signed and implemented, Vietnam will increasingly attract FDI. However, the business environment of Vietnam still has many barriers to foreign investors.

The coming time will be an important and drastic time for the Government of Vietnam to continue to cut costs for businesses and improve the investment and business environment. Create competitive advantage to attract FDI.


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