Impact of the coronavirus outbreak on global economy and fdi flows

Nội dung text: Impact of the coronavirus outbreak on global economy and fdi flows

1. IMPACT OF THE CORONAVIRUS OUTBREAK ON GLOBAL ECONOMY AND FDI FLOWS PhD. Vuong Toan Thu Thuy1 Abstracts: The Covid-19 pandemic, which started since December 2019, has a extensive impact on countries around the world, is still complicated. The global economy declined into a serious crisis with disrupted FDI flows as a result; and Vietnam’s economy was not exception despite the country has effective steps to minimize both the public health and economic growth. This paper analyses negative impacts of the decease to global economies, in general and Vietnam economic growth, in detail and especially FDI flows. Keywords: FDI flows, global economy, Covid-19 pandemic, Vietnam economic growth 1. INTRODUCTION Covid-19 has seriously impacted globalization and most countries have faced to the emergent recession in 2020. Emerging market and developing economies have been suffered from overloaded health care systems, loss of trade and tourism; and dropped capital flows, Meanwhile, to date, Vietnam has been successfully controlled due to the effective policies, although the last sixth months of 2021 still present challenges. The paper includes five sections, which are analyzing disadvantageous influences of the pandemic to worldwide economies, Vietnam economic growth, global FDI, Vietnam’s FDI flows; and then give three important suggestions to Government of Vietnamese to attract FDI in 2021 and beyond. In general, the country has remained the economic growth in 2020 and to become one of the highest growth rates over the world. Besides, the economy attracted more FDI thanks to switching in capital flows. 2. IMPACT OF THE CORONAVIRUS OUTBREAK ON ECONOMIC DEVELOPMENT OF VIETNAM Today, Vietnam’s timely and evidence-based response has led to tremendous success in containing the COVID-19 outbreak, with just over 300 positive cases and no deaths (collected in June, 2020) and approximate 6.000 positive cases and 44 deaths (collected in May, 2021) [1]. In the area of economics, Vietnam expanded the domestic economy in August but at a slower rate than in July and significantly below the rates recorded a year ago. Industrial production grew by 2.1% in August, compared to 4.0% in July. Industrial production and retails sales are still growing but the rebound has moderated (see Figure 1). Actually, in the period of September 2019 and May 2021, over three times of Covid-19, the Vietnamese government has highly succussed in managing an increase of virus in the community. Accordingly, Vietnam has also developed the economy because disease was successfully controlled and remained one of the few worlds’ fastest growing countries in 1 Hai Phong Youth Union; Email: vuongtoanthuthuy@gmail.com 183
2. 184 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI 2020. Following, on May 26, 2021, in the fourth wave of Covid-19, Vietnam has 0.4 deaths per million, while Singapore was at 5, Thailand at 12, Australia at 35, and Malaysia at 72. On the number of infections per million, Vietnam was at only 61, while for Singapore that number was 10,509, for Thailand it was 1,971, and for Malaysia it was 16,064 (see figure 2) [3]. It can be said that, there had a stagger difference in controlling Covid-19 among countries and Vietnam has gained a significant success with economic growth of 6,5 percent in 2021, thanks to well-targeted policies. Inside, from January to May 2021, goods have been exported to important markets which are United States, the European Union, China, ASEAN, and South Korea, increased strongly with export turnover of 130.94 billion dollar, up 30.7 per cent in the period of January and May 2020. Besides, the industrial production index (IIP) increased by 9.9 percent in the first five months of 2021 over first five months of 2020. Overall, despite the COVID-19 decease, Vietnam’s GDP growth has expanded in 2020, been one of the highest growth countries on the world and remained a satisfactory signal in 2021. Figure 1. Industrial Production Index (NSA, 2015=100, % change) Source: [9] Figure 2: Asian countries’ growth in a perilous year (percent) Source: [3]
3. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 185 3. IMPACT OF THE CORONAVIRUS OUTBREAK ON GLOBAL FDI FDI has been a key element in supporting economies in the period of economic rebound because of the pandemic. Previous evidence has demonstrated that foreign-owned affiliates, can display well recovery during crises thanks to their connection with, and approach to the financial resources of, their parent companies [4]. The explosion of Covid-19 will negatively impact FDI flows over the world. With variation of the epidemic disease ranging from short-term stable situation to continuation over the year, the descending trend on FDI will be -5% to -15% (compared to previously forecasted FDI growth for 2020-2021). According to UNCTAD (2020), about 70 percent of the multinational enterprises (MNEs) in UNCTAD’s Top 100, have published the influence of disease on their business with descending alteration of 2020 earnings estimates of 9%. Especially, hardest downwards are the automotive manufacturing (-44%), airlines (-42%) (see table 1). Accordingly, as estimated before, the impact on FDI will be concentrated in those countries that are most extremely consequence by the epidemic [6]. Table 1: Earnings revisions and capital expenditures of the top 5000 Source: [6] Particularly, UNCTAD forecasted a stable trend in level of global FDI inflows with a potential growth of +5% in 2020 - 2021. However, the prediction was changed from -5% to -15% in 2020 based on Covid-19 under control. Additionally, FDI flows are estimated to reduce by more than 30 percent in 2020 even if the success of Covid-19 pandemic controlling and economic support policies. Especially, FDI flows to developing countries are evaluated to lower because of sectors which impacted by the pandemic, consisting of the principal and manufacturing section, account for a greater share of their FDI than in developed countries. In addition, FDI flows have steadily decreased since 2015, and could continue under pre-crisis period throughout 2021 if the community health and economies are not controlled.
4. 186 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI Figure 3 demonstrates the forecast of FDI flows under the different status. Firstly, under the optimistic status, earnings are estimated to increase in the second half of 2020 and decrease to pre-crisis levels by the end of 2021 as the economy recovers. Although there might be a reduction in the medium term due to unpromising enterprises, new investments will come back in the end of 2021. Therefore, FDI flows are estimated to reduce from 30% to 40% in 2020 and then, rising by a same rate in 2021 to return to pre-crisis levels [4]. Secondly, the economic status will be irregular. While earnings in several fields will recover, others will continue under pre-crisis stage and after that, former and new projects will be defeated. Accordingly, FDI flows would reduce at 45 percent maximum in 2020 before recovering in 2021 but would endure approximate one-third below pre-crisis period. Thirdly, earnings still reduced in most areas and then would be plowed back. FDI flows would decline by 40% minimum in 2020 and would be recover at the end of 2021 thanks to vaccine. Figure 3: The projections of FDI flows under the different scenarios Source: [4] In short, the above analysis shows the force on reinvested earnings and equity capital flows separately because the influences will be different over time and under the different status. And COVID-19 can impact to enterprises and countries according to variant ways depending on country/regional situation and FDI motivations. 4. IMPACT OF THE CORONAVIRUS OUTBREAK ON FDI OF VIETNAM Vietnam still attracts FDI despite of Covid-19, especially new capital flows from Japan. In detail, Vietnam attracted $12.33 billion in FDI from January to April 2020, declined about 15.5 percent compared to 2019 because of the consequence of pandemic. However, FDI inflows began to flat in August 2020. Specifically, FDI (registered) decreased deeply in August to about US$720 million compared to US$3.1 billion in July 2020 (see figure 4) [10].
5. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 187 Overall, FDI (registered) attained US$19.5 billion in the period of January and August 2020, a 14% decline over the same period of 2019 [9]. For example, an enterprise in Long An province expanded a Ready Serviced Space project in Can Giuoc district. The workshops with 80,000 square meters, operated since October 2020, gotten FDI flows in the post-Covid-19 period. Figure 4: Foreign Direct Investment (8/2019 – 8/2020) (USD billions) Source: [9] Another example, Industrial zones (IPs) and economic zones (EZs) obtained 291 FDI projects during the five-month period with US$6.02 billion, increased 10.3% over 2019. In addition, there have had 10,853 FDI projects, being in operation in industrial and economic zones during the period of January to May 2021 with resources of US$228.4 billion. Figure 5: Vietnam Foreign Direct Investment (2020 – 2021) Source: Trading economics, 2021 Figure 5 displays that FDI into Vietnam increased 6,8 percent in the period of 2020 and June 2021 and obtained to USD 9.24 billion in the first six months of 2021, however, FDI pledges declined 2.8 percent to $15.27 billion. Inside, approximately 46 percent of total pledges was invested to the manufacturing and processing areas. Other papers mention that 300 foreign companies, for instance Apple, Foxcom, and Luxshare, are ready to start or enlarge investment in Vietnam beside 60 enterprises have
6. 188 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI successfully operated [8]. Overall, Vietnam is believed to be benefited from foreign investment shift to acquire socio-economic development targets for 2021 and beyond. 5. SOLUTIONS FOR VIETNAM TO EXPAND FDI FLOWS Vietnam can believe to attract more FDI this year and beyond as ongoing foreign capital shifted to Vietnam. Several methods are suggested as follows: Firstly, the Government needs to increase Covid-19 tax deferral package for enterprises, organizations, households and individual in more sectors, including leather, wood and metal processing industries, real estate enterprises, labor service businesses, libraries, museums, entertainment businesses and other cultural activities. Secondly, Vietnam should take advantage of strengths, potential, and opportunities to occupy future capitals. For instance, utilizing effectively trade agreements promoting economic growth under the World Trade Organization ((WTO), ASEAN and ASEAN Free Trade Area (AFTA), Bilateral Trade Agreement (BTA), Trans-Pacific Partnership (TPP), Free Trade Agreement with Japan and Free Trade Agreement with Korea. Another strengths are some encouragements for encouraging foreign investment which are lower corporate income tax rate; depression from import duties on specific goods; and minimization or depression from land rental or land use taxes, Thirdly, it is necessary for the country to efforts in administrative renovation and in investment climate improvement. It means that Vietnam need to reconsider all legal documents and investment policies to settle disagreement and be more initiative in choosing potential projects. Especially, hi-tech, energy and space-saving, and environmentally friendly projects should be priority. 6. CONCLUSION The paper demonstrates a lot of evidences to evaluate global economies, worldwide FDI flows, Vietnam economy and Vietnam FDI flow during the Covid 19 pandemic period. The analysis shows that the pandemic has impacted deeply to all economies over the world, and still spread complicatedly. Meanwhile, Vietnam is opening to international trade and investment, and therefore socio-economic fields, the supply chain of production was also impacted; however, Vietnam’s economy has expanded by 2,9 percent in 2020 and became one of the highest growth rates worldwide and growth is estimated to be 6,5 percent on 2021 because the Government had initially effectively controlled the pandemic. Accordingly, the country is expected to be an extremely attractive destination for FDI and FDI inflows into Viet Nam has increased compared to regional countries over the next few years. LIST OF REFERENCES 1. Bộ Y Tế. 2021. “Trang tin về dịch bệnh viêm đường hô hấp cấp COVID-19” (moh.gov.vn). gov.vn 2. Nicola Nixon. 2021. “Covid-19 in Vietnam: Holding Our Breath in Wave Four”. The Asia Foundation. https:// asiafoundation.org/2021/05/26/covid-19-in-vietnam-holding-our-breath-in-wave-four/. 3. Norris, E; Zhang, Y. 2021. “Vietnam: Successfully Navigating the Pandemic”. IMF Asia and Pacific Department 4. OECD. 2021. “Foreign direct investment flows in the time of COVID-19”.
7. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 189 policy-responses/foreign-direct-investment-flows-in-the-time-of-covid-19-a2fa20c4/#figure-d1e96. 5. Tradingeconomics. 2021. “Vietnam Foreign Direct Investment”. Vietnam Foreign Direct Investment | 1991-2021 Data | 2022-2023 Forecast | Calendar (tradingeconomics.com). 6. UNCTAD, 2020. “Impact of the coronavirus outbreak on global FDI”. Investment trends monitor. diae_ gitm34_coronavirus_8march2020.pdf (unctad.org). 7. Vietnam Breaking News. 2021. “Vietnam Business New”. June 3. com/tag/vietnam-attracts-12-33-billion-usd-in-fdi-in-four-months/. 8. Vovworld, 2021. “Vietnam’s prospects for FDI attraction in 2021”. Vietnam’s prospects for FDI attraction in 2021 (vovworld.vn). 9. World Bank. 2020. “Covid-19 policy response notes for Vietnam”. COVID-19 Policy Response Notes for Vietnam | Policy Notes (worldbank.org) 10. WorldBank. 2020. “The Global Economic Outlook During the COVID-19 Pandemic: A Changed World”. The Global Economic Outlook During the COVID-19 Pandemic: A Changed World (worldbank.org).