The shift of global fdi flows and solutions to attract fdi into vietnam

Nội dung text: The shift of global fdi flows and solutions to attract fdi into vietnam

1. THE SHIFT OF GLOBAL FDI FLOWS AND SOLUTIONS TO ATTRACT FDI INTO VIETNAM PhD. Duong Hoang Anh, MEc. Ngo Ngan Ha1 Abstract: We examine the shift of global foreign direct investment (FDI) inflows. This shift happened before 2018, but the Covid-19 pandemic was the catalyst that made it happen faster. We identify that Vietnam is considered an attractive destination in the shifting trend. Using statistical methods, with data from UNCTAD, Foreign Investment Agency – Vietnam’s Ministry of Planning and Investment (MPI), we clarify the key development in global FDI flows, the main FDI trends and drivers in Asia, and the shift of FDI inflows into Vietnam. We conclude that FDI inflows tend to move to Vietnam. Especially, those FDI inflows are directed to services sector, high technology sector and other sectors having both highly added value and the spillover effect in the economy. However, to take advantage of this trend, it is necessary to join hands of the government and businesses with immediate and long-term solutions. And the most important solution is to create a favorable institutional and investment environment to receive more FDI inflows into Vietnam. Keywords: Foreign Direct Investment (FDI), Vietnam, FDI inflow shift INTRODUCTION The shifting trend of global FDI inflows over the past few years has shown complicated changes. FDI flows tend to shift to developing countries. In Asia, we witness the shift of FDI flows from China to Southeast Asian countries, including Vietnam. The field of investment attraction has also shifted to the high-tech sectors and the services sector. In that shifting context, Vietnam has many opportunities in attracting FDI due to advantages such as the favorable geographical position, the development of logistics market and infrastructure, the signing and implementing of new-generation free trade agreements (FTAs), the institutional reform But Vietnam has to face stiff competition from other countries in the region such as Indonesia, Thailand Those countries are gradually reforming to attract global FDI flows. In order to take advantages, it is required that Vietnam implement specific solutions suitable to the international context. 1. DEFINITION OF FDI According to the IMF’s Balance of Payment Manual (1993), FDI is defined as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of 1 Thuongmai University; Email: hann.vcu@gmail.com. 120
2. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 121 influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken by individuals as well as business entities. FDI plays an important role for both the investors and the host country. For investors, they take advantage of the low production costs of the host country to improve the efficiency of investment capital. For the host country, FDI is considered a key element in international economic integration because it creates stable and long-lasting links between economies. FDI is an important channel for the transfer of technology and for the access to foreign markets. The formation and development of FDI depends on many factors. There are subjective factors of countries directly involved in FDI such as political situation, geographical location, legal environment, level of economic development, cultural and social characteristics of the host country; macroeconomic policies, activities to promote outward investment, development of science and technology of the host country. In addition, the objective factors greatly affect the shift of FDI inflows are the trend of dialogue between countries, regional linkages, the speed of globalization, etc. 2. LITERATURE REVIEW OF PRACTICAL STUDIES ON THE SHIFT OF GLOBAL FDI FLOWS According to Nunnenkamp (2001), since financial crises in Asia and Latin America, developing countries rely primarily on FDI to promote economic development on a sustainable basis. In recent years, the increase in FDI flows to developing countries turned out to be higher than the increase in FDI flows to developed countries. As a result, developing countries have attracted almost one third of worldwide FDI flows. Federico. C, Elena. P, (2018) indicate that there has been a gradual shift in the global FDI landscape since the beginning of the 2000s, with emerging market economies (EMEs) gaining in prominence both as a source of and as a destination for such investment. EMEs have been competing in attracting FDI because of its perceived positive productivity spillovers on the receiving countries (Doytch, 2014). UNCTAD’s World Investment Report 2004 confirms the shift of FDI in services. The shift of FDI towards services is driven with the ascendancy of services in economies more generally and the non-tradeable nature of services. Because of the latter, the principal way to bring services to foreign markets is through FDI. Besides, countries have liberalized their services FDI regimes, including through the privatization of State-owned utilities. The traditional kind of FDI primarily absorbed by the manufacturing sector has been gradually substituted by services. FDI with financial services is emerging as one of the most substantial international capital flows worldwide. In the context of the Covid-19 pandemic, Bob, S. (2021) emphasizes that global FDI is shifting into Asia. Asia appears to be riding the crest of the wave even as the pandemic halted much of global economic activity in 2020. Although ASEAN’s FDI inflows were largely negative during 2020, several of its economies appear to be back on track in attracting growing levels of FDI, boosted by a series of recently-agreed FTAs, in addition to prospective ones, which connect the regional bloc to the giant growing markets of China and India. The structure of the FDI sector in developing countries has changed. Specifically, FDI inflows into developing countries decreased in the manufacturing and manufacturing sectors (OECD, 2020). A paper
3. 122 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 by Nhandanonline (2020) points out 3 trends of global FDI inflows: the factory shifting, the transfer of parent company’s capital and the order shifting. 3. KEY DEVELOPMENTS IN GLOBAL FDI, AND THE MAIN FDI TRENDS AND DRIVERS IN ASIA 3.1. Key developments in global FDI flows Following the sizeable declines registered in 2017 and 2018, global FDI flows rose modestly in 2019 with $1.54 trillion. The inflows were 3% up. However, they remained below the average of the last ten years and some 25% off the peak value of 2015. FDI stock increased by 11%, reaching $36 trillion, on the back of rising valuations in global capital markets and higher multinational corporations (MNCs) profitability in 2019. As a result of 2017, tax reforms in the US, there was a rise in FDI flows to developed economies. Flows to transition economies also increased, while those to developing economies declined marginally. Figure 1. Global FDI inflows by group of economies, 2007-2020* (bil. US$) Source: UNCTAD (2021), with estimates for 2020 In 2020, the impact of the Covid-19 pandemic was even more pronounced. FDI flows continued to decline deeply in most regions and economies around the world. According to the Investment Trends Monitor, the total global FDI is collapsed in 2020, estimated at $859 billion, down 42% compared to 2019. This is the lowest level since the 1990s and 30% lower than the global financial crisis in 2009. The declined was concentrated in developed countries, where FDI flows fell by 69% to an estimated $229 billion. Flows to Europe dried up completely to -4 billion, including large negative flows in several countries. A sharp decrease was also recorded in the US (-49%) to $134 billion. The decline in developing countries reached 72% - the highest share on record. China topped the ranking of the largest FDI recipients. However, the fall in FDI flows across developing regions was uneven, with -37% in Latin America and the Caribbean, -18% in Africa and -4% in developing Asia. East Asia was the largest host region, accounting for one-third of global FDI. FDI to the transition economies declined by 77% to $13 billion (UNCTAD, 2021).
4. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 123 Figure 2. FDI inflows by region, 2019 and 2020 (bil. US$) Source: UNCTAD (2021), with preliminary estimates for 2020 In the forms of FDI, M&As, greenfield investment project and project finance all decreased in 2020. Greenfield projects are estimated at $547 billion with a decline of 35%. The largest declines occurred in developing economies, with a 46% fall, mainly in Africa, Latin America and the Caribbean. Cross-border M&As contracted by 10% to an estimated at $456 billion. As for the value of M&A deals, there was a decline of 52% in primary sector. UNCTAD forecast global FDI to remain weak in 2021 when falling by 5 to 10%. Although the world economy is expected to initiate an uneven recovery in 2021, world trade and GDP growth are projected to resume growth, investors are likely to remain cautious in committing capital to new overseas productive assets. International investment projects tend to have a long gestation period and react to crises with a delay, both on the downward slope and in the recovery. For developing countries, the outlook for 2021 is a big concern. Although FDI inflows into developing economies appear to be relatively stable in 2020, attraction to the green sector is down 46% and funding for international projects is down 7%. Meanwhile, these types of investments are important for productive capacity and infrastructure development and for the prospect of a sustainable recovery. UNCTAD expects the increase in global FDI inflows not to come from new investment in manufacturing assets but from cross-border M&A, especially in the technology and pharmaceutical industries. 3.2. The main trends and drivers in Asia - Two main trends of FDI shift The developments of FDI recently shows that there is a sharp shift in FDI flows, in which, there are 2 main trends in Asia. Firstly, the shift to the destinations for the allocation of FDI capital from China to other countries such as ASEAN countries, India According to global FDI statistics, China has surpassed the US to become the world’s largest FDI attraction in 2020. However, China no longer seems to be the top manufacturing
5. 124 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 investment option. The FDI Confidence Index 2021 continues to show China’s downing, from 8th in 2020 and dropping out of the top 10. Optimism about the economy in 2021 is lower than last year, with net score of 23. While striking, China’s lower score was likely impacted not only by the flight to advanced economies but also by The US–China trade tensions, and a more general corporate rethink of international supply chains. These developments suggest that companies are under more pressure than ever to restructure their supply chains to avoid geopolitical and tariff fallout. And this is also creating opportunities for Southeast Asian countries, most notably Vietnam and Indonesia. A report by Nomura Group has stated that, from the beginning of 2018 to August 2019, 56 international enterprises left China to other countries; in which, there are 26 enterprises choosing Vietnam, while numbers for Taiwan, Thailand and India are 11, 11, 3 respectively. In a report by the American Chamber of Commerce in China, about a third of the U.S. companies in China will cancel or suspend their investment activities in China, and some others will move part or all of the production line out of China, for which the destination may be Southeast Asian countries (Tiến Long, 2020). Secondly, the shift in investment sectors. Global FDI activities in recent years have mainly focused on the services-based industries such as technology and information technology services, corporate services, financial services, communication FDI flows in technology and information technology services account for 12.8% of the total number of FDI projects worldwide. While the rates of corporate services, textile industry, financial services are 10.5%, 8.6% and 7.7%, respectively. Of all regions, ASEAN is the region that has changed a certain amount in attracting FDI. FDI flows in ASEAN show the gradual trend from manufacturing sector to services sector. The year 2017 marked a drastic change in investment structure in the region when wholesale and retail trade surpassed finance and manufacturing – which are the two traditional industries that attract FDI the most, to become the leading industry in attracting FDI. Other outstanding sectors are healthcare, R&D, education, e-commerce, and especially financial technology. - Drivers of FDI inflows FDI has shifted from China to other Asian countries driven by the following main factors: + Avoiding the risk of trade and technology war risks: The US-China trade tensions along with the negative effects of the pandemic have fractured the global production and supply chain, and showed a great dependence of the global production and supply chain on China. Therefore, in order to spread risks, multinational corporations shift their investment to other Asian countries such as Indonesia, India, Vietnam, Thailand Governments in the US and Japan have also taken actions to encourage supply chain shifts. In April 2020, Japan set out $2.2 billion in a nearly $1 trillion economic relief package to help Japanese manufacturers move their production chains out of China. At the same time, a grant program worth 23.5 billion yen ($220 million) has launched to support companies to diversify supply chains in ASEAN countries. On 14th May, 2020, former U.S. president D.Trump signed an executive order assisting U.S. companies in shifting production out of China. In a study of Bank of America in 2020, about 67% of companies participating in the survey said that it would be the biggest change in the post Covid-19 period for companies to bring supply chains from China to their homeland or to other markets. This demonstrates that under the pressure of the
6. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 125 epidemic, the trend of shifting investment out of China, restructuring the value chain, and the trend of extending production investment closer to the consumption market have been accelerated. Investors tend to seek a more stable, less risky but export-oriented investment destination, while avoiding high U.S. tariffs. Although not all manufacturing industries can easily move to Vietnam, Vietnam has remained a promising destination since the wave of factory shifts from China began. + Rising production costs in China: Manufacturing wages in China rose from $2 per hour in 2010 to $3.9 per hour in 2016. This salary is quite high compared to the average production salary in others neighbour countries. The cost of using industrial real estate in China also increased sharply after the continuous development of the economy and residential living standards. In major cities such as Shanghai, an increase in industrial land price to $180/sqm, higher than that of other Southeast Asian cities has recorded. In Vietnam, we have a relatively competitive land price, at only $100-$140 per sqm and a low wage of $1-1.4 per hour. As an inevitable consequence, investors looking for more cost-effective investment locations will see Vietnam as an alternative in their efforts to cut costs. + Changing the orientation of industrial development in China: After a long period of high growth rate of over 8%, China is moving up in the value chain and restructuring the economy towards increasing domestic consumption, focusing on developing services sector and exporting higher value items. This has re-oriented the flow of FDI to industries based on labor, land and other factors. + Continuing to diversify production and supply chain: The “China +1” strategy which was established for more than 10 years has made China the world’s huge factory. However, due to both objective and subjective factors, China is losing its advantages to attract FDI causing by the rise in costs of workers, the gradual elimination of policies to encourage FDI The Covid-19 pandemic has “fractured” the entire process of linking the production and supply chain from the first month when it occurred in Wuhan. The value chain disruption has been a problem as Covid-19 is virtually limited to China, even as the epidemic has expanded worldwide. We witnessed the world trade fell more sharply in industries with complex value chain links, particularly electronic and automotive products or with products made from companies based in Hubei Province - one of the key centers in China’s international value chain. According to the OECD’s TiVa database, the proportion of foreign value added in electronics exports is about 10% for the US, 25% for China, more than 30% for South Korea, 40% for Singapore and 50% for Mexico, Malaysia and Vietnam. Imports of key input materials for manufacturing were disrupted due to social distancing, causing factories to temporarily close in China, Europe and North America. Likewise, the shortage of available intermediate inputs under the supply shock sets a “domino effect” across all downstream industries (WTO, 2020). As can be seen, the pandemic has exposed a lack of flexibility in the global value chain. During the crisis, industries with complex value chains will be hit hard, forcing businesses to close, causing unemployment, falling consumption, disrupting flows of goods, production and distribution, and therefore global value chains are stalled. The fact also shows that FDI flow shifting takes place faster. Manufacturers want to reduce their dependence on China. They want to find and move part of their operations to a new investment location, while
7. 126 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 retaining and leverning the invested facilities in China, as well as minimizing the impact of shocks when a single/stage fault occurs in the chain. + Taking advantage of new opportunities from potential markets: in the shift of FDI flows, emerging markets in Asia such as India, Indonesia, Vietnam, the Philippines are potential destinations. With policies to attract investment such as improving the economic environment, large domestic markets, increasing people’s living conditions, those mentioned countries might enjoy benefits from the investment movement. Besides, similar advantages with China in terms of culture, politics, geographical location will help minimize production shift costs and maintain close links with existing production facilities in China. The extensive international integration in the fields of economy, trade, foreign affairs, culture, education, science and technology is also an advantage. However, it should be noted that the shift will not be immediate, but usually has a roadmap of about 2 to 5 years, because global supply chains have been completed and it is impossible to quickly move (Cấn Văn Lực, 2020). 4. FDI PERFORMANCE AND THE SHIFT OF FDI INFLOWS INTO VIETNAM 4.1. FDI Performance Through over thirty years of attracting FDI, we has achieved important results. In terms of policy, in 1987, the Law on Foreign Investment was passed by the National Assembly. In 2005, the Investment Law was promulgated. The law which was further revised in 2014, 2020, together with investment incentive policies, an open and airy investment environment, has made Vietnam an attractive destination for foreign investors. According to data from Vietnam’s Foreign Investment Agency, the total FDI inflows to Vietnam have tended to increase. In 2020, the total newly registered capital, adjusted capital and contributed capital to buy shares of foreign investors reached $28.53 billion, equaling 75% compared to the same period in 2019. Realized capital of FDI projects was estimated at $19.98 billion, equaling to 98% in 2019. Of which: + The newly registered capital: There were 2,523 new projects granted with investment certificates (a year-on-year decrease of 35%). Total registered capital reached $14.65 billion (a year-on-year decrease of 12.5%). + Capital adjustments: There were 1,140 times of projects registered for adjustment of investment capital (fall by 17.5%). Total addition registered capital reached over $6.4 billion (up by 10.6%). + Capital contribution and share purchase: There were 6,141 times of capital contribution and share purchase by foreign investors (a year-on-year fall of 37.6%). The total value of capital contribution was worth $7.47 billion (a decline of 51.7% compared to same period in 2019). The proportion of capital contribution and share purchase in the total investment capital also decreased, from 40.7% in 2019 to 26.2% in 2020. Accumulated as of May 20th, 2021, Vietnam had 33,615 valid projects with total registered capital of $396.86 billion. The accumulated realized capital of FDI projects was estimated at $240 billion, equivalent to 60.5% of total valid registered investment capital.
8. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 127 Unit: mil. US$ Figure 3. FDI attraction in Vietnam in the period of 2018-2020 and the first 5 months of 2021 Source: compiled by authors 4.2. The shift of FDI inflows into Vietnam - Shifting by counterpart As of December 2020, 140 countries and territories have registered to invest in Vietnam. In recent years, Asian countries have risen to represent a bulk of Vietnam’s FDI. In which, South Korea ranked first with a total registered capital of $71.9 billion, accounting for 18.1% of total investment capital. Japan stood at the second with $63.2 billion, accounting for 15.9%. Followed by Singapore, Taiwan, Hong Kong - China. The US and Europe are the two main export markets that bring a large export surplus to Vietnam, but FDI inflows from these markets are still limited. The origin of FDI inflows into a country is one of the factors reflecting the quality of FDI and the efficiency of its use. It can be seen that FDI inflows into Vietnam have had a shift in counterpart, with FDI capital from developed countries and some other countries with source technology such as Korea, Japan, etc. Table 1. FDI attraction in Vietnam by top 10 counterparts, as of May, 2021 Counterpart Number of projects Total registered investment capital (Mil. US$) South Korea 9,076 71,854.60 Japan 4,701 63,241.23 Singapore 2,706 61,482.90 Taiwan 2,818 34,719.01 HongKong 1,977 26,738.00 British Virgin Islands 865 22,084.09 China 3,211 19,691.24 Malaysia 652 12,980.54 Thailand 615 12,727.17 Netherlands 377 10,328.73 Source: compiled by authors from Ministry of Planning and Investment (2021)
9. 128 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 In the first 5 months of 2021, there were 70 countries and territories investing in Vietnam. Singapore led the list with total investment capital of approximately $5.26 billion, accounting for nearly 37.6% of total investment capital in Vietnam; next is Japan with $2.59 billion. It is noted that investment capital of Singapore and Japan was mainly in the form of new investment, accounting for 84.4% and 70.7% of total investment capital of each country subsequently. Followed by South Korea with registered investment capital of $1.83 billion or nearly 13.1%. Other key investors are China, Hong Kong, Taiwan With strong economic growth and favorable investment environment, Vietnam has received much attention from MNCs in the world. More than 50 large MNCs have invested in Vietnam, which can be mentioned as: Procter & Gamble (P&G), Microsoft, PepsiCo Foods, Abbott, Nestlộ, Honda, Samsung, Unilever, IBM. Around 300 companies are exploring investment opportunities or developing expansion plans in Vietnam. In 2019, Japanese MNCs, including Toyota, Honda, Panasonic, Canon, FujiXerox, and Sumitomo, have succeeded in Vietnam with numerous large-scale projects. Apart from industry, Japanese investors now have increasing presence in retail, finance and banking, and food, among other sectors. Japanese retailers AEON and Uniqlo are present in the country, while Mizuho has purchased shares of Vietnam’s leading bank - Vietcombank, and Sumitomo Mitsui Banking has become a shareholder of Vietnam’s Eximbank. A new set of Japanese firms such as AEON, Uniqlo, and Mizuho have recently expanded their presence in the market. Around 50 groups and companies have achieved some initial results for upcoming investment in the country in 2020. And in the context of the trade war, the disruption of the global supply chain, the covid-19 epidemic, MNCs have planned and actually moved their production facilities to Vietnam. This trend is accelerated after concerns about dependence on China market post-pandemic. Companies such as Hanwha (Korea), Yokowo, Nitendo, Sharp, Kyocera, Asics (Japan), Huafu, Goertek, TCL (China), Foxconn (Taiwan) that are operating in all fields ranging from textiles and garments, leather and footwear to phone components, motorcycles, and electronic components have moved or planned to move into Vietnam. The fact that Apple recently chose Vietnam as the first Ipad and Macbook production place outside of China proves that more high-quality FDI flows are moved to Vietnam. Even big investors in the first wave, such as Samsung and LG, are continuously expanding their investment activities in Vietnam. Not only investing in production, both Samsung and LG are gradually turning Vietnam into their big R&D center. - Shifting by sector Previously, FDI invested in Vietnam mainly focused on 3 main areas: manufacturing and processing, real estate activities, wholesale and retail trade, repair of motor vehicles and motorcycles. However, they are now shifting, mainly in the fields of information technology, high technology; electronic equipment and accessories; logistics, e-commerce; retail
10. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 129 Table 2. FDI attraction in Vietnam by Sector (as of May, 2021) Sector Number of Total registered capital (Mil. projects US$) Manufacturing, processing 15,323 232,778.51 Real estate business 955 61,018.88 Electricity, gas, steam and air conditioning production and supply 166 33,733.78 Accommodation and food service activities 895 12,521.62 Construction 1,759 10,685.21 Wholesale and retail trade; repair of motor vehicles and motorcycles 5,342 8,835.50 Transportation and storage 887 5,500.45 Mining and quarrying 107 4,894.76 Education and training 596 4,423.02 Others 7,585 22,470.92 Source: compiled by authors from Ministry of Planning and Investment (2021) In 2020, foreign investors have invested in 19 sectors, of which the processing and manufacturing led with total FDI of almost 1$12.7 billion, accounting for 48.2% of the total registered investment capital. Electricity production and distribution ranked second with total FDI of over $4.9 billion, accounting for 18.7%. And followed by the real estate business, wholesale and retail with the total registered capital of nearly $3.8 billion and $1.5 billion, respectively. As of May, 2021, the processing and manufacturing still led with total investment capital of $6.14 billion, accounting for 43.9% of total registered investment capital. Electricity production and distribution ranked the second with $5.43 billion. Real estate business, wholesale and retail received $1.05 billion and $522 million, respectively. Figure 4. Proportion of realized capital to total registered capital, as of May, 2021* *Calculated on valid projects accumulated Source: author’s calculation
11. 130 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 - Shifting by location Foreign investors have present in all 63 provinces and cities. Ho Chi Minh City is still the leading province in attracting FDI with more than $48.2 billion or 12.5% of total investment capital in Vietnam, followed by Hanoi with $35.9 billion (9.4%) and Binh Duong with $35.4 billion (9.2%), Ba Ria – Vung Tau with $32.7 billion, Dong Nai with $32 billion. Table 3. Top 10 locations attracting FDI in 2020 No. Location Total registered investment capital (Bil. US$) 1 Ho Chi Minh City 4.36 2 Bac Lieu 4 3 Ha Noi 3.6 4 Ba Ria – Vung Tau 2.2 5 Binh Duong 1.9 6 Hai Phong 1.5 7 Dong Nai 0,928 8 Bac Ninh 0,901 9 Bac Giang 0,894 10 Long An 0,81 Source: Ministry of Planning and Investment (2020) In 2020, Ho Chi Minh City took the lead with a total registered capital of $4.36 billion, accounting for 15.3% of total investment capital (of which investment was mainly in the form of capital contribution and share purchase, accounting for 72.9% of the city’s total registered investment capital). Bac Lieu ranked second with a large significant liquified natural gas- fired power plant project worth approximately $4 billion. Hanoi ranked third with nearly $3.6 billion, accounting for 12.6% (of which investment capital focused heavily on existing project expansion and on buying shares of foreign investors, accounting for 35.2% and 45% of the city’s total registered investment capital). Next is Ba Ria - Vung Tau, Binh Duong, Hai Phong. Regarding the number of new projects, Ho Chi Minh City still leads with 950 projects, Hanoi ranked second with 496 projects and Bac Ninh ranked third with 153 projects However, Long An is leading the list with total registered investment capital of $ 3.35 billion, accounting for 23.9% of total investment capital. Ho Chi Minh City ranks second with total registered capital of $1.34 billion. Next are Can Tho, Binh Duong, Hai Phong, Bac Giang and so forth. Box 1. Several “huge capital” and “high-tech” investment projects in Vietnam in 2020 and 2021 Bac Lieu: Liquefied Natural Gas (LNG) Plant Project under the operation of Bac Lieu LNG Thermal Power Centre (invested by Singaporean investors) having total registered investment capital of $4 billion with the goal of producing electricity from liquefied natural gas. Ba Ria – Vung Tau: The South Vietnam Petrochemical Complex Project (invested by Thai investors) with an increase of adjusted investment capital by $1,386 billion.
12. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 131 Bac Giang: Fukang Technology Factory Project (invested by Foxconn Singapore PTE Ltd Singapore), having registered investment capital of $270 million, with the goal of manufacturing and processing tablets and laptops; JA Solar PV Vietnam photovoltaic cell technology project (invested by Ja Solar Investment Limited - Hong Kong, China), having an investment capital of $210 million, with the goal of producing cell panels photovoltaic. Binh Duong: Polytex Far Eastern Vietnam Co., Ltd Factory Project (invested by Taiwanese investors) with investment capital adjusted to increase by $610 million. Can Tho: O Mon II Thermal Power Plant Factory (invested by Japanese investors), with total investment capital of USD 1.31 billion, aimed to create a thermal power factory for electricity supply for the regional and national power system. Hai Phong: Pegatron Vietnam (invested by Taiwanese investors) project having capital of $481 million, with the goal of manufacturing gaming device, phone accessories, smart speakers, game controllers, and computers of all kinds; LG Display Project (invested by Korean investors) with investment capital adjusted to increase by about $750 million. Long An: Long An I and II LNG Power Plant Project (invested by Singaporean investors) having total registered capital of more than $3.1 billion, with the goal of transmitting, distributing, and producing electricity. Nghe An: Everwin Technology Company Limited (Hong Kong) project with a total investment of $200 million, with main products including: cable assemblies, plastic parts applied to smart devices and new energy cars. Quang Ninh: Jinko Solar PV Vietnam Solar Cell Technology Project (invested by Hong Kong investors), having total investment capital of $498 million, with the goal of producing solar panels and electrical equipment Tay Ninh: Radian Jinyu Tire Manufacturing Plant Project (invested by Chinese investors) with total investment of $300 million aimed at producing full steel TBR tires Source: compiled by authors 5. OPPORTUNITIES, CHALLENGES AND IMPLICATIONS FOR VIETNAM TO ATTRACT FDI INFLOWS 5.1. Opportunities and challenges for Vietnam Opportunities to attract FDI inflows come from both inside and outside the economy: + The trend of shifting global FDI flows is taking place strongly. Meanwhile, concerned about the impacts of the trade war and the pandemic, foreign investors have relocated their production chains out of China to ensure stable business activities. Along with the increased prestige in fighting the Covid-19 epidemic and successes in economic integration and development over the past years, Vietnam is considered an attractive and potential destination for MNCs. According to The Economist’s report on the financial strength of the 66 emerging economies in the wake of the Covid-19 fallout, Vietnam has been listed as the 12th strongest economy. + Attracting FDI is one of the major policies and the Government has issued many preferential policies for foreign investors such as tax incentives, procedures, land rental prices, etc.
13. 132 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 + Compared with other countries that are actively attracting FDI inflows in the new context, Vietnam has a great opportunity from its strategic location on the busiest trade axis in Asia. + There is huge room for attracting more FDI into Vietnam. + Vietnam has signed and implemented new generation FTAs, such as CPTPP, EVFTA, RCEP that not only help to increase the two-way trade flows but also have positive impacts on FDI inflows into Vietnam. + Vietnam’s infrastructure and logistics market are being promoted. According to the Asian Development Bank, 5.8% of Vietnam’s GDP is spent on infrastructure development - the highest in Southeast Asia. Increasing investment in infrastructure in industrial parks, export processing zones and open economic zones helps goods-services circulate better and therefore saves logistics costs for foreign investors. However, Vietnam also needs to overcome a number of challenges: + Fierce competition from other countries in the region such as India, Thailand, Indonesia In recent years, these countries have introduced preferential policies to attract FDI such as: building industrial parks with a large area to meet the needs of investors; applying preferential land rental prices; reducing corporate income tax; applying tax exemption from 4 to 10 years in a number of priority areas Although Vietnam’s investment environment has been improved, it has not yet fully met the requirements of international investors. FDI enterprises still complain about inadequacies in the investment environment such as cumbersome administrative procedures related to land, site clearance, weak infrastructure and supporting industries etc., Moreover, Vietnam faces the lack of skilled human resources to meet the requirements of foreign investors in high-tech projects. As a result, Vietnam is losing its advantage in attracting FDI compared to neighboring countries. + The risk of facing the displacement of poor-quality FDI flows. In some countries like China, there is a tendency to promulgate policies to attract investors in high-tech and spearhead technology sectors while continuing to tighten regulations on investors in industries and sectors prone to environmental pollution, resource and/or labor-intensive, low value added. Therefore, these investors tend to move their investment capital to countries that have an easier mechanism for foreign investors like Vietnam. 5.2. Implications for Vietnam to attract FDI inflows It can be seen that FDI inflows tend to move to Vietnam. Especially, these FDI flows are directed to services sector, high technology sector and other sectors having both highly added value and the spillover effect in the economy. This is a shifting trend in line with the direction of attracting FDI that Vietnam is aiming for. In order to attract more FDI inflows, Vietnam has to solve the above challenges. The government and enterprises need to strive to achieve the goals set out in the spirit of Resolution No. 50-NQ/TW dated August 20, 2019 as well as Resolution No. 58/NQ-CP on orientations to perfect institutions and policies, and improve the quality and effectiveness of foreign investment cooperation. Some specific solutions to focus on such as:
14. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 133 Firstly, improving the quality of the domestic institutional environment. In doing this, Ministries and relevant agencies need to coordinate in drafting documents, synchronously implementing the legal and management system according to international standards. In particular, the task of Government agencies is to quickly complete the completion of institutions, policies, and laws on business investment, including contents related to foreign investors. Besides the preferential policies, it is necessary to pay attention to the concerns of investors such as: Publicity, transparency, stability, predictability in terms of institutions, policies and laws; Strict law enforcement; Unity and protection of investors’ legitimate rights and interests; Ensuring the prescribed time All these things will reduce unofficial costs for investors. And this is also a factor that helps improve Vietnam’s institutional competitiveness and business environment, especially in the context that international investors are constantly looking for new markets outside of China. Secondly, ensuring infrastructure conditions for investment. Foreign investors are very concerned about the quality of infrastructure in Vietnam. For example, the problem of industrial zone land fever and the difference between the surveyed land price and the actual price when implementing the project have greatly influenced the investment decision making. The lack of synchronous infrastructure makes the stages of transportation, packaging, procedures in Vietnam not only more expensive but also slower than shipping from abroad to Vietnam. Therefore, logistics costs in Vietnam are quite high compared to other countries in the region. In the coming time, Vietnam needs to keep the land price of industrial zones stable for at least 3-5 years to ensure the completion of an investment project and to ensure the synchronization of infrastructure to cut down on logistics costs. Next is to increase resources to invest in infrastructure. The government should determine it the most important factor in attracting FDI. In particular, young human resources with great internet skills, data analysis ability, good information technology and the ability to quickly grasp new technology trends are advantages that need to be further promotes to attract high quality FDI. We promulgate regulations suitable for new economic relations, business models and methods to facilitate investment activities of investors and management activities of government agencies. We also need to complete the national database and information system on investment in a synchronous manner, interlinking with the fields of labor, land, tax, customs, credit, foreign exchange and localities. Socio-economic information systems, laws, policies, planning, plans, markets also need to be public and transparent. Thirdly, selecting investment projects and resolutely eliminating low– quality FDI projects. The implementation orientation is to prioritize strategic investors to create a global production chain; prioritize high-tech enterprises transfering technology to Vietnamese enterprises; strictly control investment projects that are not suitable for Vietnam’s development needs or in areas where domestic enterprises are capable of technology (namely, not permitting or not allowing foreign investors to invest in high-quality industrial parks, not granting tax incentives ). However, in order to select investment projects, the government should: +) formulate a specific list of investment restrictions in accordance with international commitments; +) develop investment criteria to select and prioritize investment attraction in accordance with the planning and development orientation of the industry, field and locality; +) develop specific standards and criteria such as the ability to increase the investment rate per
15. 134 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 unit area, the content of science and technology in the investment capital flow, environmental protection, value added, labor productivity, labor income, localization rate ; +) improve standards and technical regulations on products, environmental protection, resources and energy saving in line with regional and world standards, to implement policies to encourage cooperation and technology transfer on a voluntary basis, etc. Fourthly, preparing human resources to meet the investment needs in the new FDI flow shift. Vietnam has young, cheap labor force but lacks high-quality labor to meet the requirements of investors. The current reality shows that foreign investors have to rely on a force of highly qualified experts and technicians from abroad. However, regulations on labor from abroad are still troublesome and have complicated procedures that hinder the plan to expand investment in potential fields. Therefore, improving the quality of education and training, especially the skilled technical workers, is the foundation for the new wave of FDI flow shift. CONCLUSION FDI has made a great contribution to the development of Vietnam’s economy. It is a driving force for GDP growth and the state budget that helps to increase exports, to generate incomes and jobs, to create technology spillover effects. The successful attraction FDI shows the effectiveness of the key investment incentive policies Vietnam has introduced in recent years. In the context of shifting global FDI flows, Vietnam has many opportunities. However, to take advantage of this trend, it is necessary to join hands of both the government and businesses. Immediate and long-term solutions need to be implemented. And the most important solution is to create a favorable institutional and investment environment to receive more FDI inflows into Vietnam./. REFERENCES 1. A.T. Kearney (2021), The 2021 FDI Confidence Index, 2. Hà Thị Võn Anh, Nguyễn Thị Quỳnh Anh (2021), Xu hướng vận động của đầu tư trực tiếp nước ngoài - Cơ hội và thỏch thức cho tỉnh Bắc Ninh, 3. Bob, S. (2021), Asia leads the global economy out of 2020’s record FDI inflow slump 4. Cục đầu tư nước ngoài – Bộ Kế hoạch và đầu tư, Bỏo cỏo tỡnh hỡnh đầu tư nước ngoài cỏc năm 2018, 2019, 2020 và 5 thỏng đầu năm 2021 5. Doytch, N. (2014), The Worldwide Shift of FDI to Services- How does it Impact Asia? New Evidence from Seventeen Asian Economies, 6. Federico. C, Elena. P (2018), FDI and its drivers: a global and EU perspective, ECB Economic Bulletin, Issue 4/2018, 7. IMF (1993), Balance of Payment Manual
16. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 135 8. Hải Hà (2021), FDI toàn cầu: Nhiều khu vực và nền kinh tế giảm sõu trong lịch sử, Thời bỏo tài chớnh online, 9. Đỗ Lờ (2020), FDI chuyển dịch, Việt Nam đún nhận sao cho hiệu quả?, Thời bỏo tài chớnh online, 10. Tiến Long (2020), ASEAN đún dũng vốn đầu tư toàn cầu: Xu hướng tất yếu 2020, 11. Cấn Văn Lực (2020), Xu thế dịch chuyển dũng vốn đầu tư - giải phỏp đối với Việt Nam, Tạp chớ tài chớnh online, 12. Nhandan online (2020), Enhancing FDI attraction through order shifting trend, vn/business/investment/item/8844102-enhancing-fdi-attraction-through-order-shifting-trend.html 13. Anh Nhi (2021), Cần cải cỏch đột phỏ để thu hỳt dũng vốn FDI thế hệ mới, Tạp chớ điện tử VnEconomy, 14. Nunnenkamp, P. (2001), FDI in developing countries: What policymakers should not do and what economists don’t know, Kieler Diskussionsbeitrọge, No. 380 15. OECD (2020), Foreign direct investment flows in the time of COVID-19, 16. Nguyễn Minh Phong (2020), Khụng bỏ lỡ cơ hội thu hỳt vốn FDI chất lượng, Tạp chớ tài chớnh online, 17. Đào Minh Phỳc (2020), Xu hướng dịch chuyển đầu tư ra khỏi Trung Quốc và giải phỏp thu hỳt đầu tư cho Việt Nam, Tạp chớ Ngõn hàng số 21/2020 18. Đinh Thế Phỳc (2020), Xu thế dịch chuyển đầu tư và gợi ý một số giải phỏp cho Việt Nam về tiếp nhận dũng vốn FDI mới sau đại dịch Covid – 19, Tạp chớ cụng thương online, 19. Thu Phuong (2020), Japanese firms rate Vietnam as top investment destination, Vietnam Economic News, 20. Lờ Xuõn Sang (2021), Định hướng thu hỳt FDI vào Việt Nam trong bối cảnh mới, Tạp chớ tài chớnh online, 21. Lờ Thị Thanh Trang (2021), Giải phỏp thu hỳt vốn đầu tư trực tiếp nước ngoài vào Việt Nam, Tạp chớ tài chớnh online, 22. Nguyễn Trần Minh Trớ (2020), Để tăng cường thu hỳt FDI chất lượng cao từ EU, Tạp chớ ngõn hàng online, 23. UNCTAD (2004), The World Investment Report 2004 24. UNCTAD (2021), Investment Trends Monitor, Issue 38, January 2021 25. Thanh Van (2020), FDI capital inflows into Vietnam cross $28 billion milestone in 2020, Vietnam Investment Review, 26. WTO (2020), Press Release, Press/855, 8 April 2020