The boom in FDI attraction is considered to be a spectacular result of Vietnam’s first year of WTO membership. The new wave of foreign investment to Vietnam has been heightened. New opportunities have been opened along with challenges which need to be quickly overcome to ensure sustainable development and increase the effectiveness of the new FDI wave to Vietnam.
Elements contributing to creation of the new FDI wave to Vietnam
In addition to comparative advantages that have always been mentioned such as socio-economic stability, a young and abundant workforce, diverse natural resources and favourable geographical position, there are new elements that have contributed to the establishment of a new FDI wave to Vietnam.
Firstly, it is the continuous strong growth of the Vietnamese economy. Despite heavy consequences caused by natural calamities and the global price rises, the Vietnamese economy continued to develop with GDP growth rate of nearly 8.5%, the highest figure since 1997. Total import-export value increased by US $20 billion compared to last year. These are the indicators showing foreign investors that Vietnam is a potential market, an important element for every investor before making their decisions to invest in Vietnam.
Secondly, following the success of the National Assembly election, the 12th term, the renovation and increase in the efficiency and capacity of the State apparatus, the various impressive external relations activities in 2007 by Party and State leaders have all contributed to promote investment co-operation with other countries.
Thirdly, the investment environment in Vietnam continued to be improved. In particular, 2007 was the second year since the Investment Law and Corporate Law have been promulgated with more transparent regulations. Though these laws still need to be perfected, they have helped revitalise investment and trading activities, encouraging localities in promoting investment, simplifying investment procedures and supporting investors to carry out their projects after being licensed.
Fourthly, the official WTO membership status of Vietnam has helped consolidate foreign investors’ confidence in Vietnam. They understand that their rights will be better protected, investment activities in Vietnam will be carried out on a fair “playground” between investors of different economic sectors, with no discrimination between foreign and domestic investors.
Fifthly, the close instruction of the Government, attaching importance to administrative procedures reforms and fighting corruption, has helped create favourable environment for promoting a new wave of investment, especially the promulgation of the Instructive No 15/2007/CT-TTg dated June 22, 2007 by the Prime Minister on measures to promote foreign investment in Vietnam have been showing its effectiveness.
In addition, the success recorded by the first investors has been an element that has helped consolidating the confidence of new investors. In an increasingly improved investment environment and a dynamic Vietnamese economy, trading and production activities of the foreign invested sector thrived with increasing number of profitable businesses increasing year-on-year.
Not only increase in quantity
Along with the sharp increase in the total number of foreign direct investment projects and registered capital, FDI structure and quality in 2007 has also been heightened.
This can clearly be seen in the sharp increase in foreign investment in services and hi-tech sector.
Of the total over 1,300 projects licensed in 2007 with a total registered investment capital of US $15 billion, the services sector accounts for over 33% of the projects and 42% of the total capital. In addition to projects to develop transport infrastructural facilities, building container ports, there have been big projects in building new urban areas, tourism areas, hotels, offices, luxurious apartment buildings as well as modern entertainment areas. The hotels, tourism, offices, apartments sectors attracted over 60 projects with a total registered capital of over US $3.95 billion.
There have also been big projects in industry including the Vung Ro refinery project in Phu Yen province worth US $1.7 billion; the steel project in Ba Ria-Vung Tau worth US $527 million, the paper and paper pulp production project in Hau Giang province worth US $629 million; the electronics industrial project in Vinh Phuc and Bac Ninh worth over US $1 billion.
The oil and gas sector also attracted seven projects with a total registered investment capital of US $1.9 billion.
In 2007, as many as 52 localities in the country accepted new FDI projects. 90% of the newly-licensed projects have been invested in the three key economic regions: the northern, southern and central regions where infrastructure facilities have been quite good.
The attractiveness of northern localities, especially those in the northern key economic region, is increasing rapidly. Of the top 15 localities in terms of FDI attraction in the country in 2007, six are in the northern key economic region. It is quite encouraging that Phu Yen, Long An, Hau Giang and Thua Thien-Hue were in this list.
Prospects and challenges
2008 is a pivotal year of the five-year socio-economic development plan 2006-2010 with a GDP growth target of 8.5-9%, while striving to reach an even higher rate in order to rapidly bring Vietnam out of the list of low-income developing countries.
To achieve this target, efforts are required to mobilise all resources for development investment, in which the FDI capital plays a significant role.
Entering the second year as a WTO member, Vietnam will continue to carry out its international commitments according to the agreed roadmap, being more open to trade, the service sector and some others which had previously been “conditional” investment sectors.
The government has worked out a Plan of Action for international economic integration, striving to implement well WTO and other bilateral and multilateral commitments.
The implementation of the Vietnam-Japan Common Initiative will continue to be developed along with the positive progress in negotiations of the Vietnam-Japan Economic Agreement.
Along with favourable factors, it should be noted that Vietnam’s capacity of FDI absorption has shown its weaknesses. The shortage of high-skilled workers has currently been an obstacle, requiring relevant agencies and investors to co-operate for settlement.
The weak infrastructure system has also been another pressing issue for investors. Roads, seaports, electricity and water, housing, schools and health care for workers are all in shortage or yet to reach minimum standards.
Delays in land compensation and clearance for projects have been the hottest issue. Though the new Land Law (amended) has been promulgation, the real estate market has not become transparent. The power of the authorities in localities has sometimes not been strong enough, thus delaying the land clearance progress and implementation.
Efforts are required to speed up the implementation of projects, narrowing the gap between registered capital and implemented capital. Of the total US $80 billion registered capital, only US $35 billion has been implemented. Thus, efforts are requested to create favourable conditions for the disburse of the remaining US $45 billion.
In addition, it is important to strengthen relations between the FDI sector and other economic sectors to increase the widespread impacts of FDI in 2008.
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