Vietnam takes on pressures of foreign capital attraction

Vietnam is under great pressure in terms of FDI attraction. For example, big economies such as the United States, EU, Japan, and South Korea are applying policies on limiting outbound investment. The South Korean government has enacted a policy to encourage this nation’s investors to come back home for investment, while the Japanese government has earmarked about $2 billion for supporting Japanese investors returning to Japan.

These moves are creating pressure on Vietnam to keep South Korean and Japanese investors, who are at the top terms of Vietnam’s FDI portfolio.

It is strongly recommended that Vietnam seriously studies the FDI attraction strategies of other nations and territories, especially strategies of multinational corporations’ outbound investment, to design its own strategy.

India, for example, is making every effort to woo high-quality FDI. The Indian prime minister each year makes about four visits overseas exclusively to work with global investors. This means it has sound financial health and consecutively improves its investment and business policies to attract FDI. This also puts pressure on Vietnam.

In Southeast Asia, Indonesia is now becoming a big rival of Vietnam in FDI attraction. This nation has earmarked about five large-scale land areas for big projects. For instance, any project worth at least $70 million and using more than 300 local employees will be licensed in a very short time of one week, and can immediately begin construction without obstructions.

Globally, there has also been an oft-seen trend in selecting investors. Many nations have applied a raft of solutions to filter FDI in a very stringent manner with very high standards. They pay special attention to national security and defence, and any project affecting this sector will be either refused or put under strict management.

If Vietnam fails to update information from the global FDI landscape, it will be difficult to lure more high-quality foreign investment.

Domestically, the country’s business and investment climate has improved, but much remains to be done to make the country a more attractive investment destination. The reality is that when one administrative procedure is removed, another two or three are created.

Investors from the United States, EU, Japan, and South Korea trust the country’s economic growth and the effort to improve the investment environment. Many multinational groups also have plans to expand their operations in the country.

In reality, their demand on domestic supply sources is large, while the capacity to meet these demands is modest as there are too many small and medium-sized enterprises. Besides this, state-owned enterprises are assigned different projects and missions. As a result, the linkage between foreign-invested enterprises and domestic firms is further loosened.

The expectation in the upcoming time is to tighten the linkage between foreign-invested and domestic enterprises, which is the most effective solution to improve the competitive capacity of Vietnamese firms and take them into the global supply chain. Once the domestic firms’ competition capacity is improved, it will be a foundation to draw more large-scale foreign investors or foster existing firms to expand their operations.

Large investor will continue to spend part of their profit investing in training to enhance the labour force and the capacity of the domestic supporting industry. These moves show a heartfelt desire for win-win collaboration.

In the past three years, FDI inflows have slowed down largely due to the pandemic, geopolitical fluctuations disrupting supply chains, consumption of European and American countries declining, inflation, and production stagnation. So, all investments from countries around the world and capital into Vietnam have shown signs of slowing.

However, investment inflows into Vietnam in the last two years have seen some rises in the number of projects by about 16-22 per cent.

However, Vietnam is missing huge mega projects that make a breakthrough in investment value, in which the number is very few but the value accounts for a high proportion of total FDI.

This can be explained by the global minimum tax, which will be applied in early 2024, with large multinationals the main affected subjects, so they are carefully listening to the policy responses of governments.

In Vietnam, we are considering solutions, which are expected to be issued in the next one to two months to retain existing investors, be attractive enough to new investors, and ensure fairness and equality among different business sectors.

Additionally, one of the major factors affecting investment capital flows into Vietnam in recent years is the devaluation of the currency.

The two biggest investors are South Korea and Japan, whose currencies are severely depreciating. The larger the ventures are, the higher risk they have, so the mega decisions and projects are more carefully considered, and delayed.

Vietnam has impressed the international community not only with its rapid economic growth but also by the rapid expansion of renewables in the total energy structure, along with measures to use energy efficiently. It is important now to continue to maintain momentum.

However, there are still many challenges. For example, the expansion of solar and wind power will present challenges to the power network because it has not developed correspondingly in the past years. These are also urgent tasks to create conditions for Vietnam to generate electricity from solar or wind power sources on the grid.

Resources in Vietnam have not allowed the promotion of power networks that can be automated and optimised, but still need foreign support. To be able to step into a cleaner and newer energy source, Vietnam needs to create conditions for private and foreign-led enterprises to build power grid infrastructure so that it can serve as a basis for development. Along with that, there must be a stable policy environment so that investors can feel secure to invest in solar and wind.

Based on experiences and practical lessons, the price of electricity from solar and wind power must also be carefully considered.

Besides that, FDI has also played a role in Vietnam economic growth, contributing approximately 70 per cent of the country’s trade activities to reach the record trade volume of $733 billion in 2022.

With strong contributions from both domestic and foreign-invested enterprises, Vietnam has become a bright spot and a favourable investment destination with strong and continuous support from central and local governments and various government agencies.

Vietnam will continue to benefit from the supply chain shift trends and the development of green economy. With a strong and dynamic workforce, I believe it will continue to be one of the most attractive FDI destination in Southeast Asia.