Foreign Direct Investment plays an essential role in Vietnam’s economy and continues to fascinate record foreign direct investment (FDI). The state-of-the-art data from the Foreign Investment Agency (FIA) states that Vietnam has reached US$38.2 billion in 2019 with a colossal increase of 7.2 percent as compared to the same period in 2018.

Nearly 3883 new projects were licensed with a total registered capital of US$362.5 billion in 2019. In 2019, foreign direct speculation projects were assessed to expend 20.38 billion USD, up 6.7 percent as paralleled to the same period in 2018. Out of 19 sectors, delivery capital, industrialization and handling originated on top with total capital of US$24.56 billion. This investment is mainly driven by the US-China trade war.

Growth of FDI in Vietnam:

Foreign direct investment FDI enterprises plays a vital role in Vietnam’s Economy.  As one of the crucial parts of economic reforms, Foreign Investment Law was enforced in the month of December 1987 and then it became the basic and legal framework which overview the country’s integration and policies. According to the General Statistics Office of Vietnam (GSO), middling annual economic progression was 7.3%, and GDP per capita rose by 5.7% over the period 1990–2004 and lingering 6.40% in the September quarter of 2016. GDP growth rate in Vietnam was around 6.17% from 2000 until 2016, attainment an all-time high of 8.46% in the fourth quarter of 2007 and a record low of 3.14% in the first quarter of 2009. 

FDI in Vietnam has a majestic influence on the other economic sectors such as encouraging the domestic speculation, creating rivalry, endorsing the modernization and the transmission of technology, improving construction effectiveness, and industrializing the supportive industries that all help Vietnam contribute in the value chain of global production.

FDI also plays an active role in auxiliary the process of alteration of state enterprises, heartening executive technique to reform and fulfill the market economy. It has recently fascinated 290 billion USD in foreign direct investment with supplementary higher than 22000 projects form 114 countries and territories it also has expended nearly $145 billion.

FDI has been an active part of Vietnam’s economy and has endorsed many budding entrepreneurs. Vietnam is dedicated to an ambitious investment plan to advance overall infrastructure in major industrial poles in the countries which will ease business and advance logistics. 

The FDI sector has a positive impact on the restructuring of economic sectors and the orientation of industrialization in Vietnam. The percentage of FDI in economic structure amplified by 5.4% while the public sector and the private sector diminished respectively. FDI sector accounted for about 45% of the total industrial manufacture value, causative to the instituting of the key industrial sectors which include telecommunications, oil and gas, electronics, chemicals, automotive, motorcycle, public information technology, steel, cement, food processing agricultural products, footwear, garments etc.,

In Vietnam, the other areas such as education, training, and health care did not primarily charm FDI but later were capitalized in several high-quality institutions, some contemporary hospitals and clinics which assisted the needs of the high-income populace and foreigners living in Vietnam.

Foreign direct investment is defined as an investment concerning a long term relationship and shimmering a lasting curiosity and control by a resident entity in one economy. According to the World Trade Organization, FDI occurs when an investor based in one country (the home country) attains an asset in another country (the host country) with the determination to achieve that asset.

Factors manipulating the superiority of FDI magnetism have been tested through numerous studies and theories; typically, Mayer points out that the rationale for long-term investment of multinationals is that they famine to revenue advantage of the local resources of emerging economies such as the cheap and abundant labor force or precious natural resources.

China’s Investment in Vietnam:

China is increasing its investment in Vietnam rapidly over the years it’s become the seventh largest investor in Vietnam in 2018 it moved up to fifth and now prevailing in the fourth position. This can partially be attributed to the US-China trade war. Now China is turning its vision towards Hong Kong rather than Vietnam as it becomes more cautious about Chinese investments. 

North Vietnam is rapidly amalgamating its position as a main industrialized hub for the electronics and heavy industry. The manifestation of global conglomerates like Samsung, Canon and Foxconn and for the automotive industry which are motivating the development of a reliable supply chain in the area.

They must be taken into account in the verdict making process. An accord acceptable for all interrelated parties must be found through a time consuming consultation process. In reality, foreign direct investment has facilitated Vietnam to progress totally new industries or up categorizing others as food and beverages, garment and textile industries.

Foreign Direct Investment has also assisted to streamline administration and corporate governance, and to train a new group of young and dynamic managers. Some 300.000 workers have been competent or re-trained, 25.000 technicians and 6.000 managers have been trained, moderately abroad. 

FDI helps to hasten the process of international integration, scoop out the cultural exchange with other nations. Many former employees of foreign financed companies have been trained in a foreign endowed company and later on curved to be successful private entrepreneurs in the internal private sector. 

The Private Sector forum primarily systematized by FDI-managers, now renamed as business forum, is also a channel to afford feedback to the Government about needed restructurings. Vietnam has appealed to the interest 100 transnational companies (among the top 500 of the Fortune list) investing in 237 projects in diverse industries, but it is also pure that several of these TNC (from Japan, USA, and E.U.) have not yet categorical to invest high-tech projects in Vietnam. 

Appropriate prerequisites relating to infrastructure, skilled, trained workers have to be created. FDI is an important source for technology transfer. Vietnam could revolutionize the telecommunication system; get access to up-to-date evidence technology mainly through FDI.

FDI has facilitated the renovation of management in the corporate sector. FDI in agriculture, forestry and fishing is under-proportionate compared to the importance and huge potential of these industries in Vietnam.

South Vietnam has also been the main terminus for renewable energy speculation projects, in particular solar power plants. In the future while the southern region will preserve its desirability, investments in solar plants are anticipated to progressively shift to central and northern areas of Vietnam. 

As the US-China trade war continues, Vietnam has become one of the fastest growing sources of American imports in the first quarter of the year. If this keeps up, Vietnam could exceed the UK as one of the biggest suppliers to the US, according to Bloomberg. Ingresses from Vietnam to the US jumped 40.2 out of a hundred in the initial three months over the same period last year. During the same time American imports of Chinese goods plummeted by 13.9 percent in Vietnam.

Vietnam could not fascinate significant FDI to up-grade its roads, ports and various areas of infrastructure. FDI Joint-Ventures have been made mainly with SOEs, only 2% with the newly emerging private sector. It is also a modification to other regional economies.

FDI required progress in infrastructure, exercised by the government and did not substitute these efforts for development. The geographical structure of FDI in Vietnam once again has confirmed this international experience. Most of FDI is strenuous in the areas around Ho Chi Minh-City and Hanoi. Until now twenty low established provinces have engrossed less than 10 FDI- projects/ province and four provinces in remote and mountainous regions (North West, Central Highland, Mekong River Delta) have concerned only one small FDI project/ province.

Vietnam’s Ministry of Trade sees auxiliary industry as key to boost socio-economic expansion. The government wishes to restructure the industry to backing domestic production and increase localization rates. Industry experts approximately say that Vietnam has profited due to companies moving engineering to Vietnam as costs in China started to increase. The US-China trade war has accelerated this process.

Foreign Direct Investment in Vietnam has skilled a euphoria period from 1988 until 1995 with very rapid evolution in commitments and big projects. Even before the Asian financial crisis FDI into Vietnam has been underway to slow down and released dramatically in the following years. In 1997 the steadfast capital was US$ 4.6 billion, in 1998 was US$ 3.8 billion (-17%), in 1999 US$ 1.5 billion only (-60%). Some 800 licensed projects have been withdrawn or revoked during this period, mostly from the crisis-hit Asian-economies (Kokko, 1996). In 2000 Vietnam has finalized some big projects on oil, gas and energy and hereby could increase FDI obligations by 28.6% and a further growth of 25% in 2001. 

In the first seven months of 2002 no more big projects are presented, the number of the licensed projects has improved by 16% (345 licensed projects in the first seven months of 2002) but the committed capital was only US$ 594.5 million, merely 52 % of the same period from previous year, which represents a decrease of 48%. This dramatic decline of badly needed

FDI- inflow could not be totally charged by external factors like the impacts of the Asian financial crisis. The decline of FDI in Vietnam is more pronounced compared to other ASEAN-economies, while the recovery of FDI in Vietnam is slow compared to ASEAN economies and not steady, especially in 2001 and 2002. It is noteworthy that FDI influx into China has augmented during the years of the Asian crisis and is probable to surge in the next years. Internal factors must be considered to explain this situation in Vietnam.

About VIIPIP

VIIPIP is a big consulting organisation led by a main consultant with more than 20 years of expertise aiding international firms with real-world business possibilities in Vietnam. Our mission is to help businesses overcome hurdles and conduct business in Vietnam. We assist our customers in managing their overseas investment initiatives through our well-established local network.

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