July 11, 2011. Vietnam may lose out to neighbouring competitors if this year’s downtrend in foreign direct investment inflows is anything to go by.
Registered foreign direct investment (FDI) in the first six months of 2011 fell 48.1 per cent year-on-year to $ 5.6 billion, according to the Ministry of Planning and Investment’s Foreign Investment Agency (FIA).
Disbursed FDI from January 1 to June 22 also slightly dropped by 1.9 per cent year-on-year to $ 5.3 billion, ending the upward trend of the net FDI inflow over the previous two years.
In the year’s first half, foreign investors committed to invest into 455 new projects and raise investment capital at 132 projects, compared with 651 and 229 projects respectively in the same period last year.
Investment authorities blamed the declines in both net and committed FDI this year on the world’s slow economic recovery as weaknesses in developed countries meant many foreign investors were investing closer to home instead of expanding investment in Vietnam.
However, not all foreign investors share the same opinion.
Patrick Regis, chairman of British Business Group, said that ” has deteriorated over the past 12 months and this will have a bearing on investor sentiment and business cases particularly those in the manufacturing sector,” and added that Vietnam could be losing its advantage as a preferred FDI destination because of an increasing loss of confidence.
Noriaki Shutoh, chairman of the Japan Business Association in Vietnam, said: “One thing I can say is that it is not a good time for investors to make a decision now to invest in Vietnam given the current economic and social situation. The amounts of profit become lower and lower every day.” Other difficulties include rapid wage rises, power supply shortages, problems with local procurement of parts and components, and difficulties in employing workers.
Already some foreign investors are deciding against expansion of local investments, put off by local economic instability. Last year, both US-based automaker Ford and Japan’s Canon opted to build new factories in Thailand rather than Vietnam because of a lack of supporting industries and labour disputes. Similarly, Thailand’s tableware manufacturer Srithai Superware this year suspended plans for a $ 5 million expansion in Vietnam, and decided to invest in Laos instead.
Japanese motor maker Minebea Co. chose Cambodia over Vietnam to build a $ 62 million plant for 5,000 workers in a sign growing labor disputes are hurting Vietnam’s appeal. “Labor is the key focus for us in choosing Cambodia. We need reliable labor.”
“Companies are looking to see whether Vietnam is able to manage inflation and wage pressures. If Vietnam mismanages it, multinationals have other alternatives.”
Read more …
FDI down as investors chill, Jul 11, 2011
Vietnam’s Appeal Diminishes as Labor Strikes Increase, Jun 16, 2011