FDI declined in 2012 for the third year in a row. In 2010, only $18.1 billion was reported. In 2011, $14.7 billion. In 2012, FDI was only $13 billion. As neighbouring countries such as Indonesia, Myanmar, Thailand and Cambodia emerge as attractive investment destinations, if Viet Nam does not create a more favourable investment climate, FDI might continue to decline.
The project “Evaluation of FDI inflow over the past 25 years with orientations to 2020” recently completed by the Ministry of Planning and Investment addressed a series of problems related to investment incentive policies which needed amending. According to the project, the quality of FDI should be improved in high-tech industries, as well as in industries that use cheap labour
Dang Xuan Quang, Deputy Director of the Foreign Investment Agency:
A series of problems related to mechanisms, policies and the legal framework for FDI sectors have been put under review. In my opinion, there are three main reasons why FDI flow into the country slowed down: (1) increasing competition between countries in the region to attract FDI, (2) the impact of the global economic recession, especially on the US and Europe, and most importantly, the country’s limited FDI absorptive capacity.
According to a recent report of the United Nations Conference on Trade and Development, global FDI capital hit $1.4-1.6 trillion in 2011, increased to $1.7 trillion in 2012 and was estimated to reach $1.9 trillion this year – equal to the record in 2007.
These figures reflect the recovery of the global FDI, raising the question of why Viet Nam is seeing less investment.
Looking at neighbouring countries, Indonesia has seen strong FDI growth in recent years although its investment climate remains incomplete.
Myanmar is also a potential investment market, forecast to become the next destination for development opportunities in the region.
Malaysia and Thailand remain favorites of foreign investors.
The latest report of the Japan External Trade Organisation indicated that Japanese enterprises worry about many things when investing in Viet Nam: salary increases, finding raw materials and components, the limited capacity of local workers and complicated customs procedures.
Phan Huu Thang, director of the Foreign Investment Research Centre, Ha Noi National Economics University:
Appropriate investment promotion solutions and a more competitive investment climate are needed to increase FDI.
In order to improve the investment climate, besides upgrading infrastructure such as roads, bridges and ports, we need to focus on completing legal policies concerning FDI enterprises’ investments and business while enhancing the management of the FDI sector.
Experts said many times that if the country failed to tackle weak infrastructure, it would be very difficult to attract foreign investors. And if foreign investment was not poured into the country, Viet Nam’s ability to upgrade its infrastructure would remain limited, creating a “vicious cycle”. So, to break the cycle, the country should prioritise infrastructure construction to meet the demand of foreign investors.
In the FDI orientation project, the Ministry of Planning and Investment proposed amendments and reforms of the legal framework for investment, which tackle the contradictions and overlap between the Law on Investment and other laws.
Investment incentives and promotions also need to be amended to be more realistic and create advantageous conditions for investors.