Opportunities to receive FDI wave

Monday, 2016-01-11 18:20:09
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FDI projects have created pervasive influence on the national economy
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NDO - 2016 and coming years are forecast to have a new wave of foreign direct investment (FDI) with US$24-26 billion in 2016, up 10-15% compared to 2015 thanks to the considerable improvements in State management over investment and growth of FDI capital in 2015.

Spotlights in 2015

According to the Foreign Investment Department under the Ministry of Planning and Investment, the total FDI capital including newly-registered and supplemented capital reached only US$5.43 billion in the first six months of 2015, equivalent to 80.2% of the same period of 2014. The FDI inflow has been thriving again since August 2015, helping raise the total FDI attraction in 2015 to US$22.7 billion.

Despite many shortcomings of the national economy including poor infrastructure and services and a lack of trained and qualified labour, the FDI disbursement in 2015 reached US$14.5 billion, an increase of 12.5% over 2014.

In addition, the number of newly-licensed FDI projects in 2015 was posted at over 2,000, a 26.8% year-on-year increase, and the number of projects expanding capital reached 814, up 37% over 2014, showing the trust of foreign investors in Vietnam's business environment, particularly those who are operating in Vietnam.

2015 also saw great advancements in the legal system related to investment including the effectiveness of the Investment Law 2014 replacing the Invest Law 2005 with many important changes particularly the regulations on the ban on investment, investment attached to conditions, and administrative reforms related to investment. Advancement in the State management over investment contributed to boosting the growth of FDI from the declines in the first seven months of 2015 to the advances in the remaining five months.

Chairman of the Vietnam Association of Foreign Invested Enterprises Nguyen Mai said Vietnam saw satisfactory FDI results in 2015 in both numbers and quality of projects, demonstrating improvements in the investment environment. FDI projects have created pervasive influence on the national economy and Vietnamese enterprises are assisting FDI enterprises for mutual development although there are many weaknesses in the development of the supporting industries.

Impressions in early 2016

Many FDI projects have been licensed in early days of 2016, signalling a rich harvest for 2016. Bac Ninh province received the first FDI project in 2016 on January 6 - an apparel factory by Singapore's Maple company at the Vietnam-Singapore Industrial Park in Bac Ninh. The US$110 million factory is scheduled to begin operations in 2018 and will produce 22 million products each year. Chairman of Bac Ninh provincial People's Committee Nguyen Tu Quynh said the factory was the first FDI project in the province in 2016, marking a good beginning for a new year.

On January 7, the Management Board of the Ho Chi Minh City-based Saigon High-tech Park granted investment licences to three projects worth nearly US$100 million in total including the US$21 million Aureumaex Precision Plastics project, invested by Malaysia's United More Sdn Bhd that will produce plastic parts for LCD and LED TV panels for Samsung.

FDI enterprises granted investment licenses in the beginning of this year were considered a good start not only for Bac Ninh province and Ho Chi Minh City, but also for Vietnam in general. 2016 is also forecast to be a good year with new FDI waves in the context a number of new-generation FTAs that have been signed, especially the TPP. FDI in Vietnam is forecast to increase significantly this year as many large-sized FDI projects, such as the US$22 billion Victory Nhon Hoi oil refinery complex, are expected to receive licenses. Experts said that Vietnam is expected to attract FDI worth US$24-26 billion, with capital disbursed estimated at US$15-16 billion.

According to Dr. Phan Huu Thang, former Head of the Foreign Investment Agency under the Ministry of Planning and Investment, disbursement of FDI in Vietnam will continue to see good signs in 2016. The TPP is a new-generation FTA of the 21st century, with a deeper and broader level of tariff line reductions than the WTO; increased service openness; relevant strengthened provisions on foreign investment and investor protection; and enhanced transparency in competition and labour issues. Under a FTA with as large a scope as the TPP, trade relations between Vietnam and TPP member countries will grow stronger in the future, enabling investment flows between Vietnam and countries in the bloc and TPP outsiders. Investors outside the TPP will invest in Vietnam in order to take advantage of benefits from preferential tariffs.

Continuing to improve investment environment

In general, both economic experts and management officials agreed that FDI has brought great economic benefits to Vietnam, as evidenced by the advent of new technology, strong exports, shifting economic structure and creation of jobs. FDI projects have also created a spillover effect to draw smaller manufacturers into the production chain, helped Vietnamese companies gain administrative and management experience from foreign enterprises, and enhanced the effectiveness of international economic co-operation and Vietnam’s position in the international arena.

Although FDI attraction is growing steadily, the ratio of added value to production value remains low. In addition, there is still a gap and lack of linkage between domestic and FDI enterprises and the FDI sector’s effect on other sectors of the economy is still very limited. Some enterprises poured money into assembly projects with energy-consuming and environmentally harmful equipment and machinery. The source and quality of workers are also knotty problems to foreign investors, with some large projects unable to proceed due to a lack of trained employees. To better manage FDI companies, the taxation sector needs to concentrate on measures to detect and handle tax bill violations, trade fraud related goods’ origin, commodities with abnormal revenue, enterprises with high tax arrears and high losses, firms temporarily importing materials for re-exporting and more.

According to Minister of Planning and Investment Bui Quang Vinh, the FDI sector will continue to play a key economic role in Vietnam. However, the sector would have been able to contribute more if shortcomings in FDI attraction and disbursement had been improved, reflected in the weaknesses in infrastructure, poor quality human resources, undeveloped support industries, unimproved institutional issues, inconsistent policies and complicated administrative procedures.

More drastic measures should be devised to overcome those shortcomings, including perfecting the legal system related to FDI attraction towards consistency, openness, transparency, predictability; adjusting some principles in investment; completing criteria for granting investment licenses; renewing investment promotion activities; and strengthening inspection and supervision of investment activities. It is also needed to create favourable conditions for foreign-invested enterprises in order to resolve difficulties on a timely basis.