Theoretical basis of FDI capital
Theory of FDI Important characteristics of FDI capital Brief statistics and
Offshore investment is increasingly favored by multinational enterprises (MNEs) seeking economic benefits and improved productivity There are two primary forms of international investment: Portfolio Investment and Foreign Direct Investment (FDI) Portfolio investments involve acquiring foreign stocks, bonds, or assets without the goal of exerting control, while FDI, which is a key focus of this thesis, entails a deeper level of investment and involvement in foreign markets.
Foreign Direct Investment (FDI) involves investing in or acquiring property in another country to gain control, which can be achieved through purchasing assets from foreign firms, forming joint ventures with local businesses, or establishing a new operation from the ground up, known as green FDI Generally, FDI is a key component of a company's long-term strategy aimed at boosting production and accessing new markets This type of investment can yield significant economic benefits for both the host country and the investing company.
Home economies foster long-term cooperation, enhance competitive positions, and create new market opportunities for investors, particularly in developing and emerging markets Over the past few decades, there has been a significant rise in Foreign Direct Investment (FDI), with a substantial portion flowing into developing countries, despite most FDI occurring between developed nations FDI plays a crucial role in the global economy, especially for emerging markets, as it promotes skill and technology exchange while granting access to international markets Recognizing the potential benefits of FDI, developing and emerging markets actively implement strategies to attract more investment.
1.1.2 The role of FDI capital
For all social interactions, everything has two sides Of course, FDI capital is no exception, it brings both positive and negative effects to both the
In the context of attracting Foreign Direct Investment (FDI), this article focuses on the impact of FDI on the host country Understanding these effects is crucial for developing strategies that enhance the benefits of investment for the local economy.
Foreign Direct Investment (FDI) significantly enhances economic capital by providing stable funding for development projects Unlike other international investments, FDI is characterized by a long-term commitment that focuses on market potential and growth opportunities, while avoiding debt accumulation for the host government This stability makes FDI less susceptible to fluctuations during adverse economic conditions.
Foreign Direct Investment (FDI) plays a crucial role in providing new technology essential for the growth and development of nations, particularly in developing countries The significance of technology as a driving force behind national progress is undeniable, making the enhancement of technological capabilities a top priority for governments worldwide.
However, to realize this goal requires not only a lot of capital but also a certain level of development of science and technology.
Foreign Direct Investment (FDI) plays a crucial role in enhancing human resource development and generating employment opportunities, which are vital for economic growth Foreign investors aim to maximize profits and solidify their presence in the global market, often seeking to leverage the availability of affordable labor in host countries As a result, the number of direct jobs created by FDI enterprises is rapidly increasing in developing nations.
Foreign Direct Investment (FDI) projects significantly enhance job opportunities, particularly in developing countries, where labor-intensive initiatives often focus on training young women This not only provides them with higher income prospects but also plays a crucial role in advancing women's liberation in these regions.
Foreign Direct Investment (FDI) plays a crucial role in expanding markets and boosting exports, which are vital for economic growth By enhancing export activities, FDI allows host countries to better leverage their comparative advantages in production factors, thereby optimizing their position in the global division of labor.
Developing countries, despite their ability to produce goods at competitive costs, often struggle to enter international markets As a result, promoting export-oriented foreign investment remains a key focus in their foreign direct investment (FDI) attraction strategies.
Foreign Direct Investment (FDI) plays a crucial role in driving economic restructuring, which is essential for both national development and global integration As countries engage more in international economic activities, the need for structural changes to align with the global division of labor becomes increasingly important This alignment not only fosters stronger economic ties among nations but also enhances the conditions for attracting FDI, ultimately supporting each country's growth in accordance with worldwide development standards.
Transnational companies (TNCs) contribute capital investment to host countries; however, they also repatriate profits annually, leading to potential foreign currency burdens for these nations, particularly once the TNCs have recouped their initial investments.
The dynamics of employment in recipient countries of foreign direct investment (FDI) often defy expectations With advancements in science and technology, the productivity of unskilled labor has diminished significantly Consequently, FDI companies tend to rely less on local labor, highlighting a shift in workforce utilization.
To minimize product costs and labor expenses, many enterprises, except for export processing firms or those employing only easily trainable workers, have adopted a more capitalist production model This shift often leads to reduced employment opportunities, which stands in opposition to the employment strategies typically pursued by developing nations.
Modern industries in industrialized countries have emerged under specific conditions but are primarily dominated by the investing nations, leading to an economic structure that relies heavily on the manufacturing sectors chosen by these countries Furthermore, the transfer of less advanced and energy-intensive technologies from investing nations has resulted in significant environmental pollution and the overexploitation of natural resources.
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Outstanding achievements in attracting FDI in Brazil Analyze the
The situation of attracting FDI in Brazil
2.1.1 The situation of FDI capital invested in Brazil in recent years.
Foreign direct investment (FDI) in Brazil experienced significant growth from 2009 to 2011 but has since declined sharply According to the UNCTAD World Investment Report 2021, FDI inflows plummeted by 62%, dropping from USD 65 billion in 2019 to USD 25 billion in 2020, largely due to the COVID-19 pandemic The crisis led to a halt in Brazil's privatization program and infrastructure concessions, severely impacting several key industries Notably, the transportation sector saw an over 85% decrease in FDI, while financial services, oil and gas extraction, and the automotive industry experienced declines of 70% and 65%, respectively.
Brazil ranks among the top global recipients of foreign direct investment (FDI), with a stable stock of USD 608 billion recorded at the end of 2020 It stands as the 11th largest recipient of FDI worldwide and holds the 6th position in Latin America and the Caribbean as of 2019.
The main investing countries in Brazil are the Netherlands, the United States, Germany, Spain, the Bahamas, and Luxembourg.
2.1.3 Which industries are invested mainly.
Investments are mainly extraction oriented towards oil and gas, the automotive industry, financial services, commerce, electricity, and the chemical industry.
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Conditions and policies of Brazil in attracting FDI
Based on the characteristics of incentives and factors to attract FDI, Brazil proved to be a promising country for other countries to invest in.
According to the literature, market size or market opportunity as measured by
GDP per capita significantly influences foreign direct investment (FDI), as a larger market attracts more FDI inflows Foreign companies pursuing horizontal or market-seeking FDI are particularly drawn to countries with higher GDP per capita, as this translates to a broader consumer base and greater business opportunities.
GDP Per Capita Current US$
GDP per capita in Brazil has grown rapidly over the past decades From $5,144 in
1996 and the government trying to clean up their underperforming economy, to
$11,728 in 2014 The most significant increase can be seen from 2002 to 2021 when GDP averages per capita more than quadrupled to reach a maximum of
In 2011, Brazil's GDP per capita reached $13,039, marking a peak before experiencing a slight decline, which signaled a decreasing standard of living attributed to economic and political crises The country also grapples with significant social disparities, as wealth distribution is uneven across regions and individuals Despite an overall increase in living standards, the annual growth rate of GDP per capita has shown considerable volatility since 1996, peaking at 6.5% in 2010.
Brazil, with a population of 211 million in 2021, ranks as the sixth most populous country globally, following China, India, the United States, Indonesia, and Pakistan This significant population size serves as a crucial indicator of the country's large market potential.
2.2.2 The stability of the economy.
Brazil has long been a focal point in macroeconomic research, particularly noted for its rapid growth in the 1970s when it was anticipated to emerge as a leading global economic power This era was characterized by impressive annual growth rates However, the early 1980s brought a severe debt crisis, leading to diminished growth and, at times, negative economic performance.
In the 1980s, Brazil faced a significant recession triggered by a debt crisis, leading to unstable and often negative growth rates throughout the 80s and 90s The introduction of the New Real currency in 1996 marked an improvement in the economy; however, it was subsequently impacted by the global economic crisis of 2008-2009, which caused a decline in growth rates similar to many other nations during that period.
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In 2016, Brazil's average salary was 1,982 BRL, with highly skilled workers earning 4,100 BRL, production workers at 2,010 BRL, and low-skilled workers making 1,200 BRL per month Recent years have seen an increase in wages and a reduction in income inequality, particularly in metropolitan areas like São Paulo and Rio de Janeiro, where salaries tend to be higher.
Labor costs play a crucial role in foreign direct investment (FDI), particularly in labor-intensive industries like manufacturing A report by the Boston Consulting Group analyzed manufacturing costs in the top 25 exporting countries between 2004 and 2014, focusing on labor, electricity, natural gas costs, and exchange rates against the US dollar Notably, Brazil experienced a significant rise in labor costs, shifting from one of the lower-cost countries in 2004 to one of the more expensive options by 2014.
Brazil offers a favorable business environment for foreign investors, treating both local and international companies equally under its regulations While certain sectors like healthcare, telecommunications, and aerospace have specific restrictions for foreign investment, industries such as automotive, renewable energy, and oil and gas are actively encouraged, providing advantageous conditions that promote innovation and growth Notably, the average cost of starting a business in Brazil remains relatively low, further enhancing its appeal to investors.
Opening and operating a business in Brazil presents several challenges, with one significant barrier being the lengthy process to establish a new venture On average, it takes approximately 80 days to open a business in Brazil, in stark contrast to the global average of just 21 days.
The Brazilian government provides various incentives to foreign investors, which vary based on the investment's location and industry Notable examples include benefits available in the Manaus Free Trade Zone, as well as incentives for infrastructure projects, the oil and gas sector, and the automotive industry.
Incentives from the municipal level exist in the form of value-added tax and service tax incentives in the energy, logistics and transportation sectors.
While there are location- and industry-specific tax incentives, the federal framework treats both domestic and foreign investors equally without special incentives for foreign investment Government-approved tax incentives are available for projects that promote regional development or industry diversification Since 1975, Brazil has established tax agreements with various countries, including Sweden, aimed at minimizing double taxation on corporate and individual income These agreements ensure that income earned in Brazil is taxed solely under Brazilian law.
Experiences and practical lessons that Vietnam has learned from Brazil's
Current situation of FDI inflows into Vietnam
As of September 20, 2022, foreign investors have contributed over 18.7 billion USD in newly registered, adjusted, and share purchase capital, according to the Foreign Investment Department of the Ministry of Planning and Investment This figure represents 84.7% of the total for the same period in 2021 and marks a 3% decline compared to August.
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In the recent period, there were 1,355 new projects that received investment registration certificates, marking an 11.8% increase compared to the previous year Additionally, 769 projects adjusted their investment capital, reflecting a 13.4% rise The total additional registered capital surpassed US$8.3 billion, representing a significant growth of 29.9% over the same timeframe.
In addition, foreign investors have invested in 18 industries out of a total of
The processing and manufacturing industry remains the frontrunner among the 21 national economic sectors, attracting over 12.1 billion USD, which constitutes 64.6% of the total registered investment capital Following this, the real estate sector holds the second position with an investment capital exceeding 3.5 billion USD Additionally, the fields of professional science and technology, along with wholesale and retail, are also significant contributors to the national economy.
The wholesale and retail sectors, along with manufacturing and processing industries, and professional science and technology activities, led in attracting new projects, representing 30%, 25.7%, and 15.9% of total projects, respectively.
In the first nine months of 2022, Vietnam attracted investments from 97 countries and territories, with Singapore leading the way, contributing over $4.75 billion, which represents 25.3% of the country's total investment capital Following Singapore, South Korea ranked second with investments exceeding $3.8 billion, while Japan secured the third position with a registered investment capital of over $1.9 billion.
In the first nine months of 2022, foreign investors have made significant investments across 53 provinces and cities in Vietnam, with Ho Chi Minh City leading the way, followed by Binh Duong in second place and Bac Ninh in third.
Current conditions and policies to attract FDI in Vietnam
Vietnam stands out as a rapidly developing country, boasting the highest GDP growth rate in its region and worldwide Between 2011 and 2020, the nation achieved an average GDP growth of 5.96% Remarkably, despite the significant impact of the Covid-19 pandemic in 2020, Vietnam's GDP still grew by 2.91%, reaching $271.2 billion, while many other countries experienced negative growth.
Vietnam, with a population nearing 100 million and a GDP per capita of approximately $3,700 in 2021, is emerging as a significant consumer market for foreign goods The country's youthful demographic, with around 55.5% under the age of 35, drives diverse consumption needs and a rapid adoption of modern trends.
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3.2.2 The stability of the macro-economy.
Vietnam stands out as one of the world's most stable macroeconomic countries, demonstrating resilience during the Covid-19 pandemic While many nations faced significant societal challenges, Vietnam achieved positive GDP growth rates and continued to build on its previous successes.
The macro-economy remains stable, with core inflation rising by 0.81% over 12 months and the average consumer price index (CPI) increasing by 1.84%, marking the lowest growth since 2016 Major economic balances are secured, and Vietnam's gross domestic product (GDP) rebounded impressively from a 6.02% decline in Q3 2021 to a 2.58% increase for the year The total export and import turnover reached a record high of 668.5 billion USD, placing Vietnam among the top 20 countries in international trade The stock market experienced rapid growth, with a 44.7% increase in capitalization since the end of 2020, while a trade surplus of 4 billion USD was estimated Vietnam is now ranked in the top 10 global logistics markets, and agriculture continues to play a crucial role in the economy Despite the pandemic, significant foreign investment persists, with total registered capital reaching 31.15 billion USD by December 20, 2021, reflecting a 9.2% increase from 2020, alongside a 40.5% rise in project investment capital adjustments, totaling an additional 9.01 billion USD.
Vietnam is ranked 5th among 35 Asian countries for economic openness, according to a report by Fitch The country is becoming a significant manufacturing hub in East and Southeast Asia, driven by government-led economic liberalization and its integration into global supply chains through various trade agreements and memberships in regional and international organizations.
Fitch Solutions' Vietnam Trade and Investment Risks report for Q3 reveals that Vietnam achieved a score of 74.6 out of 100 for economic openness, significantly surpassing the Asian average of 46 and the global average of 49.5 points.
Viet Nam East and Southeast Asia Asia World
Vietnam's economic openness compared to the region and the world
Vietnam achieved a score of 61.1 points for trade and investment risks, surpassing the average scores in both Asia and globally In this context, a lower score indicates a higher risk Consequently, Vietnam holds the 9th position in the region and ranks 57th worldwide concerning trade and investment risks.
Vietnam's participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and multiple free trade agreements enhances its economic and trade diversification initiatives.
Investment in public infrastructure has significantly fueled Vietnam's economic growth over recent decades, with 53% of the Official Development Assistance (ODA) allocated for infrastructure projects between 2010 and 2017 The country has prioritized the enhancement of its transportation network, focusing on roads, airports, and seaports In recent years, infrastructure investment from both public and private sectors has surged to 5.7% of GDP, marking the highest rate in Southeast Asia.
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Vietnam ranks as the second highest economy in Southeast Asia, following China, with a GDP growth rate of 6.8% The emphasis on infrastructure development not only supports investment projects but also stimulates economic growth and job creation Additionally, the rapid urbanization in Vietnam serves as a significant catalyst for enhancing transportation and utility services With approximately 50% of the population residing in major cities, the surge in population has outpaced the capabilities of current connectivity and utility systems.
The Government of Vietnam has approved a significant investment plan ranging from 43 to 65 billion USD to enhance and develop the country's transport infrastructure, including roads, railways, inland waterways, and air transport, for the period of 2021-2030 To facilitate this, a new Public-Private Partnership (PPP) Law was enacted on March 29, 2021, aimed at encouraging private investment in infrastructure projects, particularly in transport, grid power, and power plants This initiative seeks to attract private funding to alleviate the pressure on public debt and improve fiscal management.
According to the 2019 Global Competitiveness Report of the World
Economic Forum, Vietnam ranked 77/141 in terms of overall infrastructure quality, 66th in transport infrastructure and 87th in terms of infrastructure utility infrastructure.
In recent years, Vietnam has made significant strides in enhancing its financial institutions and implementing favorable policies to attract and effectively manage foreign direct investment (FDI) The government has introduced various regulations and initiatives, including the Law on Investment, aimed at creating a more conducive environment for foreign investors in Vietnam.
Vietnam offers a range of preferential policies to attract foreign direct investment (FDI), guided by laws such as the Corporate Income Tax (CIT) Law, the Import and Export Tax Law, and regulations on non-agricultural land use These mechanisms are designed to create a favorable environment for FDI enterprises, encouraging them to invest in key sectors of the Vietnamese economy.
Establishing a robust legal framework is essential for promoting foreign direct investment (FDI) activities Policies designed for FDI enterprises must create a conducive environment for foreign investors, ensuring equal treatment and non-discrimination between domestic and foreign investors The Investment Law explicitly outlines these provisions to foster a fair investment landscape.
13 groups of fields and 3 types of priority areas for investment; clearly
The article outlines the guidelines for international economics coursework under the supervision of PGS TS Nguyễn Thường Lạng, detailing the necessary conditions, procedures, and processes for business registration, along with the various forms of investment and the implementation of investment projects.
Experiences and practical lessons that Vietnam has learned from Brazil's FDI
From the experience of Brazil, Vietnam can draw valuable lessons as follows:
Firstly promote the initiative and uphold the dialogue perspective of the, organizational system to ensure the interests of stakeholders in attracting FDI into industrial development.
To effectively attract foreign investment at various stages of national development, it is essential to establish tailored policies that ensure these resources bolster domestic production Emphasizing high-tech investment projects and providing special incentives for such initiatives will significantly enhance the country's development trajectory.
Foreign investors undertaking investment projects must adhere to a rigorous process that involves completing investment procedures, which require the involvement of multiple specialized ministries for licensing and appraisal.
Fourth maintain and develop FDI capital evenly across regions and, effectively decentralize management.
Vietnam is strategically attracting foreign direct investment (FDI) into priority sectors aligned with its economic development stages The country is actively implementing policies to establish industrial clusters and special economic zones, supported by legal frameworks that extend beyond national regulations, thereby fostering a conducive environment for foreign investors.
Sixth Vietnam needs drastic reform in the quality of human resource, training: labor costs are not high, but the region's minimum wage changes continuously, which causes concern for investors.
Seventh there is an investment promotion mechanism, close coordination, between the Ministry of Planning and Investment and the provincial Departments of Planning and Investment.
Vietnam must prioritize sustainable development and attract foreign direct investment (FDI) while implementing free trade agreements (FTAs) This requires the elimination of non-tariff barriers affecting trade and investment in energy production, drawing on successful strategies used in Brazil.
3.4 The achievements in trade and investment that Brazil and Vietnam have achieved in recent years Areas in Vietnam that Brazil invests mainly.
Vietnam and Brazil have fostered strong cooperation across various sectors, including politics, economy, military, and culture Both nations have consistently supported each other, contributing to socio-economic development and collaborating closely within international organizations and multilateral forums A notable highlight of their relationship is the thriving economic and trade partnership, which has seen consistent growth, with trade reaching over USD 6 billion in 2021 and USD 5.5 billion in the first ten months of 2022, marking a 16% increase compared to the same period the previous year.
The Deputy Prime Minister has identified key investment areas for Brazilian enterprises in Vietnam, focusing on the manufacturing industry, high technology, infrastructure development, agro-forestry-fisheries, renewable energy, information technology, pharmaceuticals, biology, construction, and services Additionally, there is an emphasis on collaborating with strategic partners in Vietnam's state-owned enterprises, which are undergoing equitization and divestment.
Brazil's leading industry federation, FIESP, which represents over 13,000 member companies across 133 major sectors, is actively engaging with various corporations, including the Embraer Group, a leader in aviation, defense, and security, as well as Eurofarma Pharmaceutical Group and the Brazilian Fisheries Promotion Association The discussions emphasized FIESP's role as a central hub for collaboration with Vietnamese ministries, sectors, and economic organizations.
The International Economics course, led by PGS TS Nguyễn Thường Lạng, aims to enhance trade and investment collaboration between the two countries It welcomes Embraer to engage with Vietnamese partners for aircraft provision, experience sharing, and technical transfer Additionally, it encourages coordination with the Abipesca Association to share expertise in fisheries, particularly in offshore fishing and the preservation of frozen fish.
Brazilian corporations are aligned with the Vietnamese perspective and anticipate achieving investment efficiency through their projects in Vietnam, demonstrating a strong commitment to research and business development in the Vietnamese market.
Attracting FDI from abroad is always one of the important topics that the Party and leaders of Vietnam pay attention to.
Chapter one presents a theoretical overview of FDI The roles and factors play an important role in attracting FDI to the host country.
Chapter two presented outstanding achievements of Brazil in attracting FDI capital from abroad Present the characteristics, economic conditions, society, policies of Brazil in attracting foreign capital.
Chapter three discusses Vietnam's efforts to attract foreign direct investment (FDI), examining the economic, social, and policy factors in comparison to Brazil It offers insights and recommendations aimed at enhancing Vietnam's ability to draw in FDI effectively.
To effectively attract foreign direct investment (FDI) and maximize its benefits, a country must prioritize investment in its industrial and service sectors while ensuring a high-quality labor force Since 2005, Brazil has significantly invested in science and technology; however, its investment levels remain lower than those of several developed nations, highlighting the need for continued improvement to enhance its competitive edge in the global market.
Countries that attract significant foreign direct investment (FDI) without a strategic approach risk becoming mere outsourcing hubs, which typically occupy the lowest tier in the global production chain In these scenarios, FDI often targets the exploitation of natural resources and inexpensive labor, leading to a low localization rate among FDI enterprises This occurs because domestic supporting industries often lack the technological capacity to effectively collaborate with foreign investors Consequently, a substantial portion of raw materials and production components is imported, placing pressure on the country's current account Therefore, Vietnam must not only focus on attracting investment but also ensure that it utilizes this capital effectively.
1 Các nền kinh tế đang nổi hút đầu tư https://www.mpi.gov.vn/en/Pages/tinbai.aspx?idTin096&idcm8
2 Nguồn vốn vào Brazil giảm mạnh https://bnews.vn/nguon-von-fdi-vao- brazil-giam-manh/204918.html
3 Brazil – Ngôi sao sáng trên bản đồ FDI ở Mỹ- Latinh https://baotintuc.vn/kinh-te/brazil-ngoi-sao-sang-tren-ban-do-fdi-o-my- latinh-20121128094032602.htm
4 Giám đốc quốc gia ADB: Dòng vốn FDI là một lá phiếu tín nhiệm với Việt Nam https://vneconomy.vn/giam-doc-quoc-gia-adb-dong-von-fdi- la-mot-la-phieu-tin-nhiem-voi-viet-nam.htm
5 Dự báo dòng vốn FDI có chất lượng sẽ “đổ” vào Việt Nam https://www.vietnamplus.vn/du-bao-dong-von-fdi-co-chat-luong-hon- se-do-vao-viet-nam/820699.vnp
6 Thế giới dự báo kinh tế Việt Nam: Điểm sáng năm 2023 https://tuoitre.vn/the-gioi-du-bao-kinh-te-viet-nam-diem-sang-nam- 2023-20221219073716459.htm
7 Bộ trưởng Nguyễn Chí Dũng: Cần tập trung 8 nhóm nhiệm vụ và định hướng kinh tế 2023 https://vneconomy.vn/bo-truong-nguyen-chi-dung- can-tap-trung-8-nhom-nhiem-vu-va-dinh-huong-dieu-hanh-kinh-te- nam-2023.htm