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, which involves acquiring foreign stocks, bonds, or assets without seeking control, and Foreign Direct Investment (FDI), which is the focus of this thesis and involves a more significant commitment to managing foreign operations.
Foreign Direct Investment (FDI) involves investing in or acquiring property in another country to gain control, which can be achieved through purchasing assets, forming joint ventures with local firms, or establishing new operations from the ground up, known as green FDI Typically, FDI is aligned with a company's long-term strategic goals to enhance production capabilities or access new markets, and it can yield significant economic benefits for both the host country and the investing entity.
Home economies focus on fostering long-term cooperation, enhancing competitive positions, and opening new markets 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 notable portion flowing into developing countries despite most FDI transactions occurring between developed nations FDI plays a crucial role in the global economy, especially for emerging markets, as it promotes skill and technology exchange and grants access to international markets Recognizing the potential benefits of FDI, developing and emerging markets are implementing 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 h
The article focuses on the impact of Foreign Direct Investment (FDI) on the host country, as guided by PGS TS Nguyễn Thường Lạng in the context of International Economics It emphasizes the importance of understanding how to attract FDI and its effects on the receiving nation.
Foreign Direct Investment (FDI) significantly contributes to economic growth by providing stable capital that supports development projects Unlike other forms of international investment, FDI is driven by long-term perspectives and is less susceptible to fluctuations during adverse conditions Additionally, it does not burden the host country's government with debt, making it a more reliable source of funding for sustainable economic progress.
Foreign Direct Investment (FDI) plays a crucial role in providing new technology essential for development Technology is a key driver of growth for all nations, particularly for developing countries where its impact is even more significant Consequently, improving technological capabilities remains a top priority for countries striving for advancement.
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 market presence, often seeking to leverage the cost-effective labor available 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 not only create job opportunities through service provision and outsourcing but also play a crucial role in training young women in developing countries This training leads to higher incomes for these women and significantly contributes to the advancement of 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 capabilities, FDI allows host countries to leverage their comparative advantages in production factors, optimizing their position in the international division of labor.
Developing countries, despite their ability to produce goods at competitive costs, often struggle to enter international markets Consequently, promoting export-oriented foreign investment remains a key incentive in the foreign direct investment (FDI) attraction strategies of these nations.
Foreign Direct Investment (FDI) plays a crucial role in driving economic restructuring, which is essential for both national development and the broader trend of globalization As international economic activities flourish, FDI facilitates deeper economic integration among countries, necessitating adjustments in economic structures to align with the global division of labor By adapting their economic frameworks to match global development standards, nations can create a conducive environment for attracting FDI.
Transnational companies (TNCs) significantly impact host countries by bringing in capital for investment; however, they also create foreign currency burdens as they repatriate profits annually, particularly after recovering their initial investments.
The dynamics of employment in recipient countries of foreign direct investment (FDI) often diverge from expectations Recent advancements in science and technology have rendered unskilled labor less productive, leading FDI companies to frequently underutilize local workforce talent.
To minimize labor costs and product expenses, many enterprises, excluding export processing companies or those utilizing only easily trainable workers, have adopted a more capitalist mode of production This shift often results in reduced employment opportunities, which contradicts the employment strategies typically pursued by developing countries.
Modern industries in industrialized countries have emerged under specific conditions, primarily influenced by the investing nations that control them The economic structure of these countries heavily relies on the manufacturing sectors chosen by these investors Additionally, the transfer of outdated and energy-intensive technologies from developed nations has led to 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 markedly The World Investment Report 2021 by UNCTAD highlights a staggering 62% drop in FDI inflows, plummeting from USD 65 billion in 2019 to USD 25 billion in 2020, largely due to the COVID-19 pandemic This crisis led to the suspension of Brazil's privatization program and infrastructure concessions for several months, severely impacting key sectors The transportation industry faced a dramatic 85% decline in FDI, while financial services, oil and gas extraction, and the automotive sector each saw a 65% decrease in investment.
Brazil ranks among the top recipients of foreign direct investment (FDI) globally, maintaining a stable FDI stock of USD 608 billion by the end of 2020 It is the 11th largest country for FDI inflows 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. h
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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 foreign companies pursuing horizontal or market-seeking FDI This is primarily because a substantial market size provides a broader consumer base, enhancing the potential for profit and growth.
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 but has since experienced a slight decline, reflecting a decrease in the standard of living attributed to economic and political crises The country faces significant social disparities, with wealth distribution uneven across regions and individuals While living standards have improved, the annual growth rate of GDP per capita has been volatile since 1996, peaking at 6.5% in 2010.
Brazil's market size is significant, with a population of 211 million in 2021, ranking it as the sixth most populous country globally, following China, India, the United States, Indonesia, and Pakistan.
2.2.2 The stability of the economy.
Brazil has long been a focal point in macroeconomic studies, particularly since the 1970s when it experienced significant economic growth and was anticipated to emerge as a leading global power This era was marked by impressive annual growth rates, but the early 1980s brought a severe debt crisis that drastically impacted the economy, leading to reduced growth and even instances of negative growth.
In the 1980s, Brazil faced a significant recession driven by a debt crisis, leading to unstable and often negative growth rates throughout the 80s and 90s The introduction of the New Real in 1996 marked a turning point for the economy, which saw improvements despite being impacted by the global economic crisis of 2008-2009 that caused growth rates to decline alongside many other nations.
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In 2016, Brazil's average salary was 1,982 BRL, with highly skilled workers earning 4,100 BRL, production workers making 2,010 BRL, and low-skilled workers receiving 1,200 BRL per month In recent years, wage growth has contributed to a reduction in income inequality, particularly in metropolitan areas like São Paulo and Rio de Janeiro, where salaries tend to be higher.
Labor costs significantly influence foreign direct investment (FDI) decisions, particularly in labor-intensive sectors like manufacturing A Boston Consulting Group report analyzed manufacturing costs in the top 25 exporting countries from 2004 to 2014, focusing on labor, electricity, natural gas costs, and exchange rates against the US dollar Notably, Brazil experienced a substantial rise in labor costs, transitioning 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 maritime are subject to restrictions for foreign investment, industries such as automotive, renewable energy, life sciences, oil and gas, and transportation infrastructure are actively encouraged These targeted sectors provide advantageous conditions that promote innovation and growth Additionally, the cost of starting a business in Brazil remains relatively low, enhancing its appeal to investors.
Opening and operating a business in Brazil presents several challenges, with one significant barrier being the lengthy process required to establish a new venture On average, it takes about 80 days to open a business in Brazil, compared 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 Key examples include benefits associated with 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 no federal incentives specifically designed to attract foreign investment in Brazil, tax incentives vary by location and industry and require government approval These incentives aim to promote projects that foster regional development or diversify industries Since 1975, Brazil has established tax agreements with several countries, including Sweden, to mitigate double taxation on corporate and individual income, ensuring that income generated in Brazil is solely taxed 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 registered a total capital of over 18.7 billion USD in Vietnam, which includes newly registered, adjusted, and contributed capital for share purchases This figure represents 84.7% of the amount recorded during the same period in 2021 and indicates a 3% decrease compared to August 2022, according to the Foreign Investment Department of the Ministry of Planning and Investment.
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In the latest report, a total of 1,355 new projects received investment registration certificates, reflecting an increase of 11.8% compared to the previous period Additionally, there were 769 instances of projects adjusting their investment capital, marking a 13.4% rise The overall additional registered capital surged to over US$8.3 billion, representing a significant growth of 29.9% from the same timeframe last year.
In addition, foreign investors have invested in 18 industries out of a total of
The processing and manufacturing industry remains the dominant sector in national economic investment, attracting over 12.1 billion USD, which constitutes 64.6% of the total registered investment capital Following this, the real estate sector ranks second with more than 3.5 billion USD in investment Other significant sectors include professional science and technology, as well as wholesale and retail industries.
The wholesale and retail sectors, along with manufacturing and processing industries, and professional science and technology activities, led in new project attraction, comprising 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 at over $4.75 billion, representing 25.3% of the total investment capital South Korea followed as the second-largest investor with more than $3.8 billion, while Japan secured the third position with a registered investment capital exceeding $1.9 billion.
In the first nine months of 2022, foreign investment spread across 53 provinces and cities in Vietnam, with Ho Chi Minh City taking the lead, 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 both the region and globally Data from the General Statistics Office indicates that from 2011 to 2020, Vietnam's average GDP growth was 5.96% Despite the significant economic impact of the Covid-19 pandemic in 2020, Vietnam's GDP still experienced growth of 2.91%, totaling $271.2 billion, in stark contrast to many other nations facing negative GDP 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 boasts a youthful demographic, with around 55.5% of its population under 35, leading to diverse consumption needs and a rapid adoption of modern consumer trends.
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3.2.2 The stability of the macro-economy.
Vietnam stands out as one of the most stable economies globally, demonstrating resilience even during the challenging times of the Covid-19 pandemic While many countries faced significant economic downturns, Vietnam achieved positive GDP growth rates and continued to build on its previous successes.
The macro-economy remains stable, with core inflation over the past 12 months rising by 0.81% and the average consumer price index (CPI) increasing by just 1.84%, marking the lowest rise since 2016 Vietnam's gross domestic product (GDP) rebounded impressively, growing by 2.58% in 2021 after a significant decline of 6.02% in the third quarter The total export and import turnover surged by 22.6%, reaching a record 668.5 billion USD, positioning Vietnam among the top 20 countries in international trade The stock market also saw rapid growth, with capitalization rising by 44.7% from the end of 2020, and a trade surplus estimated at 4 billion USD Additionally, Vietnam is now ranked in the top 10 global logistics markets, and agriculture continues to play a vital role in the economy Despite the pandemic, large multinational corporations are still investing in Vietnam, with total foreign investment reaching 31.15 billion USD by December 20, 2021, a 9.2% increase from 2020, and 985 projects licensed for capital adjustment, totaling an increase of 9.01 billion USD, up 40.5% from the previous year.
A report by Fitch highlights that Vietnam is the 5th most economically open country among 35 Asian nations The country is becoming a key 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, surpassing the Asian average of 46 and the global average of 49.5.
Viet Nam East and Southeast Asia Asia World
Vietnam's economic openness compared to the region and the world
Vietnam has achieved a score of 61.1 points in trade and investment risks, surpassing the average scores in both Asia and globally This scoring system indicates that a lower score correlates with higher risks Consequently, Vietnam holds the 9th position in the region and ranks 57th worldwide concerning trade and investment risks.
Vietnam is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and several free trade agreements, which bolsters its economic and trade diversification initiatives.
Investment in public infrastructure has significantly propelled Vietnam's economic growth over recent decades, with 53% of the total Official Development Assistance (ODA) allocated to infrastructure projects from 2010 to 2017 The country has prioritized the development of transportation, focusing particularly on enhancing its road, airport, and seaport systems In recent years, combined public and private sector investments in infrastructure have reached 5.7% of GDP, marking the highest level in Southeast Asia.
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Vietnam, the second-largest economy in Southeast Asia, following China, has seen significant GDP growth driven by infrastructure development This growth not only supports investment projects but also stimulates economic expansion and job creation Additionally, rapid urbanization in Vietnam acts as a catalyst for advancements in transportation and utilities With 50% of the population residing in major cities, the demand for connectivity and utility services has surpassed current capacities, highlighting the urgent need for further development.
The Government of Vietnam has approved a substantial investment plan of 43-65 billion USD for the development and enhancement of transport infrastructure, including roads, railways, inland waterways, and air transport, from 2021 to 2030 To facilitate this initiative, a new Public-Private Partnership (PPP) Law, effective March 29, 2021, has been enacted to encourage and regulate private investments, particularly in transportation and energy sectors This strategic move aims to attract private funding, thereby alleviating the pressure on the country's public debt and fiscal policies.
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 h
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 policies aimed at fostering a conducive environment for FDI, including the Law on Investment, which underscores its commitment to optimizing foreign investment resources in the country.
Investment in Vietnam is significantly influenced by the Corporate Income Tax (CIT) Law, the Import and Export Tax Law, and regulations regarding non-agricultural land use These laws, along with accompanying guidelines, aim to create a favorable environment for Foreign Direct Investment (FDI) enterprises The preferential policies primarily target key sectors to encourage investment and stimulate economic growth.
Establishing a robust legal framework is essential for promoting foreign direct investment (FDI) activities, ensuring that policies favor all investors equally, regardless of their origin The Investment Law explicitly outlines provisions that create a conducive environment for foreign investors, eliminating any discrimination between domestic and foreign enterprises.
13 groups of fields and 3 types of priority areas for investment; clearly h
The course on International Economics, led by Associate Professor Dr Nguyễn Thường Lạng, outlines the essential conditions, procedures, and processes for business registration, along with 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 foster national development, it is essential to create tailored policies that attract foreign investment at various stages of growth, ensuring these resources enhance domestic production Emphasizing the importance of high-tech investment projects, the implementation of special incentives for such initiatives can significantly boost economic progress.
Foreign investors must adhere to a rigorous investment procedure involving multiple steps, including licensing and evaluation by various specialized ministries, to successfully implement their investment projects.
Fourth maintain and develop FDI capital evenly across regions and, effectively decentralize management.
Vietnam is strategically focusing on attracting foreign direct investment (FDI) into priority sectors aligned with various stages of economic development By implementing policies to establish industrial clusters and special economic zones, Vietnam aims to create a favorable legal framework that surpasses standard national regulations, thereby facilitating growth opportunities 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 removal of non-tariff barriers affecting trade and investment in energy production, drawing on successful experiences from 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 effectively within international organizations and multilateral forums A notable highlight in their relationship is the robust economic and trade partnership, which has seen continuous 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 priorities for Brazilian enterprises, focusing on sectors such as manufacturing, high technology, infrastructure, 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, representing 133 major leagues and over 13,000 member companies, is actively engaging with various corporations, including the Embraer group, which specializes in aviation, defense, and security, as well as the Eurofarma Pharmaceutical Group and the Brazilian Fisheries Promotion Association The discussions highlighted FIESP's role as a central hub for collaboration with Vietnamese ministries, sectors, and economic organizations.
The article emphasizes the importance of enhancing trade and investment cooperation between the two countries, highlighting the welcome extended to Embraer for collaboration with Vietnamese partners in aircraft provision and technical transfer It also underscores the need for coordination and support for the Abipesca Association in sharing expertise in fisheries, particularly in offshore fishing and the preservation of frozen fish.
Brazilian corporations align with the views of their Vietnamese counterparts and anticipate achieving investment efficiency in 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 explores Vietnam's ability to attract foreign direct investment (FDI) by analyzing its economic, social, and policy factors in comparison to Brazil The analysis leads to strategic recommendations aimed at enhancing Vietnam's FDI attraction efforts.
To effectively attract Foreign Direct Investment (FDI), a country must prioritize investments in its industrial and service sectors, ensuring a minimum standard of high-quality labor This approach not only draws in valuable FDI inflows but also enhances the overall value of the labor force Since 2005, Brazil has significantly invested in science and technology, although its investment levels remain lower than those of several developed nations, highlighting the need for continued growth in this area to compete globally.
Countries that attract significant foreign direct investment (FDI) without a strategic approach risk becoming mere outsourcing hubs, which are positioned at the lower end of the global production chain In these nations, FDI primarily targets the exploitation of natural resources and low-cost labor, resulting in a low localization rate for FDI enterprises This occurs because domestic supporting industries often lack the technological capabilities to effectively collaborate with foreign investors Consequently, most raw materials and production components are imported, putting pressure on the country's current account Therefore, Vietnam must not only focus on attracting capital but also ensure that it utilizes this investment 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