INTRODUCTION
Introduction
Foreign Direct Investment (FDI) plays a crucial role in driving economic growth and fostering global economic integration It serves as a vital source of external support by offering additional capital, advanced technology, and management expertise, which collectively enhance the competitive capabilities of economies as they engage more deeply in the global supply chain.
In recent decades, global foreign direct investment (FDI) has experienced significant shifts in its distribution across countries and sectors Between 2015 and 2019, prior to the Covid-19 pandemic, global capital flows plummeted from $2,063 billion to $1,480 billion Developed economies, particularly those in the OECD, continue to dominate the FDI landscape, accounting for over 50% of global inflows, with Europe being the leading destination, closely followed by the United States.
China has consistently been the leading recipient of foreign direct investment (FDI) among developing countries, even amidst the pandemic In 2020, FDI inflows to mainland China reached $143.6 billion, rising to $166.9 billion in 2021, despite pandemic challenges From January to November 2022, FDI continued to grow by 9.9% compared to the previous year This remarkable growth can be attributed to an improved business environment, the introduction of a new Foreign Investment Law, a vast market, and stable supply chains, all of which attract foreign investors China's experience offers valuable lessons for other Asian nations, particularly Vietnam.
In 2020, the pandemic led to a significant decline in global foreign direct investment (FDI), with estimates suggesting a drop of 30-40% across all sectors, particularly impacting aviation, manufacturing, and energy, according to UNCTAD Amidst this downturn, ASEAN countries, notably Vietnam, are positioning themselves as attractive destinations for future investments.
In 2021, Vietnam attracted $31.15 billion in foreign direct investment (FDI), marking a 9.2% increase from 2020, despite the challenges posed by the Covid-19 pandemic This growth reflects strong investor confidence and optimism in Vietnam's business environment.
Vietnam's attractiveness to investors is driven by several key factors The government has implemented favorable tax and interest rate incentives, while effective pandemic control has kept the death toll low and supported economic recovery, resulting in positive growth in 2020 Additionally, the signing of the EVFTA and EVIPA agreements with the EU has opened new opportunities for investment, enhancing trade relations Vietnam's strategic geographic location, competitive labor costs, and improving productivity further position it as a potential hub in the Asia-Pacific region, reducing reliance on China for investments.
Amidst fierce global competition and the significant repercussions of the Covid-19 pandemic, Vietnam faces numerous challenges in attracting foreign direct investment (FDI) To effectively evaluate the impact of the pandemic on FDI inflows and to identify potential solutions for overcoming these difficulties, it is crucial to undertake research on "The Situation of FDI Inflows in Vietnam During the Covid-19 Pandemic."
Objectives of the study
This study aims to summarize the current state of Foreign Direct Investment (FDI) attraction in Vietnam during the Covid-19 pandemic by analyzing capital scale and structure It assesses the pandemic's impact on economic and investment activities while highlighting Vietnam's achievements and limitations in FDI attraction during this period Based on these findings, the author offers recommendations to overcome obstacles and improve the efficiency of attracting FDI into Vietnam in the foreseeable future.
Significance of the study
This thesis aims to provide valuable insights for two key audiences: individuals seeking a comprehensive understanding of foreign direct investment (FDI) inflows in Vietnam during the Covid-19 pandemic, and policymakers responsible for developing effective strategies in response to these findings.
3 attract FDI into Vietnam This thesis gives updated information and analysis on the quantity, quality, and allocation of FDI inflows in the period 2020 - the first quarter of
In 2023, having a reliable and up-to-date source of information is essential for understanding the current state of FDI inflows in Vietnam This information helps identify both existing and emerging factors, influenced by the pandemic, that affect the efficiency of attracting foreign direct investment Policymakers can then develop appropriate laws and strategies to enhance FDI attraction Additionally, the article will offer suggestions to assist authorities in addressing challenges, maximizing achievements, and seizing valuable opportunities for high-quality FDI inflows in the post-pandemic era.
Scope of the study
Object: Foreign Direct Investment inflows in Vietnam
Content: Assessing the situation of FDI inflows in Viet Nam
This study focuses on analyzing foreign direct investment (FDI) inflows in Vietnam during the Covid-19 pandemic, specifically from 2020 to the first quarter of 2023, and offers recommendations for future investment strategies in the coming years.
Research methodology
To begin with, the author has read and researched the previous studies which revolve around similar topics for reference purpose and inheriting the findings
This study utilizes secondary data from reputable sources, including the General Statistic Office of Vietnam, Foreign Investment Agency, National Institute for Finance, IMF, and the World Economic Forum The information encompasses FDI brief reports from 2020 to the first quarter of 2023, along with statistical data on FDI in Vietnam and global FDI annual reports from 2020 to 2022 These updated and reliable data provide an accurate representation of the current state of foreign direct investment attraction in Vietnam during the research period.
This study employs a qualitative methodology that integrates statistical, analytical, and comparative techniques to evaluate the factors influencing foreign direct investment (FDI) in Vietnam, focusing on capital scale and capital structure.
Research structure
Associated with the Preliminaries, and References, the thesis involves 4 chapters:
Chapter 2: Theoretical Framework and Literature Review
Chapter 3:The situation of FDI inflows in Vietnam during the Covid-19 pandemic
Chapter 4: Summary of findings and Policy recommendations
THEORETICAL FRAMEWORK AND LITERATURE REVIEW 5
Foreign Direct Investment
2.1.1 Definition of Foreign Direct Investment
Foreign Direct Investment (FDI) occurs when an investor from one country purchases assets in another country to gain control over those assets The ability to make essential decisions regarding the company's strategy and development distinguishes FDI from Foreign Portfolio Investment (FPI).
Foreign Direct Investment (FDI) is defined by the IMF (1993) and OECD (1996) as an investment made by a resident entity of one economy, known as the direct investor, to establish a lasting interest in a business or corporation in another economy, referred to as the direct investment enterprise This "lasting interest" signifies a long-term commitment between the direct investor and the enterprise, characterized by a significant degree of influence exerted by the investor on the management of the enterprise.
Foreign Direct Investment (FDI) can be categorized into two types: FDI inflows, which occur when foreign investors gain control of assets in a host country, and FDI outflows, which happen when residents of the host country acquire assets in another foreign nation.
2.1.2 Features of Foreign Direct Investment
Foreign Direct Investment (FDI) is primarily pursued by individuals and private enterprises aiming for profit; however, certain countries, including Vietnam, allow government entities to engage in capital contributions.
According to the OECD (1996), an investor must acquire a minimum of 10% of common stock or voting rights to effectively manage and influence a firm's operations This threshold varies significantly across countries, with Vietnam requiring 30%, and the UK and France at 20% (Vu Chi Loc, ed., 2012) The ownership ratio established by investors is crucial for defining their rights and obligations, as well as determining the distribution of profits and risks between the involved parties.
Foreign Direct Investment (FDI) allows investors to make independent investment decisions without being influenced by political issues, ensuring they are fully responsible for their business performance, including profits and losses.
Foreign Direct Investment (FDI) plays a crucial role in transferring advanced technologies and technical solutions to host countries by providing both tangible resources, such as equipment and infrastructure, and intangible assets, including patents, inventions, and knowledge Additionally, FDI fosters research and development activities and offers training for the local workforce This transfer of expertise and resources is a significant advantage of FDI, enabling emerging economies to adopt cutting-edge technologies from foreign firms and enhance their own capabilities.
In recent years, FDI liberalization has emerged as a significant concept, defined by the reduction of restrictions between Foreign Direct Investment (FDI) and other investments, the establishment of equitable treatment standards, and improved market oversight Despite ongoing controversies surrounding this phenomenon, it has led to innovative changes in FDI policies globally Notable examples of liberal investment areas include the Asian Investment Area (AIA) and the European Investment Area (EIA), showcasing the impact of these liberalization efforts on national and international investment landscapes.
2.1.3 Classifications of Foreign Direct Investment
Foreign Direct Investment (FDI) inflows are classified into four primary categories based on the investors' market entry methods: vertical FDI, horizontal FDI, platform FDI, and conglomerate FDI.
Vertical Foreign Direct Investment (FDI) can be categorized into two types: backward and forward vertical FDI Backward vertical FDI occurs when investors aim to leverage raw materials by bringing commodities or components back to their home countries to serve as suppliers In contrast, forward vertical FDI involves foreign firms acquiring supply channels in the host country to sell products directly to local or regional markets The decision to pursue either form of vertical FDI largely depends on the industries involved Regardless of the type, both direct investors and investment businesses commit to the manufacturing and distribution of the same finished goods, even if they operate in different sectors.
Horizontal Foreign Direct Investment (FDI) is the prevalent form of investment where direct investors allocate funds to a foreign company within the same industry as their own This strategy allows both firms to produce similar products tailored to their respective markets Essentially, horizontal FDI involves a foreign entity replicating its domestic business operations in a host country.
2019) This type of FDI is preferred because it helps avoid trade barriers (in this case the high transportation cost) and fully exploit the advantages of the monopoly of products
Conglomerate Foreign Direct Investment (FDI) occurs when investors and the recipient firm operate in entirely different industries, often resulting in joint ventures This approach is common as the investing company typically lacks experience in the foreign firm's specialized sector.
Platform FDI, also known as export platform FDI, occurs when companies invest in foreign countries to expand their operations, with the primary goal of producing goods for export to third countries This type of foreign direct investment is often seen in low-cost regions, enabling businesses to optimize production costs while accessing broader markets.
8 nations inside the free-trade zone and takes advantage of the host country's technology (Adam Hayes, 2022)
The potential effects of FDI inflows on home country and host country
As for the host country:
Foreign Direct Investment (FDI) inflows are crucial for the industrialization and economic growth of developing nations, offering essential external capital, enhancing management skills, facilitating technology transfer, broadening market access, and generating numerous job opportunities However, while FDI brings significant benefits to host countries, it is important to carefully consider the potential drawbacks associated with these investments.
Foreign Direct Investment (FDI) serves as a crucial source of additional capital for development, particularly in developing and less developed countries where GDP per capita is often low, limiting domestic capital accumulation In this context, increased FDI alleviates financial constraints, as evidenced by its significant contribution to capital structures, exemplified by Vietnam, where FDI disbursement reached $20.38 billion in 2019, accounting for 25% of total investment and contributing 20.35% to the GDP Moreover, high-quality FDI inflows enhance the quality and efficiency of domestic capital, prompting local enterprises to boost their investment performance to remain competitive The collaboration between domestic and FDI firms fosters a strong network for exchanging services, materials, and technologies, ultimately connecting local businesses to international markets, stimulating nationwide investment activities, and maximizing the host country's economic potential.
FDI inflows associated with technology transfer can speed up industrialization
The most obvious obstacles confronting developing countries are the out-of-date
In the era of the 4.0 industrial revolution, many regions face a challenge due to low levels of technological innovation and research capabilities To remain competitive globally, these areas often resort to importing advanced technology Foreign Direct Investment (FDI), particularly through 100% foreign-owned companies or joint ventures, is frequently utilized to fulfill this technological demand (Vu Chi Loc, ed., 2012).
Technological inventions and products, along with advancements in management, quality assurance, design, construction, marketing, and research, will be transferred to host countries This transfer enables these nations to modernize their capabilities and reduce the developmental gap with more advanced countries.
FDI inflows pave the way for shifting economic structure in a positive manner
According to Vu Chi Loc (2012), foreign direct investment (FDI) has increasingly focused on the industrial, service, manufacturing, and processing sectors, while significantly declining in agriculture over recent decades This shift fosters economic modernization, creates a dynamic economic environment, and enhances the production of internationally compliant goods Additionally, FDI plays a crucial role in restructuring the agricultural sector, diversifying its products, and increasing the value of exported agricultural goods (Do Thi Thu, 2021).
Increasing FDI contributes to job growth in the host country It is argued that
Foreign Direct Investment (FDI) significantly contributes to job creation, impacting not only the sectors that attract FDI but also their auxiliary industries In the first quarter of 2019, FDI firms in Vietnam provided employment for approximately 3.8 million workers, representing 7% of the country's total labor force Additionally, FDI sectors enhance the quality of human resources through internal training programs and partnerships with external training institutions, leading to increased labor productivity and overall business performance.
Heavy reliance on foreign direct investment (FDI) can lead to significant challenges for a host country FDI is characterized by its volatility and unpredictability, making it susceptible to external factors like health pandemics, geopolitical conflicts, and economic recessions Consequently, any fluctuations or downturns in FDI can adversely affect the host country's economic growth.
Emerging host countries, particularly those with vulnerable economies, face significant concerns regarding foreign direct investment (FDI) In Vietnam, for instance, FDI played a crucial role in driving economic growth, contributing approximately 26% during the period from 2010 to 2019 and accounting for 25% of the country's GDP in 2019.
Foreign Direct Investment (FDI) can lead to significant environmental damage, primarily due to the exploitation of a host country's natural resources If regulatory frameworks are inadequate or poorly enforced, this can result in resource depletion Additionally, FDI firms can be major polluters, as evidenced by the 2019 Formosa incident, where untreated sewage was discharged into the sea, killing an estimated 80 tons of marine life and severely disrupting the marine ecosystem along Vietnam's central coast This incident not only devastated local wildlife but also impacted the livelihoods of approximately 40,000 fishermen, raising serious concerns about the environmental implications of FDI activities.
Developed countries often transfer outdated technology and electronic equipment to underdeveloped nations through foreign direct investment (FDI), resulting in these countries becoming the world's electronic waste dumping grounds This alarming trend, particularly evident in Asian countries like China, India, and Vietnam, raises serious concerns about the health risks posed to workers and the quality of technology being transferred Governments must take action to address this growing problem and protect both the environment and public health.
As for the home countries
Enhancing the competitiveness of products and services is significantly influenced by foreign investment, which leverages the host country's abundant natural resources, affordable labor, and strategic geographic location This influx of investment helps reduce costs associated with raw materials, production, and transportation, ultimately benefiting both investors and the local economy.
As a result, goods, and services of FDI firms can obtain better competitiveness when joining international market
Increasing profit margin Host countries especially developing ones have implemented several incentive policies and encouragement to stimulate investors
After the Covid-19 pandemic, many countries are enhancing their incentives for foreign direct investment (FDI) to stimulate economic recovery Key incentives include corporate income tax breaks, import-export tax exemptions, and favorable land use policies These advantages enable FDI firms to achieve higher profit margins compared to domestic investments or export activities, making them increasingly attractive to foreign investors.
Foreign Direct Investment (FDI) firms enhance their home country's reputation while promoting economic integration by expanding into host markets This expansion allows them to reach a broader customer base and increase brand awareness on a global scale, aligning with their objectives of achieving comprehensive integration within the global economy.
Foreign investment offers significant benefits to home countries, but it also presents potential drawbacks Companies seeking to invest abroad must commit substantial capital and navigate the risks associated with long payback periods Furthermore, cultural and language differences, along with policy risks and corruption in host countries, can impede investment efforts.
The determinants of FDI inflows
Simplice Asongu and partners (2018) identified five key determinants influencing inward Foreign Direct Investment (FDI): policy indicators such as macroeconomic policies and tax structures, business dynamics including incentive investment policies, market-related factors like market size and growth, resource-oriented elements such as labor costs and technology availability, and economic efficiency drivers including labor productivity and transportation costs Notably, specific factors frequently highlighted in research include market size, legal frameworks, labor costs, and trade openness The selection of determinants for analysis varies based on the specific country or region, reflecting the unique investment environments present in different areas.
12 vastly different among nations Furthermore, the motives behind foreign investment also have certain impacts on assessing which determinants need to be focused on
Geographic location can be the first determinants considered by investors
Countries with advantageous geographic positions that enhance transportation and trade are more attractive to foreign investors The proximity between the home country and the host country significantly impacts investment costs, making nearby destinations more appealing Vietnam's favorable geographic location is a key factor attracting foreign investment, thanks to its extensive 3,260 km coastline and a robust network of seaports that facilitate maritime trade Situated in the heart of Southeast Asia and bordered by countries like China, Cambodia, and Laos, Vietnam's diverse landscapes—including mountainous regions, highlands, deltas, and coastal areas—make it an ideal site for developing multi-sector economic zones.
A stable political environment is crucial for attracting Foreign Direct Investment (FDI), as it underpins the stability of the economy and social conditions The Global Peace Index (GPI) is essential for evaluating a country's stability and safety, as it helps assess the likelihood of conflict with other nations Countries with a low GPI are generally viewed as safe and favorable for investment activities.
2020, Vietnam ranked 64 out of 163 countries and territories – a not really ideal position demonstrating that political environment in Vietnam has not achieved desirable stability level
Market size refers to the total potential sales or customers a business can achieve, typically measured annually Understanding market size is crucial for launching new business lines or making investment decisions, as it reflects the demand for goods and services in a specific country Vietnam is currently recognized as one of the top five most attractive markets for retailers, according to the Japanese Government.
Trade openness indicates whether a country is engaged in the global trading system This index is measured by the ratio between the total imports and exports and
GDP Some potential factors posing impacts on the openness in trade of a country are trade barriers, technological capacity, the scale of the economy, or market competitiveness
The legal framework, encompassing various regulations and policies, plays a crucial role in influencing foreign direct investment (FDI) inflows, both directly and indirectly As noted by Vu Chi Loc in 2012, key regulations that directly impact FDI include those governing foreign investors' ability to establish and operate businesses, ensuring non-discriminatory treatment among investors of different nationalities, and the operational mechanisms of markets involving foreign firms Additionally, indirect influences on FDI stem from broader policies related to trade, privatization, monetary systems, taxation, exchange rates, labor markets, and the overall economic structure, which varies by sector and region.
Cost factors, particularly labor costs, play a crucial role in foreign direct investment (FDI) research, encompassing all expenses that employers incur for their employees, including salaries, wages, payroll taxes, and benefits Typically, foreign investors favor countries with a plentiful and affordable workforce to minimize expenses.
Economic growth refers to the enhancement in both the quantity and quality of goods and services produced and consumed by a nation, representing the ongoing process of increasing a country's wealth over time.
Various studies have identified key determinants affecting FDI inflows, highlighting market size, human capital, and trade openness as crucial factors, particularly in a study by Meivitawanli (Nunnenkamp and Spatz, 2002) involving 28 nations from 1987 to 2000 Conversely, Catherine S.F Ho (Kimino et al., 2007) found that market size does not significantly influence FDI in developed countries like Japan Additionally, research by Simplice Asongu et al (Vijayakumar et al., 2010) revealed that market size, labor costs, and infrastructure positively impact FDI in BRICS and MINT countries, while trade openness and inflation have minimal effects Furthermore, Meivitawanli (Rehman et al., 2012) emphasized that economic growth and political stability are critical for attracting FDI in Pakistan.
A study by Aneta Bobenič Hintošová & partners (2018) revealed that factors such as trade openness, corporate tax rates, and research and development expenditures did not effectively attract foreign direct investment (FDI) in Vigrad countries Furthermore, creating a favorable investment environment characterized by transparency, consistency, and supportive legal frameworks is crucial for attracting and retaining foreign investors, as it ensures the safety of their capital (Vu Chi Loc, ed., 2012).
Criteria for evaluating the situation of FDI inflows
According to Le Hung Son (2020), criteria used for evaluation of FDI inflows can be divided into two main categories:
The capital scale, encompassing newly registered capital, adjusted capital, realized capital, and the annual number of FDI projects, serves as a key indicator of foreign direct investment (FDI) trends By analyzing the growth rates of these factors, one can determine the fluctuations in FDI inflows, thereby assessing the effectiveness of a country's ability to attract foreign investment.
Analyzing capital structure across different economic zones, sectors, and counterparts provides valuable insights into foreign direct investment (FDI) trends This approach highlights the potential growth, strengths, and weaknesses of various regions and industries, facilitating informed policy amendments Moreover, it offers a comprehensive understanding of investor behavior, enabling the development of strategies to retain existing investors, attract new ones, and diversify investment sources, ultimately enhancing both the quantity and quality of FDI.
Literature review
A study by Asiedu (2002) examined the factors influencing foreign direct investment (FDI) in 71 developing countries in sub-Saharan Africa from 1988 to 1997 The analysis, based on panel data, revealed that unfavorable geographic locations, inadequate infrastructure, and low returns on capital significantly hindered FDI inflows in these nations.
A study examining the factors influencing foreign direct investment (FDI) inflows in Sub-Saharan African (SSA) countries highlights the roles of political instability, natural resources, market size, and government policies Similarly, Hayakawa et al (2013) analyzed the impact of political and financial risks on FDI in 89 emerging markets from 1985 to 2007 using panel data The findings indicated that political issues, such as internal conflicts, military governance, and corruption, negatively affected FDI flows, while financial risk components had a less significant impact.
A 2005 study by Shaukat Ali identified key motivations for foreign investment in China by analyzing responses from 22 businesses through a questionnaire The findings revealed that the enormous market size is the primary attraction for foreign direct investment (FDI) in China, followed by government investment incentives, competitive labor costs, and high returns on investment Additionally, the study highlighted that international integration has emerged as a significant factor influencing investors' decisions, as China's growing economic stature in the global market makes entering this market essential for businesses' global strategies.
A study conducted by Cao Liang and colleagues (2021) utilized Hausman fixed effects and 2SLS methods to analyze data from 113 emerging countries between 2000 and 2019 The findings revealed that inward Foreign Direct Investment (FDI) positively influenced economic development in developing nations However, the emergence of Covid-19 has likely altered this dynamic, indicating a need for further and more current research.
Youssra Ben Romdhane and partners (2021) analyzed economic resilience to FDI shocks during the COVID-19 pandemic in Asian countries using the GMM method, examining data from two periods: pre-pandemic (1996-2018) and post-pandemic (2019-2020) Their findings revealed a positive correlation in the first phase between economic growth, import and export volumes, domestic investment, and FDI attraction In the second phase, GDP growth and trade openness continued to positively influence FDI, while domestic investment had negative effects The authors noted that despite facing significant challenges, these factors played crucial roles in shaping economic resilience during the pandemic.
16 influence of Covid-19 in almost all economic sectors, Asia witnessed stability and strong rebounds in FDI inward during the pandemic
Linh Tu Ho and Christopher Gan (2021) assessed the impact of pandemics, such as COVID-19, on foreign direct investment (FDI) by utilizing the Generalized Method of Moments (DPDGMM) to analyze the World Pandemic Uncertainty Index (WPUI) across 142 economies from 1996 to 2019 Their findings revealed that the volatility induced by pandemics led to a decline in global FDI net inflows, particularly affecting the Asia-Pacific region and emerging markets Furthermore, FDI firms in these areas demonstrated greater sensitivity to pandemic-related uncertainties compared to those in other economies.
A 2018 study by Joanna Wyrwa analyzed the impact of Foreign Direct Investment (FDI) on Poland's economic development from 2000 to 2017, utilizing descriptive statistical methods The findings highlighted that inward FDI significantly contributed to Poland's economic performance by enhancing the competitiveness and efficiency of businesses through the transfer of advanced technologies, management practices, and training initiatives.
Nguyen Van Bon and partners (2021) conducted a study using OLS regression and instrumental variable estimation to analyze the impact of the Covid-19 pandemic on foreign direct investment (FDI) inflows in Vietnam Their findings revealed a decline in FDI net inflows due to the pandemic, while highlighting that the economic growth index, inflation index, and trade openness are crucial factors in attracting FDI.
Nguyen Thi Kim Lien's 2021 study highlights the beneficial effects of trade openness while revealing a novel insight: past foreign direct investment (FDI) shocks significantly influence current FDI inflows in Vietnam.
In her 2021 article, Do Thi Thu explores the significant benefits of Foreign Direct Investment (FDI) in Vietnam while addressing the challenges the country faces in attracting these inflows Utilizing descriptive statistical methods, the study highlights that Vietnam has experienced consistent and stable growth in FDI net inflows, which has positively impacted economic restructuring, enhanced export performance, and created job opportunities.
17 improvement in the quality of human resources Nevertheless, raising concerns related to environmental issues also need to be taken into consideration
Vietnam is currently facing significant challenges in attracting high-quality foreign direct investment (FDI), despite its competitive advantages over countries like China, India, and Indonesia, and its appeal to Chinese investors External factors, particularly geopolitical conflicts, have undermined investor confidence and negatively impacted global FDI resilience Additionally, fierce competition among Asian nations exacerbates these challenges Internally, complex and inconsistent legal processes pose significant barriers, hindering Vietnam's ability to increase FDI inflows in recent years.
Research on foreign direct investment (FDI) attraction in Vietnam during the Covid-19 pandemic is limited, with few studies utilizing updated data Additionally, there is a lack of comprehensive analysis addressing both the achievements and challenges Vietnam faces in attracting high-quality FDI flows, particularly in the post-pandemic era characterized by emerging trends and changes.
With the actual situations analyzed above, it is of utmost urgency for the author to conduct the research on “The situation of FDI inflows in Vietnam during the covid-
Foreign Direct Investment (FDI) serves as a vital external capital resource, fostering job creation and facilitating the transfer of advanced technologies, which collectively drive economic growth and support the industrialization and restructuring of the host country There are four primary types of FDI, each characterized by distinct features Furthermore, the attraction of FDI is shaped by various determinants that influence investment decisions.
Investment environments vary significantly across countries, influenced by factors such as geographic location, political climate, economic growth rates, market size, legal frameworks, and trade openness To attract high-quality foreign direct investment (FDI), countries should formulate tailored strategies A case study on Vietnam will be explored in the following chapter to illustrate effective approaches.
CHAPTER 3: THE SITUATION OF FDI INFLOWS IN VIETNAM DURING COVID-19 PANDEMIC
An overview of the FDI inflows in Viet Nam
3.1.1 The situation of FDI inflows in Viet Nam for the years 2010-2019
Vietnam's strategic geopolitical location, stable political environment, and abundant human resources make it an attractive destination for foreign investors The enactment of the Foreign Investment Law on December 29, 1987, marked a significant step in opening the market to foreign enterprises, allowing 100% foreign-owned businesses to operate in the country Over the years, this law underwent several amendments to improve the investment climate, culminating in the 2005 Investment Law, which replaced the previous regulations Notably, the 2014 amendments permitted foreign investors to engage in any activities not explicitly prohibited by law, significantly boosting foreign direct investment (FDI) inflows, particularly from 2010 to 2019, prior to the COVID-19 pandemic.
As can be seen from figure 3.1, total FDI registered capital witnessed a slight and steady increase, especially in period of 2011-2013, 2014-2017 and 2018-2019 In
In 2019, Vietnam achieved a record high of $38.95 billion in registered foreign direct investment (FDI), nearly doubling from $19.89 billion in 2010, despite a slight decline in 2018 This growth reflects the country's stable FDI attraction prior to the Covid-19 pandemic, showcasing the effectiveness of its incentive policies and investment laws.
Figure 3.1 The situation of FDI inflows in Vietnam (2010-2019)
Source: By author based on data of Vietnam Foreign Investment Agency
Vietnam has experienced stable growth in newly registered projects, despite a modest start in the first five years due to the lingering effects of the 2008 global economic recession Notably, the number of new projects surged to 3,883 in 2019, nearly tripling from 1,237 projects in 2010 Significant projects during this period include the Duyen Hai 2 thermal power plant, with an investment of $2.4 billion, and the Empire City project, which has $1.2 billion in capital.
Between 2010 and 2014, the average realized capital in Vietnam ranged from 11,000 to 12,000 million, significantly lower than the 14,500 million in 2015 and 20,380 million in 2019 The years 2015 and 2018 marked notable successes in foreign direct investment (FDI) disbursement, with realized capital ratios reaching 63.87% and 72.62%, respectively In contrast, other years during this period averaged around 50%, highlighting the urgent need to improve disbursement effectiveness in Vietnam This improvement is crucial, as realized capital is positively correlated with GDP growth, especially given the recent increase in registered capital.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Total registered capital (Million USD) Total realized capital (Million USD)Newly registered projects (Project)
In 2019, foreign direct investment (FDI) inflows were directed into 19 sectors, with the manufacturing and processing industry receiving the largest share of $24.56 billion, accounting for 64.6% of total registered capital This trend aligns with Vietnam's labor market, as the sector requires a significant workforce that does not necessarily need high-level skills This investment influx supports Vietnam's economic shift towards industrialization and modernization Other notable sectors attracting investment included real estate, scientific and professional activities, and wholesale and retail The period from 2015 to 2019 was particularly significant, as the Vietnamese government focused on diversifying investment opportunities and enhancing capital attraction across both new and existing sectors.
In 2019, Vietnam achieved a significant milestone in diversifying its foreign direct investment (FDI) sources, attracting capital from approximately 115 countries and territories, a notable increase from 50 in 2010 Despite this growth, Asian nations remained the primary investors, with South Korea leading, followed by Hong Kong, Singapore, Japan, and China To enhance its investment landscape, Vietnam is encouraged to strengthen partnerships with Western countries like the USA, the UK, and Russia, facilitating access to advanced technologies and fostering economic growth.
During the analyzed period, foreign direct investment (FDI) primarily flowed into the Southern and Northern key economic regions, with the Central regions receiving only modest allocations Ha Noi and Ho Chi Minh City emerged as the top destinations for investors, followed by provinces like Binh Duong, Hai Phong, and Bac Ninh By 2019, foreign investors had invested in 62 provinces and cities, with Ha Noi receiving 22.2% and Ho Chi Minh City 21.8% of the total investment capital Both cities exhibited a similar investment pattern, predominantly relying on capital contribution and share purchase methods for registered capital.
In addition, this period also experienced the introduction and development of new investment trends with the most outstanding one being M&A activities Before
2011, this market remained unattractive to foreign investors due to the small scale of
Since 2013, Vietnam's enterprise landscape has transformed significantly, particularly with Japanese corporations investing heavily in the finance-banking sector, exemplified by Mizuho's acquisition of Vietcombank, totaling $2.5 billion By 2016, the country experienced over 600 mergers and acquisitions (M&A) across various sectors, especially in commodities and real estate, amounting to $5.8 billion The surge in M&A activities is attributed to their ability to lower costs, expedite market entry, and mitigate risks compared to establishing new business ventures Additionally, the growth and enhanced performance of Vietnamese enterprises have further facilitated the thriving M&A environment in the country.
3.1.2 Legal investment forms of FDI inflows in Viet Nam
Figure 3.2: FDI registered capital structure based on investment forms
Source: General statistic office (Accumulated valid projects as of 20/12/2022)
As of 20/12/2022, 100% foreign capital is the most favorable investment form, accounting for 72.5% , followed by venture capital companies with 21.2% By contrast,
23 the business cooperation contract (BCC) is the least popular one with approximately 2.0%, much less than that of BOT, BTO and BT (4.3%)
A 100% foreign capital firm is entirely owned by foreign investors who establish it in the host country, granting them complete control and responsibility over their business operations This investment structure is highly favored as it allows for independent management of capital, technology, and manufacturing processes without external influence However, in Vietnam, certain sectors such as tax consultancy, entertainment, commercial brokerage, and publication may restrict the establishment of these companies Additionally, investors may face challenges related to cultural and language differences, as well as local business practices For the host country, this investment model can lead to drawbacks, including limited absorption of advanced technologies and difficulties in regulatory oversight.
Venture partnerships between domestic and foreign firms are increasingly popular in Vietnam, particularly during the country's efforts to attract foreign direct investment (FDI) These collaborations allow investors to mitigate risks while leveraging the host firms' infrastructure and market access, facilitating smoother market entry For host firms, such ventures provide additional capital, risk diversification, and opportunities to acquire advanced technologies and management expertise, ultimately leading to product diversification and market expansion However, challenges such as cultural and language differences, along with varying policies and profit-sharing agreements, have contributed to a decline in the number of these projects over the years.
BOT, BTO, and BT models are commonly utilized by host countries to attract foreign direct investment (FDI) for developing essential public infrastructure, including transportation systems, hospitals, and educational centers These investment forms gain popularity during economic openings due to the urgent need for foundational infrastructure However, investors face significant risks, particularly related to the host country's policies, which can impact investment efficiency Moreover, successful participation in these projects demands investors to have a robust technical background and substantial financial resources, as the projects often entail considerable investment requirements.
24 large amount of minimum capital Consequently, this form of investment has gradually loss its position in Vietnam FDI market
Business Contract Cooperation (BCC) involves collaboration between two or more firms without creating a new legal entity, allowing parties to receive business outcomes based on their capital contributions or contractual agreements However, this arrangement has drawbacks, particularly in contract execution due to the absence of a new legal entity Additionally, business activities are often reliant on local firms, making it challenging for foreign investors to supervise effectively Consequently, BCC is typically limited to specific, easily profitable sectors, such as petroleum exploitation.
The situation of attracting FDI in VietNam during the Covid-19 pandemic (2020-the first quarter of 2023)
3.2.1 Overview of Covid-19 pandemic situation in Vietnam and Government responses
Covid-19, known as Sars-Cov2, is a highly contagious disease that was first identified in Wuhan, China, in December 2019 The virus quickly spread across the globe, leading the World Health Organization (WHO) to declare it a global pandemic on March 11, 2020.
Vietnam, situated next to China, has faced significant challenges from the Covid-19 pandemic, experiencing five distinct waves of infections and various variants As of November 4, 2023, the country reported a total of 11,528,042 confirmed cases and 43,186 fatalities.
The first wave of Covid-19 in Vietnam occurred from January 23 to July 24, 2020, with 415 reported cases and no fatalities The initial case was identified in Ho Chi Minh City on January 23, involving two tourists from Wuhan Subsequently, other provinces, including Hanoi, Vinh Phuc, and Binh Thuan, reported infections, with Bach Mai Hospital emerging as a significant outbreak site with 44 cases In response, the government enforced a nationwide lockdown from April 1 to April 22, 2020, and restricted foreign visitors to curb community transmission.
The second wave happened during the period of 25/7/2020 – 27/1/2021 was worse with higher infected cases and the first death in a patient with severe background
In Da Nang, the 416th COVID-19 case was reported, leading to a rapid transmission to 533 additional individuals, establishing the city as a significant infection hotspot In response, local authorities implemented mandatory social distancing measures from July 28 to September 11, 2020 Additionally, the nationwide "5K message" was introduced to help reduce the risk of virus transmission within the community.
The third wave of COVID-19 in Vietnam, lasting from January 28 to April 26, 2021, saw a significant rise in infection rates, highlighting the shortcomings of existing countermeasures Hai Duong emerged as the epicenter, accounting for 80% of the country's total cases To contain the outbreak, Hai Duong city was placed under lockdown from February 16 to March 2, 2021 However, new infections continued to rise in Hanoi, Quang Ninh, and surrounding areas, necessitating urgent new strategies On March 8, 204,000 vaccine doses were imported to initiate a vaccination campaign aimed at controlling the COVID-19 outbreak.
The fourth wave of COVID-19, which lasted from April 27 to December 30, 2021, was marked by a significant surge in cases and fatalities, particularly in Ho Chi Minh City and the southern region of Vietnam, driven by the emergence of the highly infectious Omicron and Delta variants The country reported over 1,675,321 cases and 31,632 deaths, resulting in a mortality rate of 1.88% Ho Chi Minh City became the epicenter of the crisis, with daily increases in infections and deaths A pivotal moment occurred on August 29, 2021, when national policies shifted to prioritize vaccination campaigns over lockdowns and social distancing measures This strategic change led to a notable decrease in severe cases and fatalities by March 2022, despite a rise in new infections attributed to the Omicron variant.
The fifth phase of Covid-19, beginning in March 2022, marks a resilience period as Prime Minister Pham Minh Chinh emphasized the transition towards "normalization" and the classification of Covid-19 as an endemic disease This approach involves easing or eliminating countermeasures while simultaneously focusing on epidemic control and economic recovery To assist businesses facing challenges in the post-pandemic landscape, various policies and incentive measures have been introduced.
The State Bank has implemented a series of measures to support the economy, including three reductions in operating interest rates totaling a 1.55% decrease since before the pandemic Additionally, the government introduced the 92/2021/NĐ-CP Decree on October 27, 2021, which offers four tax exemption packages aimed at assisting businesses and households in overcoming financial challenges.
Resolution number 42/NQ-CP, enacted on April 9, 2020, along with Decision number 15/2020/QĐ-TTg, aims to facilitate favorable conditions for citizens, particularly focusing on supporting unemployment recovery and revitalizing business activities to help individuals return to normal life.
3.2.2 The impacts of Covid-19 on economic and investment activities
The Covid-19 pandemic has severely impacted the global economy and investment activities, particularly foreign direct investment, through various channels both during and after its occurrence While countermeasures were effective in curbing the spread of the virus, they simultaneously disrupted manufacturing processes and supply chains.
Covid-19 triggered downturn of Vietnam GDP, leading to the fluctuation in FDI net inflows
Figure 3.3: GDP growth rate (%) of Vietnam during the period 2018-2023
In 2020, Vietnam experienced a significant GDP decline from 7.4% to 2.9%, marking the steepest drop since the 1980s, primarily driven by the service sector, which saw less than 1% growth in Q1 due to social distancing measures that temporarily closed many services, particularly in tourism and hospitality By the first quarter of 2022, consumption in tourism and hospitality, as well as food and beverage, plummeted by 28.1% and 10% compared to the same period in 2019, respectively This downturn, coupled with a sharp decline in transportation, led to a staggering 56% drop in service export value.
In 2020, GDP declined significantly, leading to a 25% drop in registered foreign direct investment (FDI) compared to 2019 Despite this, emerging economies saw modest GDP growth in 2020 and 2021, with rates of 2.9% and 2.6%, respectively, largely due to swift government actions to control the pandemic and support specific sectors Agriculture, forestry, and fishery sectors achieved positive growth rates of 3.18%, 1.73%, and 3.88% The tourism and transportation industries rebounded strongly, with demand surging from 28.1% to 51.3% in Q3 2021 Additionally, the medical and healthcare services sector experienced remarkable growth at 42.75%, underscoring its critical role in the resilience of the Vietnamese economy Furthermore, effective macroeconomic policies contributed to a low inflation rate of 2.59% in 2022, significantly below the global average.
As a result, in 2022, Vietnam GDP reported a strong recovery, reaching 8% of growth rate, which can be called a miracle during this tough time of global economy
In 2023, Vietnam is expected to reach about 5.8% of GDP growth rate
The Covid-19 pandemic significantly disrupted the labor market in Vietnam, leading to rising unemployment and decreased incomes Many firms, particularly in the tourism, aviation, and technology sectors, faced shutdowns and were forced to reduce costs to remain viable As a result, the unemployment rate surged, highlighting the adverse effects of slow economic growth and the pandemic's ongoing challenges on the workforce.
In the second quarter of 2021, Vietnam's unemployment rate rose to 2.4% and the underemployment rate to 2.6%, both higher than in 2019 The COVID-19 pandemic caused significant layoffs, leading to labor shortages as many workers sought new employment after leaving their previous jobs Additionally, fears of an economic recession and capital shortages have made businesses hesitant to increase wages and improve remuneration policies, particularly in the medical and healthcare sectors.
The Covid-19 pandemic led to a significant decrease in worker incomes, particularly impacting the service sectors Notably, earnings in food and beverage, transportation and storage, and accommodation and catering saw declines of 12.8% and 18.3%, respectively Overall, the monthly average earnings fell dramatically by 17.3% in the last quarter.
2020 compared to the same period of the previous year
Evaluating the situation of attracting FDI in Vietnam during the Covid-19
3.3 Evaluating the situation of attracting FDI inflows in Vietnam during the Covid-
Despite the challenges posed by the pandemic, Vietnam has emerged as a remarkable economic force, often described as "a flashpoint" and "an economic miracle." The country has experienced a robust recovery across nearly all economic sectors, including a significant increase in foreign direct investment (FDI).
In 2021, the indicators of registered capital within the FDI sector showed significant recovery, although they have yet to return to pre-pandemic levels Total registered capital rose by 9.2%, with newly registered capital increasing by 4.1% Additionally, there was a remarkable 40.5% rise in additionally registered capital, while capital contributions and share purchases reached 92.3% compared to the same period.
2020 – the first year under the influences of Covid-19 Export-import turnover also rebounded considerably a year-on-year by 20.7% and 29.2% respectively
In 2022, the volume of realized foreign direct investment (FDI) reached a record high of 22,396 million USD, marking a 13.5% increase from 2021 This period not only showcased stability in FDI but also reflected a slight upward trend, representing the highest level of foreign investment disbursement since 2010.
During this period, the quality of Foreign Direct Investment (FDI) inflows has significantly improved, with an increase in projects utilizing advanced technology and emphasizing research and professional activities to enhance product quality FDI firms play a crucial role in job creation, elevating human resource quality, increasing employee income, and supporting domestic businesses In 2021, the FDI sector's share of total export turnover rose by 20.7% compared to 2020, representing 73.4% of the country's overall export turnover and generating a trade surplus of $3 billion, thereby significantly contributing to economic growth.
Vietnam's remarkable achievements during the Covid-19 pandemic can be attributed to its effective dual strategy of managing public health while sustaining economic stability With a low death rate of just 0.4% as of 2023 and a significant decline in severe cases, Vietnam has excelled in vaccination efforts, administering over 200 million doses by 2022, well above WHO recommendations This successful management allowed for economic recovery, reflected in positive GDP growth rates in 2020, 2021, and 2022 As a result, Vietnam secured the second position in Nikkei’s Covid-19 recovery index and received positive ratings from Moody’s and S&P, bolstering foreign investor confidence.
Vietnam is actively opening its economy to attract foreign direct investment (FDI) and enhance its international economic integration, as evidenced by its participation in 15 Free Trade Agreements (FTAs) with countries, including G20 economies like the EVFTA, UKVFTA, and CPTPP This expansion of export markets significantly benefits Vietnamese products, particularly in textiles, footwear, agriculture, and mechanical manufacturing, by providing access to a larger customer base Additionally, FTAs offer preferential tariff treatment for export products and facilitate the establishment of regional firm networks, which ultimately reduce service and transportation costs.
Over the past three years, the pandemic has prompted the implementation of various incentive policies aimed at enhancing the business environment, making it more open, healthy, and transparent in response to the challenges posed by Covid-19 Under the current Investment Law, foreign direct investment (FDI) enterprises benefit from preferential tax treatments, which include reduced enterprise income tax rates and tax subsidies for encouraged sectors.
The enterprise income tax for domestic firms is approximately 20%, while foreign direct investment (FDI) companies enjoy a lower rate ranging from 12% to 5.95% for larger corporations The government has prioritized enhancing infrastructure quality and aligning institutions with international standards, reflecting its commitment to attracting foreign investment Additionally, the government’s focus on FDI disbursement and the implementation of a screening filter have effectively selected and attracted high-quality projects, showcasing its flexibility and openness in this sector.
Vietnam's economic resilience during the pandemic has positioned it as an attractive destination for foreign investors The inflation rate in Vietnam was a favorable 4% in 2022, significantly lower than that of other ASEAN countries, such as Thailand at 6.4% and Singapore at 7.5%, with expectations to remain below 4% in 2023 Additionally, both export capacity and domestic demand for goods and services surged as the pandemic was brought under control, with total retail sales of consumer goods and services increasing by 20.5% compared to the same period in 2021, according to data from November 2022.
The uneven allocation of Foreign Direct Investment (FDI) capital among sectors poses a significant challenge, with the majority of funds directed towards industries that promise quick returns and leverage abundant, inexpensive labor In stark contrast, high-tech, healthcare, and education sectors receive minimal investment For instance, during the research period, FDI in manufacturing and processing accounted for 56.5%, while education and training attracted a mere 0.45%, highlighting the need for a more balanced distribution of FDI to foster sustainable growth across all sectors.
Despite Vietnam's membership in multiple Free Trade Agreements (FTAs), there has been minimal impact in encouraging multinational enterprises (MNEs) from the USA and EU to enter the Vietnamese market This situation poses a significant challenge for Vietnam, as both regions are equipped with advanced technology and substantial financial resources.
Despite a significant increase in foreign direct investment (FDI) over the past 30 years, only 5% of FDI firms are utilizing modern technology, which limits the potential spillover effects in technology and management skills to domestic companies This shortfall is particularly evident in high-tech sectors, where the lack of advanced practices hampers growth Additionally, some FDI projects have failed to align with sustainable development goals, contributing to environmental pollution and the depletion of natural resources.
The connection between foreign direct investment (FDI) firms and domestic companies remains inadequate, with localization rates in various industries reported at just 1-3% for high-tech sectors, 15-20% for mechanical engineering, and 40% for textiles in 2021 Most FDI firms prefer to import spare parts and raw materials from their home countries rather than sourcing from local suppliers This reliance on imports hinders the growth of the auxiliary industry, increases costs and risks, and ultimately creates challenges for long-term manufacturing sustainability.
In 2022, FDI sector experienced a notable fall in the volume of total registered capital compared to 2021 as well
To explain these limitations, some potential reasons (including internal and external reasons) can be carefully taken into consideration
Administrative proceedings in Vietnam are complex and time-consuming, characterized by multiple procedures and a lack of advanced technology in management Despite efforts at administrative reform, issues such as corruption persist Additionally, Vietnam's institutions struggle with low levels of disclosure, transparency, and stability While the economic law system is being developed, disparities among firms in various sectors—such as state monopolies in electric power distribution and media—lead to inevitable legal challenges during operations.
Vietnam's labor force quality is below the global average and unevenly distributed across sectors According to the GCI 2018, vocational quality ranked 115 out of 140, and the skill level of graduates ranked 128 out of 140, with the overall educational level at 98 out of 140 Additionally, only about 20% of the workforce receives adequate training, compared to over 50% in newly industrialized countries.
SUMMARY OF FINDINGS AND RECOMMENDATIONS
Summary of findings
This study investigates the impact of the Covid-19 pandemic on foreign direct investment (FDI) inflows in Vietnam, assessing both successes and challenges in attracting FDI during this period The author employs a qualitative approach alongside statistical, analytical, and comparative methods to evaluate secondary data, revealing key findings on the FDI landscape in Vietnam amid the pandemic.
Foreign Direct Investment (FDI) is crucial for economic development, serving as an essential source of external capital that has transformed Vietnam from an underdeveloped nation in the 1980s to a lower-middle-income country With positive forecasts for continued growth, FDI is expected to play a significant role in Vietnam's economic boom in the near future.
Between 2010 and 2019, Vietnam saw a consistent rise in FDI net inflows, marked by significant projects that boosted local and national development However, the onset of the Covid-19 pandemic in 2020 led to a decline in FDI due to economic disruptions, GDP contraction, and increased unemployment Despite this setback, FDI inflows rebounded strongly in 2021, contrasting sharply with the global FDI downturn, as total registered and newly registered capital rose by 9.2% and 4.08%, respectively Although these figures faced a slight drop in 2022, positive trends are anticipated for 2023, particularly highlighted by a substantial 13.5% growth in realized FDI by the end of 2022, reflecting Vietnam's commitment to improving investment disbursement.
During the research period and into the foreseeable future, foreign direct investment (FDI) inflows are predominantly sourced from Asian countries, particularly Singapore, Japan, Korea, and China In contrast, investments from the US and EU have not reached anticipated capital levels, despite their involvement in numerous high-quality projects Notably, the manufacturing and processing sectors remain the most attractive for FDI, drawing the largest investment volumes despite varying influences.
The ongoing pandemic has significantly impacted key sectors such as real estate, services, and electricity generation and distribution, with the latter increasingly attracting foreign investment due to its crucial support for various projects Investors are prioritizing research and development, leading to a substantial influx of capital in this area, which is particularly beneficial for a developing country like Vietnam Geographically, the North and South economic regions are emerging as prime destinations for investors, creating healthy competition with the Central and Mekong Delta regions, thereby enhancing their competitiveness and increasing the potential for foreign direct investment (FDI).
During the pandemic, Vietnam achieved remarkable successes while also facing certain limitations The country effectively balanced the dual objectives of combating the pandemic and ensuring economic stability, which has enhanced its appeal as a safer investment destination compared to regional counterparts Additionally, Vietnam is well-positioned to attract foreign direct investment (FDI) that is shifting from China due to the effects of COVID-19 and trade tensions with the United States This shift has led to significant improvements in both the quantity and quality of FDI inflows However, to fully capitalize on these gains, Vietnam must address various short-term and long-term challenges to strengthen its competitive edge.
Policy recommendations
The Covid-19 pandemic has significantly altered various economic aspects, including foreign direct investment (FDI) strategies It is essential to reassess and modify policies to align with current realities Vietnam's strategies during this period should focus on two key objectives: enhancing competitiveness to attract new investors who have yet to penetrate the market and retaining existing partners.
50 already ones who decide to stay and expand their business operation in Vietnam These two goals then should be in line with the socio-economic development strategy 2021-
2030, heading to a reliable and sustainable growth To attain just that, some specific recommendations are mentioned as below
Ensuring macroeconomic stability and continuously improving the investment environment are essential for enhancing the competitiveness of the economy.
In 2023, Vietnam is expected to face increasing inflationary pressures driven by global input price fluctuations and a stronger US dollar This situation is likely to raise costs for materials and imports, placing financial strain on businesses and leading to higher prices for domestic goods and services Therefore, controlling inflation is crucial for maintaining overall economic stability in the country.
To achieve economic stability, it is crucial to implement careful and adaptable monetary policies while leveraging ample food and oil resources to satisfy both domestic needs and export demands Furthermore, ensuring price transparency and combating the dissemination of misleading information are vital measures for maintaining public trust and clarity in the market.
To enhance the business environment and attract foreign direct investment (FDI), it is essential to reform administrative procedures and improve the transparency and consistency of the legal system, particularly regarding business licenses, customs, and taxation policies Implementing a nationwide single-door mechanism will streamline information flow, reduce paperwork, and save time and costs for FDI firms, ultimately increasing efficiency in problem resolution Furthermore, authorities must prioritize the strict enforcement of laws against corruption, tax evasion, and environmental violations Effective government oversight and prompt interventions will safeguard the domestic investment climate and ensure alignment with international standards, thereby optimizing the utilization of FDI.
Vietnam is focused on enhancing national infrastructure quality by expanding networks to remote areas Currently, modern infrastructure is primarily concentrated in urban regions, leaving rural and remote areas with outdated facilities that hinder logistics and goods circulation Addressing these disparities is crucial for future development.
It is crucial to prioritize the enhancement of public key infrastructures, including transportation systems such as national highways, airports, and ports, as well as telecommunication and e-commerce frameworks, to reach remote areas of the country This initiative is expected to promote a more equitable distribution of foreign direct investment (FDI) across different regions, yielding sustainable advantages for Vietnam.
To enhance the quality of human resources and ensure equitable distribution across sectors, Vietnam must prioritize training and education for employees in the manufacturing and processing industries, which are vital for attracting foreign direct investment (FDI) Additionally, improving the skills of the workforce in digital transformation and technology sectors is essential to keep pace in the 4.0 era It is crucial to implement internal training programs and research and development initiatives across all sectors, not just in FDI Local governments should foster start-ups by creating innovation centers that offer training and support, partnering with major technology firms like Amazon and Google This strategy aligns with the preferences of FDI investors who seek markets with a skilled labor force rather than just low-cost labor.
Secondly, focusing on developing “green economy” to attract “green FDI flows”, contributing to attract more FDI from developed countries
Climate change is rapidly intensifying worldwide, negatively impacting various aspects of life To combat this, many countries, particularly developed ones, have adopted the principles of environmental protection, global warming mitigation, and the implementation of green technologies in business practices The significance of the green economy was underscored at COP 26, held in Glasgow, Scotland in November 2021, which saw participation from 197 countries and territories.
Globally, consumers are increasingly prioritizing environmentally friendly products alongside quality and packaging, leading to a preference for goods that emphasize "green manufacturing." Consequently, foreign direct investment (FDI) projects that incorporate eco-friendly technologies in their manufacturing processes to reduce pollutants are likely to attract foreign investors.
To attract sustainable green foreign direct investment (FDI), promoting green growth is essential for Vietnam, an emerging country grappling with significant environmental pollution challenges, particularly in air, water, and soil Air pollution is the most pressing concern for Vietnamese citizens, with Hanoi and Ho Chi Minh City ranking among the top 15 most polluted cities in Southeast Asia as of 2021, where the PM2.5 index is 3-5 times higher than WHO recommendations In that same year, Vietnam was ranked 36th out of 118 countries for air pollution levels To tackle this urgent issue, it is crucial to establish a specific policy and legal framework that minimizes harmful environmental activities and enforces strict penalties for polluters The implementation of Decree 26/2022/NĐ-CP, which focuses on reducing carbon footprints, should be prioritized as a guiding principle for future actions and recommendations.
To promote sustainable transportation in Ha Noi and Ho Chi Minh City, it is essential to encourage the adoption of electric vehicles and enhance public transport options, thereby decreasing the reliance on personal vehicles Additionally, investing in high-speed intercity rail and metro systems can significantly reduce domestic flight frequency, contributing to a more eco-friendly travel infrastructure.
Second, promoting green buildings with eco-friendly materials in construction, for instance, renewable or recycled ones
Third, gradually replacing coal and fossil-fuel energy by renewables including solar, wind, biomass and hydropower in generating electricity
Fourth, limiting carbon emission levels for specific sectors and products Facilitating the application of green technologies in domestic enterprises, at the same time, imposing strict penalties on non-conformance
By committing to protect the environment and heading to Zero-Carbon emission by 2050, luring larger volumes of green FDI inflows is basically achievable for Vietnam firms
Thirdly, amending and supplementing regulations to enhance the efficiency of FDI screening, mitigating risks of technology transferred and low-quality projects
It is undeniable about the vital role of FDI inflows in economic development, however, the operation of FDI firms currently also triggers some concerns To begin,
Many foreign direct investment (FDI) enterprises in Vietnam have failed to adhere to local environmental regulations, leading to significant ecological damage, as exemplified by the Fomorsa incident in 2016 Additionally, a mere 5% of the thousands of FDI projects in the country have resulted in the transfer of advanced technologies, with localization rates across various sectors remaining low As a consequence, numerous firms have faced unprofitability and allegations of tax fraud or transfer pricing, which negatively impact the national economy In 2020, 56% of FDI firms reported experiencing unprofitability.
To effectively attract high-quality foreign direct investment (FDI) and align with national socio-economic development strategies, it is crucial to establish screening filters for FDI projects Each project will be evaluated based on seven criteria: labor force, technology, technology transfer, environmental considerations, national defense and security, investment rate, and potential linkage and spillover effects The outcomes of this assessment will guide the selection of projects Additionally, to measure the effectiveness of FDI initiatives, a set of 36 indicators—comprising 25 economic, 7 social, and 4 environmental metrics—will be implemented nationwide in the near future.
To enhance Vietnam's economic growth, it is essential to prioritize the development of sectors such as high-technology, manufacturing and processing, education, healthcare, logistics, and renewable energy Long-term, significant partners with substantial projects should be favored for preferential policies, including incentives like reduced enterprise income taxes Consequently, foreign direct investment (FDI) attraction strategies must transition from a focus on quantity to one of quality, actively rejecting projects that do not align with the socio-economic development goals of localities and the nation as a whole.