Foreign direct investment inflows in vietnam 2010 2015,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY Faculty of Foreign Languages  GRADUATION THESIS FOREIGN DIRECT INVESTMENT INFLOWS IN VIETNAM, 2010 - 2015 Student : NGUYEN TRAN MINH TRANG Student’s Code : 15A7510238 Class : ATCD – K15 Course : 2012 – 2016 Supervisor : Pham Thi Hoang Anh (Assoc Prof., PhD) HANOI, MAY 2016 GRADUATION THESIS BANKING ACADEMY ACKNOWLEDGEMENTS During my study and thesis work, I am indebted a lot of great people who have taught, helped and assisted me First and foremost, I would like to express my sincere thanks to Ms Pham Thi Hoang Anh, Assoc Prof., PhD, Director of Banking Research Institute, my supervisor, who has guided me from the beginning stages of writing and formulation of the thesis, for her kind supervision, valuable suggestions and comments during my working on the thesis I also would like to express my special thanks to all the lecturers of Banking Academy, especially lecturers of Foreign Language Faculty, for their devoted teaching and giving me useful knowledge and studying methods Their teaching not only helps me gain valuable knowledge during four years but also lays foundation for my future work Finally, I wish to extend my gratefulness to my family and my friends who have supported and encouraged me during my study Because of time constraints and writer’s limited capacity, this thesis will certainly not be free from defect I hope the teachers and readers will sympathize and contribute to make it better NGUYEN TRAN MINH TRANG – K15ATCD Page i GRADUATION THESIS BANKING ACADEMY ABSTRACT Over the last decade, the world economy has been through so many ups and downs There were few times when the economic growth had increased dramatically before dropping sharply In that situation, not only the developed countries but also the developing ones have been affected significantly: the inflation rate was high; a lot of people could not find a job, and meet many difficulties in maintaining their lives One of the most efficient ways to stimulate the economic growth that developing countries prefer to use is attracting foreign direct investment (FDI) Vietnam is not an exception FDI has contributed a large amount of external capital inflows into GDP with approximately 20% and helped to decrease the unemployment rate In 2008, when the global crisis occurred, it brought a lot of negative impacts on Vietnam’s economy as well as foreign direct invested companies Through the crisis, Vietnam could draw some lessons for itself to recover the economy in the following years From 2010 to 2015, not only has the national economy developed quite strongly, but also have FDI inflows gained its development speed even though there still has been slight fluctuation In the future, there will be more challenges for the country to deal with Therefore, in order to receive a more stable source of foreign investment capital, Vietnam’s leaders need to make necessary changes in economy development strategies, legal framework, human resources and infrastructure NGUYEN TRAN MINH TRANG – K15ATCD Page ii GRADUATION THESIS BANKING ACADEMY TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT .ii TABLE OF CONTENTS iii LIST OF TABLES AND FIGURES v LIST OF ABBREVIATIONS vi CHAPTER 1: INTRODUCTION 1.1 Background 1.2 Research objectives 1.3 Thesis structure CHAPTER 2: LITERATURE REVIEW 2.1 THEORETICAL FRAMEWORK OF FDI INFLOWS 2.1.1 Definition and classification 2.1.2 Entry modes of FDI 2.1.3 Roles of FDI 2.2 EMPIRICAL STUDIES 11 2.2.1 International studies 11 2.2.2 Vietnamese studies 13 CHAPTER 3: FOREIGN DIRECT INVESTMENT INFLOWS IN VIETNAM, 2010 – 2015 16 3.1 REALITY OF FDI INFLOWS IN VIETNAM, 2010 - 2015 16 3.1.1 Macroeconomic background, 2010 - 2015 16 3.1.2 The situation of FDI flows, 2010 - 2015 19 3.2 EVALUATION OF FDI INFLOWS 27 3.2.1 Achievements 27 3.2.2 Drawbacks 30 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS FOR FOREIGN DIRECT INVESTMENT INFLOWS IN VIETNAM 32 4.1 THE ORIENTATION OF THE VIETNAMESE ECONOMIC DEVELOPMENT IN THE FUTURE 32 NGUYEN TRAN MINH TRANG – K15ATCD Page iii GRADUATION THESIS BANKING ACADEMY 4.2 GOVERNMENT POLICIES ON ATTRACTING FDI INFLOW IN VIETNAM 34 4.3 SOLUTIONS TO INCREASE FDI INFLOWS IN VIETNAM 36 4.3.1 Solutions on legal framework 36 4.3.2 Solutions on administrative procedures 36 4.3.3 Solutions on infrastructure improvement 37 4.3.4 Solutions on human resources 38 4.4 RECOMMENDATIONS FOR THE GOVERNMENT ON FDI INFLOW ATTRACTION 38 4.4.1 Ensuring rational sector structure when attracting FDI flows 39 4.4.2 Researching and building policies controlling technology transfer for FDI projects 39 4.4.3 Reconsidering the price policy, making it more proper and competitive to that of other countries in Asia and in the world 40 4.4.4 Having a better solution to keep track and supervise the real estate market 40 4.4.5 Improving the investment information system to encourage and promoting the investment funds from overseas citizen 41 4.4.6 Actively supporting, assisting and introducing law and policies for FDI companies 42 CONCLUSION 43 REFERENCES 44 NGUYEN TRAN MINH TRANG – K15ATCD Page iv GRADUATION THESIS BANKING ACADEMY LIST OF TABLES AND FIGURES Table 3.1 GDP growth from 2010 to 2015 17 Table 3.2 The proportion of FDI flows by the form of investment 22 Table 3.3 Top localities that received the largest amount of FDI from 2010 to 2015 24 Table 3.4 FDI distribution by sectors 26 Table 3.5.The proportion of FDI in the total capital of investment development 28 Table 3.6.The proportion of FDI in the total national exports from 2010 to 2015 29 Table 3.7.The proportion of contribution of FDI in the total GDP 30 Table 3.8.The number of taxes and budget remittances from FDI enterprises 30 Table 4.1 Some typical events on enacting laws and international integration in Vietnam from 2010 to 2014 35 Figure 3.1 The World's Purchasing Managers' Index from 2007 to 2015 17 Figure 3.2 The public debt – to – GDP in some countries 18 Figure 3.3.FDI flows into Vietnam from 2010 to 2015 20 Figure 3.4.The proportion of FDI flows by the form of investment from 2010 to 2015 23 NGUYEN TRAN MINH TRANG – K15ATCD Page v GRADUATION THESIS BANKING ACADEMY LIST OF ABBREVIATIONS FDI Foreign Direct Investment WTO World Trade Organization IMF International Monetary Fund ASEAN Association of South – East Asian Nations EU European Union BOT Build –Operation – Transfer Contract BTO Build – Transfer – Operation Contract BT Build – Transfer Contract BCC Business Co – operation Contract M&A Mergers and Acquisitions FIA Foreign Investment Agency MPI Ministry of Planning and Investment GSO General Statistics Office of Vietnam NIC Newly Industrialized Country PPP Public – Private Partner UNCTAD United Nations Conference on Trade and Development NGUYEN TRAN MINH TRANG – K15ATCD Page vi GRADUATION THESIS BANKING ACADEMY CHAPTER INTRODUCTION 1.1 Background Foreign direct investment (FDI) has been playing an important role in the development strategy of many multinational companies Host country also considered FDI as a major external capital for economic growth in the process of globalization While the foreign enterprises invest in a country in order to make profits, the government wants to attract as many FDI flows as possible and use them to stimulate the country’s economic growth as well as increase the State budget Normally, developing countries are seen to be more attractive environments for foreign investors than developed ones due to their potential fields, a large number of employees and a variety of incentives ordered by host countries Vietnam is considered as one of the most popular economies to multinational corporations and has received a lot of FDI inflows over the past few decades According to Foreign Investment Agency (FIA) – Ministry of Planning and Investment (MPI), up to December 2015, the total number of registered FDI was 24,115 million USD which was 110% higher than that of 2014; the total number of implemented FDI was 14,500 million USD which was 116% higher than that of 2014 The number of new projects in 2015 also increased by 115% compared to 2014, from 1843 to 2120 projects In general, FDI has made significant impacts on the country’s economy as well as society Besides increasing the investment capital for the economic growth, creating favorable conditions for approaching and expanding the international market, the inflows has partly helped to improve the quality of employees’ lives These achievements can be thought as results of non – stop trying of Vietnamese leaders and companies to expand the economy’s scale by attracting and using effectively FDI inflows However, there are still some remaining drawbacks on different categories that require Vietnam’s government to NGUYEN TRAN MINH TRANG – K15ATCD Page GRADUATION THESIS BANKING ACADEMY carry out necessary reform and policies In addition, Vietnam is in the process of recovery after the global crisis in 2008, the economy is affected quite easily by minor changes Moreover, the country is also on the way of implementing industrialization and modernization Therefore, every issue that is pointed out is a precious lesson for Vietnam and solutions should be found to tackle all problems so that investment activities are promoted more strongly In fact, a number of measures are taken to limit and correct the drawbacks And this study, apart from analyzing the achievements and limitations of FDI inflow attraction in the period 2010 – 2015, also gives some recommendations for the upcoming time 1.2 Research objectives The objective of this study is to analyze the reality of attracting foreign direct investment in Vietnam from 2010 to 2015 and then give recommendation in order to raise FDI attraction in the future To support this objective, there are researches on different criteria 1.3 Thesis structure The thesis is organized into four chapters as follows: Chapter I: Introduction This chapter shows some background of issue, the research aims and hypotheses Chapter II: Literature review This chapter contains two parts: the first part presents theoretical framework, the second one shows some empirical studies In the part theoretical framework, an overview of FDI is presented including the definition, classification, entry modes and the impacts of FDI on host country, home country, and foreign investors In the next part, empirical studies on FDI of both the world and Vietnam are shown Chapter III: FDI inflows in Vietnam, 2010 - 2015 NGUYEN TRAN MINH TRANG – K15ATCD Page GRADUATION THESIS BANKING ACADEMY This chapter consists of two main parts The first one introduces the overview of economy situation and the reality of FDI inflow attraction in Vietnam on some main criteria during the period of time Then the second part gives some evaluation of achievements and limitations Chapter IV: Solutions and recommendations for foreign direct investment inflows in Vietnam Based on the analysis of chapter III, the chapter concludes with the orientation as well as policies of government on FDI inflow attraction, and points out some solutions as well as suggestions to raise FDI inflows in the future in terms of some main categories NGUYEN TRAN MINH TRANG – K15ATCD Page GRADUATION THESIS BANKING ACADEMY Table 3.7.The proportion of contribution of FDI in the total GDP Year The proportion of 2010 18.6% 2011 2012 18.97% 19% 2013 19.5% 2014 20% 2015 23.3% GDPFDI in the total GDP (Source: GSO) Table 3.8.The number of taxes and budget remittances from FDI enterprises (Unit: billion VND) Year 2000 2005 2010 2012 2013 Taxes and budget 23,928 62,677 98,119 175,938 214,279 468,403 1,385,913 2,429,133 3,138,229 remittances Net sales 161,957 (Source: GSO) 3.2.2 Drawbacks Besides a number of achievements that FDI inflows have made, the inflows have also had some drawbacks on four main categories which are legal framework, administrative procedures, infrastructure and labor workforce quality The first drawback is on legal framework The law system of investment in general and FDI in specific has been improved to be suitable for each period However, in fact, the current legislation is not unified and clear enough, it still overlaps and causes different understandings Regarding to incentive policies, despite of regular review and revision, these policies not focus on fields and areas that need investment For example: incentive policy on investment in high – technology is not attractive enough to investors compared to other fields; besides, there is no breakthrough in the policy for the areas that need investment attraction A number of regulations on incentives are quite loose, which make FDI enterprises take advantage of some of them such as incentives on land, loans or export – import procedures… NGUYEN TRAN MINH TRANG – K15ATCD Page 30 GRADUATION THESIS BANKING ACADEMY The second one is drawbacks on administrative procedures It is undeniable that it takes FDI companies a lot of time carrying out administrative procedures in Vietnam In order to pass custom gates, the export goods need days on average and the import ones need days, which may cause bad effects on enterprises if they are perishable items Foreign entities may not be interested in investing in Vietnam anymore because they waste not only a lot of unnecessary time but also unneeded costs Moreover, FDI inflows also have drawbacks on infrastructure Lack of infrastructure is one of the main reasons for projects delay, especially the weakness of the transportation infrastructure has made the investors to be filled with concern, they are afraid that the difficulties may cause the decrease in profits they expect when investing in Vietnam Moreover, ancillary industry does not meet the demand for input materials for production due to the slow development The companies have to import 70 – 80% of input components which raise the costs and reduce the efficiency of business These drawbacks can effect negatively to the attraction as well as the usage of FDI inflow in Vietnam Another drawback is on employment quality Recent years, FDI sector has created a significant number of jobs for Vietnamese workers – about 1.7 million, but there have been 1.1 million female workers who are not trained or only trained in a short term According to Dr Edmund Malesky, leader of Provincial Competitiveness Index study in 2010, based on the results gained from reviews of 1,155 FDI enterprises from 47 countries and territories operating in Vietnam, one of advantageous factors of the country which make foreign investors to be concerned about is labor 40% of foreign enterprises said that they had to spend an amount of money on training for the employees before starting to work, which cost the company 8% of the total business cost However, after training, only 65% of employees stayed to work for the company This has shown that Vietnam’s labor cost is not “cheap” as investors’ initial expectations It is also a reason why only 18% of FDI enterprises think positively about the education quality for unskilled workers in Vietnam NGUYEN TRAN MINH TRANG – K15ATCD Page 31 GRADUATION THESIS BANKING ACADEMY CHAPTER SOLUTIONS AND RECOMMENDATIONS FOR FOREIGN DIRECT INVESTMENT INFLOWS IN VIETNAM 4.1 THE ORIENTATION OF THE VIETNAMESE ECONOMIC DEVELOPMENT IN THE FUTURE As mentioned, FDI inflows have been playing a key role in socio – economic development strategies in Vietnam Therefore, the leaders always try to find as many suitable solutions as possible in order to stimulate and increase the FDI flows into the country About the developing orientation, there are some main contents that need to be mentioned Firstly, Vietnam is on the process of industrialization and modernization, so one of the key actions is to increase the proportion of industry and service in total national product On the other hand, it is necessary to highly appreciate the long – term strategic role of agriculture in stabilizing society, ensuring food security and improving farmer’s lives Secondly, restructuring the manufacturing and service sectors is another point, especially focusing on developing supporting industry and high quality service in order to create competitive products which are able to participate in production networks and global value chains At the same time, it is essential to develop agriculture which produces high – quality goods to raise added value per unit of land; closely link between scientific technological application and manufacturing, between processing and distributing; between agricultural development and new rural construction Thirdly, the government is thought to restructure enterprises, renew state – owned enterprises and dramatically develop private economy Moreover, each corporate need to self – restructure to adapt to technology and market changes so that it can raise productivity, quality and efficiency of the business Furthermore, another key point is to pay more attention to domestic market In specific, it is necessary to develop distribution network of local enterprises on domestic market in NGUYEN TRAN MINH TRANG – K15ATCD Page 32 GRADUATION THESIS BANKING ACADEMY order to take control of this market, set the basis of penetration into international market, broaden exporting market and exploit effectively the markets with free trade agreements Lastly, the government orients the economy to adjust the structure and improving the investment efficiency It is said to focus on developing human resources and socio – economic projects, as well as mobilizing sources from economic sectors for investment It is also important to encourage investment in manufacturing which has high added - value products, in supporting and environmentally friendly industry Limiting investment in industries that exploit resource, waste energy; rejecting projects that pollute the environment Relating to foreign investment attraction orientation, in Directive No 1617/CT – TTg dated September 19, 2011 of the Prime Minister on strengthening of implementation and correcting of management of foreign direct investment in the coming days, there are a few highlights of goal and target on attracting, managing foreign investment in the period of 2011 – 2020 First, it is important to improve the quality, efficiency of foreign investment to be compatible with socio – economic developing strategy in Vietnam 2011 – 2020 which are encouraging the growth of foreign invested economy; prioritizing to attract projects which are high – tech, environmentally friendly, effectively use all resources, mineral, land and corporate with domestic entities; concentrating attraction on supporting industry, industry requiring high quality workforce, information technology, science technology service, education and training; selective attracting processing industry, high – tech industry, energy industry, chemical metallurgy; giving priority to projects that have competitive products Besides, projects that invest in non – manufacturing sector should be rejected, because they may cause the increase in import surplus, and waste the energy, pollute the environment Secondly, another aim is to enhance the effectiveness of state management in order to ensure the quality of foreign investment in the future Furthermore, the authorities need to strengthen the combination between Ministry of Planning and Investment and the other Ministries, People’s Committees of provinces and cities to guarantee the process of issuing Investment certificates, managing and supervising investing projects In general, the NGUYEN TRAN MINH TRANG – K15ATCD Page 33 GRADUATION THESIS BANKING ACADEMY government always highly appreciates the role of FDI to Vietnam’s economy and promotes this activity at the present as well as in the future This has been stated clearly in the orientation, target and implementation of FDI inflow attraction 4.2 GOVERNMENT POLICIES ON ATTRACTING FDI INFLOW IN VIETNAM In Resolution No 103/NQ – CP of August 29, 2013, on orientations for higher efficiency of foreign direct investment attraction, use and management in the upcoming period, the viewpoints of foreign investment are stated clearly Firstly, foreign-invested economy constitutes a part of the national economy, is encouraged by the State for long-term development, has its rights and legitimate interests guaranteed and is equally treated on the basis of cooperation for mutual benefit and fulfillment of Vietnam’s international commitments Secondly, FDI constitutes an important resource of the economy and joins the domestic resources in creating the aggregate strength for the attainment of the objectives of national industrialization and modernization and economic restructuring Thirdly, FDI attraction must ensure conformity with planning and the concentrated and unified direction of the central government in couple with rational decentralization to localities on the basis of socio-economic conditions and the capability and quality of officers, ; special importance must be attached to the effectiveness of the state management through inspection and supervision to ensure the strictness of law And lastly, the revision of foreign investment policies and laws must adhere to the principle of making them more and more competitiveness, favorable and preferential The table below shows the process of enacting laws related to foreign investment (Land Law, Foreign Investment Law, and Law on Enterprises…) and some important events on international integration in Vietnam: NGUYEN TRAN MINH TRANG – K15ATCD Page 34 GRADUATION THESIS BANKING ACADEMY Table 4.1 Some typical events on enacting laws and international integration in Vietnam from 2010 to 2014 Time Events June, 2000 Congress passed Law on Amendments and supplemented a number of articles in Vietnam Foreign Investment Law July, 2000 Trade Agreement between Vietnam and the United Stated was officially signed June, 2001 Congress passed Law on Amendments and supplemented a number of articles in Land Law March, 2003 The Central Committee of the Communist Party of Vietnam IX passed the Resolution on continuing to reform policies and laws on land in the period of industrialization and modernization November, 2003 Congress passed the third Land Law and the second Law for state – owned Enterprises June, 2004 Congress passed Bankruptcy Law November, 2005 Congress passed Law on Enterprises and Investment Law November, 2006 Protocol on joining in the World Trade Organization of Vietnam was signed January, 2007 Vietnam became an official member of WTO November, 2009 Government passed Decree on investment in the form of BOT contract, BTO contract, BT contract November, 2010 Prime Minister singed Decision on promulgating regulations on investment in the form of public – private partnership September, 2011 Prime Minister’s Directive on enhancing to implement and adjust FDI management August, 2013 Resolution on orientations for higher efficiency of foreign direct investment attraction, use and management in the upcoming period January, 2014 Decision on promulgating regulations on management of investing promotion activities June, 2014 Congress passed the Bankruptcy Law for the second time NGUYEN TRAN MINH TRANG – K15ATCD Page 35 GRADUATION THESIS BANKING ACADEMY September, 2014 Decision on import tax exemption to give priority to manufacture, assemble medical products and equipments November, 2014 Congress passed the Law on Enterprises the second time and amended Investment Law (Source: FIA – MPI) 4.3 SOLUTIONS TO INCREASE FDI INFLOWS IN VIETNAM With the overview of the reality as well as the orientation of the government about the FDI inflow attracting activity, in order to enhance the advantages and overcome the disadvantages, some policies and measures are suggested as follow: 4.3.1 Solutions on legal framework First, it is necessary to continue to mend and dismiss the laws and policies that are no longer suitable; and find solutions that guarantee the rights and equality between foreign investors and domestic ones, between foreign investors Second, the government should issue documents to guide the enterprises and local areas on the route of commitment that enhances foreign investment to lay a basis for granting investment certificates Third, the authorities also need to pay attention to monitor and supervise the implementation of legislation on investment and enterprises to detect and tackle problems timely, publish guidance documents on new laws Moreover, it is believed that the State should publish investment incentives and encouragement for welfare projects such as houses, hospitals, schools… These projects should be constructed for employees who work in industrial zones, high – tech zones and economic zones Another solution is to research and propose the policies on encouraging and attracting investment from multinational conglomerates as well as specific policy for each group And lastly, Vietnam’s enterprises should be trained and spread the contents and directions on international commitments, so that they will be more confident when trading in international market 4.3.2 Solutions on administrative procedures The first solution is improving the decentralization of state management for NGUYEN TRAN MINH TRANG – K15ATCD Page 36 GRADUATION THESIS BANKING ACADEMY foreign investment, especially approving and granting Investment Certificates; managing tightly FDI projects along with enhancing cooperation, support and coordination effectively in monitoring, supervising the performance of Investment Law Secondly, it is necessary to improve the qualification of staff and civil servants to ensure that the administrative procedures are performed timely in accordance with the investment environment Thirdly, the administrative procedures and processes of foreign investment should be simplified and publicized; the one – door mechanism for investment procedure should be implemented; and the consistency of the procedures in local areas as well as in accordance with specific conditions are required to be guaranteed Moreover, the authorities should tackle timely the problems in the licensing and adjusting processes of Investment Certificates, and also strengthen the mechanism on FDI flow management coordination between the central and local areas, between related ministries and agencies 4.3.3 Solutions on infrastructure improvement The first important solution is conducting general review, adjustment, approval and publishing of planning for infrastructure that build a foundation for attracting investment development; along with enhancing the implementation of planning as well as the attraction of investment on transportation, energy projects Secondly, the government should enlist fully all the resources to invest and develop infrastructure, especially the funds coming from outside the State budget It is also necessary to give priority to the sector of water supply and drainage, environment cleansing (solid waste treatment…) as well as improve and develop transportation system to be reasonable and efficient Another essential solution is concentrating on giving direction and resolving the power supply, preventing the lack of power for manufacture factories in any cases; enhancing to research, proposing some policies and solutions for encouraging the production and usage of electronic and new energies such as wind, tide and sun energy Furthermore, the mechanism for encouraging the economic sectors to take NGUYEN TRAN MINH TRANG – K15ATCD Page 37 GRADUATION THESIS BANKING ACADEMY part in developing infrastructure such as transportation, sea port, and power factories are believed to be developed and promulgated urgently The country should also develop the form of sea port renting; expand the range of subjects that are allowed to invest on sea port service, especially logistic to improve the competitiveness of Vietnam’s sea port system Last but not least, attracting investment funds for various projects on telecommunication as well as information and technology are needed to be focused on to develop new services and network infrastructure 4.3.4 Solutions on human resources First, besides upgrading the system of vocational training school to the international level, it is also needed to develop more vocational training schools and training centers by using different sources of funds Second, the labor workforce is thought to be adjusted to be compatible with the economy restructuring Thirdly, the leaders should implement the solutions for bringing Laws into real life to prevent illegal strikes and strengthen the labor relationship In details, it is important to complete the laws and policies on labor, wages that are compatible with the social development; carry out more inspection and monitoring the employers’ observance of law on employees to ensure the working conditions and lives of employees Moreover, it is said that both employers and employees need to be improved the knowledge of employment laws through dissemination, transmission and education, especially in FDI enterprises, to make sure that policies and laws on labor and wages are implemented seriously and truly 4.4 RECOMMENDATIONS FOR THE GOVERNMENT ON FDI INFLOW ATTRACTION Apart from some solutions for improving the FDI inflow attraction, recommendations are given to not only the government but also related ministries and agencies in order to increase the FDI flows effectively NGUYEN TRAN MINH TRANG – K15ATCD Page 38 GRADUATION THESIS BANKING ACADEMY 4.4.1 Ensuring rational sector structure when attracting FDI flows It is common that most of provinces and cities try to attract FDI to every sector and products instead of some dominant ones Therefore, some focusing is unneeded, for example: too much FDI flows are invested in food processing industry and some other industries related to consumption, whereas material production industry and service are not given adequate investment It may create the imbalance in the capital invested in different fields Thus, it is significantly essential to focus on developing the sectors that require a lot of employees and have high competiveness, because these sectors will not only decrease the unemployment rate but also stimulate the economic growth Moreover, an important requirement for NIC is to build a reasonable product structure, in which the country is able to manufacture the materials for the whole economy by itself instead of importing from foreign countries Furthermore, it is requested to attract FDI flows into high – tech and profitable goods Nowadays, the term “smart…” is no longer unfamiliar to people It refers to the products that use modern technology such as smart phone, smart television and so on The popularity of these products has been extended day by day, they are preferred by most of consumers all over the world Therefore, investing in developing high – tech products is an effective way to promote productivity, expand the market share and gain a large amount of profit 4.4.2 Researching and building policies controlling technology transfer for FDI projects Unlike other countries (i.e China, Korea,…), there is no policy ruling technology transfer in Vietnam Thus, after 10 years, many world famous car manufacturers have invested in Vietnam However, they considered that Vietnam would hardly have a car industry on its’ own, the price of cars domestically manufactured is pretty much higher than that of cars produced in nearby areas, which is resulted from the very low localization rate Until now, the localization rate of Vietnamese car manufacturers is from 2-10% Therefore, from my perspective, it NGUYEN TRAN MINH TRANG – K15ATCD Page 39 GRADUATION THESIS BANKING ACADEMY is essential that there be an official technology transfer policy for FDI project, otherwise, Vietnam will be only a large consumption market with the population of more than 90 million people for other countries 4.4.3 Reconsidering the price policy, making it more proper and competitive to that of other countries in Asia and in the world Generally, the price policy in Vietnam is still improper, the investment expense to the country is very high, which reduces the competitiveness of Vietnamese products, as a result, discourages investors According to JETRO (Japan External Trade Organization), telecom charges in Vietnam now are very high Telephone charges for international calls in Vietnam is about times as high as that in Singapore, almost times compared to that in Malaysia, and twice that in China Shipping fare by container in Vietnam is times as high as that in Singapore, around 2.5 times compared to that in Malaysia, approximately twice that in China Fees and expenses relating to shipping and receiving products at airports and sea ports are very expensive The electricity price and the water price in Vietnam is 50% and 71% higher than ASEAN countries and China respectively Since, nowadays, the inputs are mainly under the control of governmentowned corporations, in order to reduce the expense of inputs, it is necessary to prevent the change from governmental monopoly to corporation monopoly of government-owned corporations Moreover, the authorities also need to build and quickly release competition law 4.4.4 Having a better solution to keep track and supervise the real estate market Over the past few years, the real estate fee has been increasing Since 1996, the real estate transaction market has been very dynamics Moreover, the real estate price is getting higher and higher The higher the real estate price, the higher the compensation fee, the higher the leveling expense The real estate price in Vietnamese cities is higher than that in countries in the area, the renting land price in Ho Chi Minh City is 4-6 times as high as that in China, times compared to that in Thailand This, as a result, affects the FDI inflow attraction Because the NGUYEN TRAN MINH TRANG – K15ATCD Page 40 GRADUATION THESIS BANKING ACADEMY investors, especially FDI investors, have to spend a large amount of money on the renting land, whereas the revenue they earn may not be as much as needed to compensate the renting cost Thus, the government needs to tightly control the real estate market, because it is an imperfect market, which can easily lead to monopoly in competing, create “super high demand” situations, increase the price over reality, as a result, it make the investment expense of Vietnam higher than that of countries in the same area In addition, it is necessary to improve the investment information system in order to encourage and push the investment cash flow from Vietnamese people living in foreign countries 4.4.5 Improving the investment information system to encourage and promoting the investment funds from overseas citizen Nowadays, it is the fact that lack of information, mechanism and cooperation between Vietnamese business people in foreign countries and domestic companies put limit on the attraction of investment from Vietnamese people overseas According to Mr Nguyen Ngoc My (a Vietnamese living in Australia), president of The Vabis corporation, who has been investing in Vietnam for 20 years, the challenge of Vietnamese business people overseas is that they not know where and what they should invest The reason is that the government, ministries, and other relating parties not have enough database as well as handbook about places, industries and fields worth investing to provide them Therefore, in order to find a suitable project, they usually have to spend a lot, especially time, to research In my opinion, it is necessary to build database at local level, for instance, handbook about policies and projects need investing every year, which is categorized for easy access and look up Moreover, workshops, exhibition and conferences on investment in Vietnam should be hold more often both inside and outside the country so that Vietnamese people living overseas can take part in and find investment opportunities Furthermore, this activity can also show the care of Vietnam’s government to the oversea citizens These actions can either help NGUYEN TRAN MINH TRANG – K15ATCD Page 41 GRADUATION THESIS BANKING ACADEMY Vietnamese investors overseas have an overview of the country’s market or encourage them to invest the inward cash flow more 4.4.6 Actively supporting, assisting and introducing law and policies for FDI companies It is common that for some newly-enter FDI enterprises, there are difficulties in clearly understanding, frequently being updated and correctly following the laws and policies, which closely relate to their business in Vietnam It may be resulted from the difference in language and culture Furthermore, for FDI companies that have been doing business in Vietnam, there are also some difficulties in being updated about the frequent changes of laws and policies in Vietnam It is partly because the information communication of the government is not clear and efficient enough Thus, from my point of view, ministries and authorities should actively support and assist FDI companies to access, understand and follow correctly the investment law and policies in Vietnam, such as, holding direct or online training every quarter or every month; providing in time enough materials relating to changes of laws and policies, … The government should also fully take advantage of social media such as television, Internet, newspaper to transmit the information of new or changed law and policies NGUYEN TRAN MINH TRANG – K15ATCD Page 42 GRADUATION THESIS BANKING ACADEMY CONCLUSION By collecting and analyzing data from various reliable sources, the thesis examines the FDI inflow attraction in Vietnam during the period 2010 – 2015 To say in detail, we could conclude as follows: Firstly, the thesis shows some basic knowledge of FDI such as the definition, classification, entry modes and the effects of FDI The thesis also introduces empirical studies on FDI including international studies and Vietnam studies Secondly, the thesis indicates the reality of the FDI flow attraction over the period based on different categories: investment form, investment locality and investment sector From this part, it is clear that the FDI has been playing an important role in the development of the economy as well as the society Thirdly, the achievements and drawbacks on the attracting activities are stated through some viewpoints: the achievements on the investment fund, the exporting activities and the economic growth; the drawbacks on the legal framework, the administrative procedures, the infrastructure and the employment quality This part would help the readers to have a deeper look into how the FDI flow attraction has been going, how the FDI has influenced on Vietnam’s economic growth, and what are still not compatible with the situation in Vietnam Last but not least, the study shows the policies and strategies on increasing the FDI flows in the future by the government Moreover, the writer also suggests some solutions based on the drawbacks mentioned above and recommendations to make the attracting activities more efficiently As being considered as one of the most attractive destinations for foreign investors, Vietnam needs to pay considerable attention to foreign investment, especially FDI because it has been not only contributing a large number of money on GDP growth but also creating more jobs for employees, improving their lives and stabilizing the social security NGUYEN TRAN MINH TRANG – K15ATCD Page 43 GRADUATION THESIS BANKING ACADEMY REFERENCES Alexander Protsenko (2003): Vertical and Horizontal Foreign Direct Investment in transition countries, University of Munchen Andreas Waldkirch (2002): Foreign Direct Investment in a Developing Country: An Empirical Investigation, Oregon State University Christian Delaunay and C Richard Torrisi (2012): FDI in Vietnam: An Empirical Study of an Economy in Transition, Journal of Emerging Knowledge on Emerging Markets, Vol.4, Kennesaw State University GSO: Statistical Yearbook 2010, 2011, 2012, 2013, 2014, 2015 FIA – MPI: Report on FDI in 2010, 2011, 2012, 2013, 2014, 2015 Imad A Moosa (2002): Foreign Direct Investment – Theory, Evidence and Practice, Basing stoke, Palgrave IMF:World economic outlook 2011, 2012, 2013, 2014, 2015 Law on Investment (2005) Nguyen Phi Lan (2008):Absorptive capacity, Foreign Direct Investment and Economic Growth in Vietnam, University of South Australia 10 Tran Trong Hung (2005): Impacts of Foreign Direct Investment on Poverty Reduction in Vietnam,International Development Studies Program, National Graduate Institute for Policy Studies (GRIPS) 11 World Bank (2012): Foreign direct investment, net inflows (% of GDP) http://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS 12 United Nations Conference on Trade and Development: World Investment Report 2007: Transnational Corporations, Extractive Industries and Development NGUYEN TRAN MINH TRANG – K15ATCD Page 44