Factors impacting on attracting of foreign direct investment in vietnam, period of 2018 2023

LIST OF FIGURES Figure 1 Realized foreign direct investment capital years 2018-2022 30 Figure 2 Nations and territories have invested the largest FDI in Vietnam 31 Figure 3 Realized fore

Dissertation submitted in partial fulfillment of the Requirement for the MsC in Finance

Supervisor: Assosiate Professor Ph.D To Kim Ngoc

September,2023

2

ASSIGNMENT COVER SHEET University of the West of England MSc in Finance and Investment

Student ID: 22080924

Student Name: Ha Hoang Dai

Module Code: UMADBL-45-M

Module Name / Title: Proposal of Dissertation

Due Date: 10 th – SEP - 2023

MASTER OF SCIENCE IN FINANCE AND

INVESTMENT UNIVERSITY OF THE WEST OF ENGLAND

PROPOSAL OF DISSERTATION

DISSERTATION PROPOSAL FORM

Name: Ha Hoang Dai

RESEARCH QUESTIONS AND OBJECTIVES

Research Objectives: Vietnam's Foreign direct investment

Research questions:

- First, what factors affect FDI and how strong and weak are each component?

- Second, what is the solution for Vietnam to better attract FDI in the future?

RESEARCH METHODOLOGY

Research Design

Literature Review: Start with a comprehensive literature review to understand the

existing theories and research related to FDI attraction in Vietnam Analyze academic papers, government reports, industry publications, and international organizations' reports (e.g., World Bank, UNCTAD) to build a theoretical framework

 Secondary Data Analysis

Utilize secondary data sources, including government statistics (e.g., FDI inflow data, economic indicators), to assess trends and changes in FDI in Vietnam during the study period

The research will also consider empirical evidence and case studies from other countries to provide valuable insights and lessons for Vietnam's FDI attraction efforts

TABLE OF CONTENT

DISSERTATION PROPOSAL FORM 3

PROVISIONAL TITLE 3

RESEARCH QUESTIONS AND OBJECTIVES 3

RESEARCH METHODOLOGY 4

TABLE OF CONTENT 5

LIST OF TABLES 7

LIST OF FIGURES 8

ABSTRACTS 9

CHAPTER 1: INTRODUCTION 11

1.1 Reason for choosing the topic 11

1.2 Objectives of the research and research question 11

1.2.1 Overall objective 11

1.2.2 Main objective 12

1.2.3 Research question 12

1.2.4 Research scope 12

1.2.5 Research Methods 12

1.2.6 Research subjects 13

CHAPTER 2: LITERATURE REVIEW AND RESEARCH FRAMEWORK 14

2.1 Main concept related to Foreign direct investment 14

2.1.1 Definition and Characteristics of foreign direct investment 14

2.2 Form of Foreign Direct Investment 16

2.2.1 Types of investment 16

2.2.2 Positive impact on the economy 18

2.2.3 Negative impact on the economy 19

2.3 Impact factors to attract foreign direct investment 20

2.4 Incentive Policies applied to attract FDI Experience from some countries 24

CHAPTER 3: IMPACT FACTORS AFFECTING TO VIET NAM FDI INFLOW IN THE PERIOD OF 2018 - 2203 30

3.1 Overview of Vietnam's FDI 30

3.1.1 Volum of FDI inflow 30

3.1.2 Structure of FDI inflow 32

3.2 Data analysis 39

3.2.1 Analyse factors impact on FDI inflow to VN in the period of 2018 – 2023 39 3.2.2 In context of the invested countries 48

3.2.3 Policies to attract FDI in Vietnam 53

3.3 Result and discuss 56

CHAPTER 4 RECOMMENDATIONS 64

4.1 Current Issues in Attracting FDI 64

4.2 Policy recommendation 66

REFERENCES 70

LIST OF TABLES

Table 1 Investment incentives and outside industrial parks 27

Table 2 Structure of foreign investment capital in the first 4 months of 2023

and capital investment methods (billion USD) 34

Table 3 FDI in Vietnam by the regions (including oil and gas) 38

LIST OF FIGURES

Figure 1 Realized foreign direct investment capital years 2018-2022 30

Figure 2 Nations and territories have invested the largest FDI in Vietnam 31

Figure 3 Realized foreign investment capital in the first 4 months of 2023

and the period 2018 – 2023 (Billion USD) 32

Figure 4 Structure of sectors attracting foreign investment in the first 4

Figure 5 Top 10 localities attracting the most FDI in 2022 37

Figure 6 Vietnam's GDP growth from 2018 – 2022 (percentage) 52

Figure 7 Figure 7 Vietnam's Inflation from 2018 – 2022 (percentage) 52

Figure 8 Top 5 largest foreign investors in Vietnam 2022 57

Figure 9

Foreign investment capital registered in Vietnam as of July 20,

The methodology is designed meticulously, incorporating quantitative and qualitative analyses to provide a nuanced understanding of FDI trends in Vietnam Data sources include official government records, industry-specific reports, and surveys conducted in collaboration with the Vietnamese Chamber of Commerce and Industry (VCCI)

ADBThe study examines the current status of FDI in Vietnam during the specified period It assesses FDI trends, including the sources of investment, preferred sectors, and the transformative impact of significant FDI projects Data for this analysis is drawn from sources like the Foreign Investment Agency (FIA) and the Vietnamese General Statistics Office

A substantial portion of the dissertation is dedicated to the in-depth exploration of the factors that shape FDI in Vietnam This includes macroeconomic stability indicators, regulatory frameworks, infrastructure development plans, and the quality of the Vietnamese workforce Real-world case studies, conducted with collaboration from prominent multinational corporations and industry associations such as the Vietnam Association of Foreign Investment Enterprises (VAFIE), provide essential insights

The study not only identifies challenges but also offers a strategic roadmap to enhance Vietnam's FDI attractiveness It incorporates policy recommendations that are informed by insights from organizations like the Asian Development Bank (ADB) and the Vietnam Economic Forum

Through empirical analysis, critical discussion, and the participation of various organizations, this dissertation makes a significant contribution to our understanding of Vietnam's FDI landscape It provides actionable recommendations for policymakers aiming

to stimulate sustainable economic growth in Vietnam

CHAPTER 1: INTRODUCTION 1.1 Reason for choosing the topic

In an era marked by increasing globalization and cross-border economic integration, Foreign Direct Investment stands as a pivotal driver of economic growth and development for nations around the world FDI not only infuses much-needed capital but also ushers in technological advancements, fosters job creation, and enhances a country's competitiveness on the global stage For Vietnam, a nation with a rich history of economic transformation and a growing role in the Southeast Asian region, FDI has played a central role in its economic development journey This dissertation embarks on a profound exploration of the factors that have shaped and continue to influence the attraction of Foreign Direct Investment in Vietnam It hones in on the critical period spanning from 2018 to 2023 when Vietnam has experienced dynamic shifts in its economic landscape and positioned itself as an increasingly appealing destination for foreign investors As Vietnam continues to evolve from a primarily agrarian economy into a modern, industrialized nation, the dynamics of FDI attraction have never been more critical

Rationale for Choosing the Topic:

The choice of this research topic is rooted in the undeniable significance of FDI in Vietnam's contemporary economic narrative The period from 2018 to 2023 is particularly compelling due

to several concurrent factors Firstly, it encompasses a timeframe in which Vietnam has demonstrated remarkable economic resilience and growth, solidifying its position as one of the fastest-growing economies in Southeast Asia Secondly, it marks a phase where Vietnam has actively sought to attract foreign investments, implementing various policy reforms and infrastructure development initiatives Lastly, the world itself has witnessed seismic shifts in global economic dynamics, including the evolving trade landscape and geopolitical tensions, which have direct implications for FDI

Therefore, I decided to study the attraction of foreign direct investment capital at this stage

in order to best assess when there are economic fluctuations, and how this capital attraction will

be affected The thesis research of topic is "Factors impacting on attracting of Foreign Direct Investment in Vietnam, period of 2018 – 2023"

1.2 Objectives of the research and research question

1.2.1 Overall objective

To Identify Key Factors: To identify and analyze the key factors that have influenced

Foreign Direct Investment inflows in Vietnam during the period of 2018-2023, encompassing macroeconomic, regulatory, infrastructural, human capital, and geopolitical dimensions

To Evaluate Current Status: To assess and evaluate the current status of FDI in Vietnam

during the specified period, including trends, sources of investment, preferred sectors, and the transformative effects of significant FDI projects

To Provide Policy Recommendations: To provide evidence-based policy

recommendations to policymakers, business stakeholders, and international organizations on strategies to further enhance Vietnam's FDI attractiveness and contribute to sustainable economic growth

1.2.2 Main objective

To Identify and Analyze Key Determinants: The primary objective of this research is to

identify and comprehensively analyze the key determinants that have influenced Foreign Direct Investment (FDI) inflows in Vietnam during the period of 2018-2023 These determinants encompass a wide spectrum, including macroeconomic factors, regulatory frameworks, infrastructure development, human capital, political stability, and market potential

To Assess the Current Status of FDI: Another main objective is to assess and provide an

in-depth understanding of the current status of FDI in Vietnam throughout the specified timeframe This includes examining FDI trends, sources of investment, preferred sectors, and the transformative impact of significant FDI projects

To Offer Evidence-Based Policy Recommendations: The ultimate goal is to provide

evidence-based policy recommendations to stakeholders, particularly policymakers, business entities, and international organizations These recommendations will aim to inform strategic decisions and actions that can enhance Vietnam's FDI attractiveness and contribute to sustainable economic growth

1.2.3 Research question

First, what factors affect FDI and how strong and weak are each component?

Second, what is the solution for Vietnam to better attract FDI in the future?

1.2.4 Research scope

Spatial scope: research paper on FDI flows throughout Vietnam

Time range: extracted macroeconomic and FDI data from 2018 to 2023

1.2.5 Research Methods

Literature Review: Start with a comprehensive literature review to understand the existing

theories and research related to FDI attraction in Vietnam Analyze academic papers, government reports, industry publications, and international organizations' reports (e.g., World Bank, UNCTAD) to build a theoretical framework

 Data Analysis

Content Analysis: Analyze regulatory documents, policy changes, and government reports related to FDI policies and economic indicators

Thematic Analysis: Use thematic analysis to categorize and interpret qualitative data from interviews and case studies Identify recurring themes and patterns related to FDI attraction

 Secondary Data Analysis

Utilize secondary data sources, including government statistics (e.g., FDI inflow data, economic indicators), to assess trends and changes in FDI in Vietnam during the study period

 Policy Analysis

Evaluate the effectiveness of policies and reforms introduced by the Vietnamese government

to attract FDI Assess their impact on FDI inflows and economic development

 Comparative Analysis

Compare Vietnam's FDI attractiveness with that of neighboring countries in Southeast Asia, such as Thailand, Malaysia, and Indonesia Highlight differences and similarities in FDI policies and outcomes

The research will also consider empirical evidence and case studies from other countries to provide valuable insights and lessons for Vietnam's FDI attraction efforts

Chapter 2: Literature review and research framework

Chapter 3: Factors affecting Vietnam's FDI inflow in the period of 2018 – 2023

Chapter 4: Recommendations

Reference material

CHAPTER 2: LITERATURE REVIEW AND RESEARCH FRAMEWORK

2.1 Main concept related to Foreign direct investment

2.1.1 Definition and Characteristics of foreign direct investment

FDI is one of the topics that is of great interest in research by many experts and organizations at home and abroad FDI is not only a resource for economic growth but also a factor that has a pervasive impact on many different areas of the economy as well as social life Therefore, in Vietnam as well as the world, research related to FDI always accounts for a very large number Research works on FDI are very diverse, ranging from the origin of FDI, the factors affecting the flow of FDI, the effects of FDI both directly and indirectly on the general economy and society FDI attraction effectiveness of some countries

According to the United Nations Conference on Trade and Development (UNCTAD, 2017), “FDI is an investment made to acquire long-term interests in an enterprise operating outside of the investor's economy, the investor's purpose is to achieve an effective voice in the management of the enterprise"

According to the International Monetary Fund (IMF), they believe that “Foreign direct investment is the investment capital to gain long-term benefits in an enterprise operating in an economy different from the investor's economy The goal is to win the effective voice in managing that business ” This concept emphasizes the long-term of the investment process, the investor is a foreign investor and the investment is associated with management control

According to the World Bank (WB): FDI is the net (net) investment flow into a country so that the investor has a long-term management right (if he holds at least 10% of the common shares) in operating enterprise activity in another economy (for the investor)

 Thus, the concept of FDI has many different expressions depending on the purpose of the subject, however, according to the author's concept, it can be understood: FDI is a type of international investment, in which investors of an economy contribute a large amount of capital or assets to another economy to own, operate, and control the object

in which they invest capital for profit or other economic benefits

Accordingly, foreign investment is called foreign direct investment (FDI) if a foreign company invests to build a factory and directly manage business When foreign companies buy stocks or bonds of domestic companies, it is called indirect investment Interest, dividends, and profits earned from foreign investment activities can be repatriated to the country Analyzing the concept of FDI shows that: Investors are both owners and users of investment capital FDI

is a form of investment with private capital, so investors have the right to autonomy and determination from establishing investment projects to organizing, managing and operating

self-investment projects, bearing their own responsibility Responsible for production and business results, bear own risks and have the right to profit Therefore, FDI is often feasible and highly effective

 Characteristics of Foreign Direct Investment

First of all, FDI capital is not only contributed in the form of initial investment called chartered capital or legal capital but also includes loans from investors This source of capital is usually borrowed from the parent companies abroad and will be fully contributed by the companies in accordance with the local regulations for business expansion

Secondly, FDI capital is a form of direct investment of foreign investors, this capital comes completely from abroad, not a borrowing water source, thus not putting pressure on debt for the receiving country Investment, this is one of the outstanding advantages compared to other forms of investment from abroad

Thirdly, the investor decides to invest, decides on production and business and takes responsibility for profit losses Foreign investors have the right to choose the field of investment, investment form, investment scale as well as technology for themselves Therefore, this form is feasible and highly economically efficient, with no political constraints, and no burden on debt for the country's economy to receive investment FDI is often accompanied by technology transfer to investment countries

Next, FDI investors are the owners of capital, and a part of the form of international capital transfer, the investor with a foreign national, investing in another country for another country

So these foreign investors must abide by the laws of the country to be received The owner of the capital directly invests in the administration and management of the capital use process, has the rights and obligations from production and business activities equivalent to that contributed capital

Furthermore, besides the great benefits, FDI also brings challenges and difficulties for the investment country The purpose of FDI investors is always to achieve maximum profits from the investment, so they decide on the size and method of using this capital in the direction of the most beneficial for themselves, causing losses and disadvantages for the national department

Finally, FDI usually is a long-term capital so the countries that were invested can take advantage of many aspects of economic development FDI is often accompanied by technology transfer to investment countries Through FDI activities, the host country can take advanced technology and techniques, learn management experience Along with capital investment is the

construction of factories and works in the host country, so the contribution time will be long and highly stable

2.2 Form of Foreign Direct Investment

2.2.1 Types of investment

FDI can take various forms, including joint ventures, and business cooperation

contracts

 Joint Venture Enterprise

Joint Venture Enterprise: A business entity formed by two or more parties, typically a foreign investor and a domestic partner, to undertake a specific project or establish a new company

It is an international business The participants are people of completely different nationalities, one is a foreign partner and the other is an investor of the host country The feature

of this form is to create a new enterprise according to the laws of the host country, the parties to join together on the basis of capital contribution, management, profit distribution, and sharing business risks

 Business Co-operation Contract

Business Co-operation Contract: A contractual agreement between a foreign investor and a domestic partner to collaborate on a specific project

A form of joint venture between a foreign investor and a partner in the host country on the basis of division of business results and stipulation of responsibilities between the two parties in signed documents without establishing a new legal entity

 Building Operate Transfer (BOT)

Building Operate Transfer: A project in which a private entity builds, operates, and transfers

an infrastructure facility to the government after a specified period

Is a form of investment signed between a competent state agency and an investor to build an infrastructure work After the construction is complete, the investor transfers that work to the State of Vietnam; The government gives investors the right to operate such works for a certain period of time to recover investment capital and profits

infrastructure works or provision of public services PPP contracts have a number of characteristics such as one party being a state agency, the contract is related to infrastructure and public services

 Building Transfer Operate (BTO)

Building Transfer Operate: A project in which a private entity builds and transfers an infrastructure facility to the government, after which it operates the facility

An investment form signed between a foreign investor and a competent state agency for the construction of infrastructure works After these works are completed, the investor will transfer the work to the locality The government will give the investor the right to operate that work for

a certain period of time to recover the investment capital and profit

to carry out other projects to recover the investment capital and profit or the Government will pay these investors as agreed in the BT contract

 Foreign Direct Investment and the Economy

Foreign direct investment plays a vital role in the economic development of Vietnam, benefiting both the overall economy and Vietnamese enterprises FDI has the potential to positively impact various aspects, such as economic growth, technological advancement, job creation, export activities, and the development of human resources

For investment countries:

1 Through FDI, countries invest in applying the advantages of low production costs of countries invested to lower product costs, reduce transportation costs, and improve investment capital efficiency

2 Allow the company to extend the life cycle of products produced

3 Helping the main companies to create a market to supply raw materials abundant, stable with cheap prices

4 Allow investors to expand the economy, and increase their ability on the World market For invested countries (host countries):

1 FDI resolves a shortage of capital for socio-economic development

2 Transferring technology from investment countries to invested countries

3 FDI makes foreign investment activities in the country grow, promoting dynamism and competitiveness in the country, creating the potential exploitation capacity of the country

4 Do not put invested countries into debt, not to be subject to economic, political or social constraints

However, besides those advantages, there are also specific difficulties: For countries to invest

in exams if the investment environment is unstable in terms of economic and political, investors will lose capital As for local countries, if not planning to use capital effectively, it is easy to lead

to exhausted specialized talent and environmental pollution

2.2.2 Positive impact on the economy

 First, help international economic integration and strengthen external relations with different countries, organizations and large corporations in the world

Attracting foreign currency flows to developing countries for economic development is a big goal Foreign direct investment has made a very important contribution to the promotion of exports In fact, foreign direct investment accounts for a high proportion of the total exports of developing countries

This proportion in Vietnam accounts for more than 50% and in the coming time tends to increase when our country integrates deeply into the world economy

In addition, foreign investors also play an important role in bringing Vietnam's economy step by step into integration with the world's economy, especially in the field of finance and banking

 Second, develop human resources and create jobs for the locality

The entry of foreign-invested enterprises has created a large number of industries as well as

a diversity of industries for the host country, especially developing countries Through this, employees also gain experience and skills as well as improve their skills over time through training at home and abroad Since then, the labor force has been abundant and highly specialized to meet the process of industrialization and modernization of the country

In addition, the salary paid by FDI enterprises to employees is often higher than that of domestic enterprises, so workers can improve their living standards As a result, employees will

fairness In addition, transparency and clarity in investment is what all FDI enterprises are interested in to ensure fair competition among investors

 Fourth, improve the competitiveness of the economy

Foreign investors are always a serious opponent for businesses in the country, the appearance of these investors creates high competition among enterprises since then domestic enterprises have continuously improved and improved business performance to survive Therefore, the domestic economy is more developed

 Fifth, create spillover effects to other economic sectors in the economy

Foreign-invested enterprises improve operational efficiency through the number of enterprises expanding production scale and increasing investment capital At the same time, there

is a spillover effect on other economic sectors in the economy through the linkage between domestic enterprises and foreign-invested enterprises, management capacity and technology, and business business is transferred

 Lastly, contribute to technology development and transfer, especially in developing countries

Usually developing countries are countries with outdated technology, inferior to developed countries, when FDI enterprises appear, they not only invest capital in the receiving country but also import machinery with advanced technology High technology from advanced countries to serve efficient production and business activities Therefore, this is an opportunity for investment recipient countries to receive and learn advanced technologies in business

2.2.3 Negative impact on the economy

 First, there is the risk of money laundering

By investing capital abroad easily, bad actors can borrow this opportunity to carry out money laundering in the host country According to the WB's warning, Vietnam will be selected

by international money laundering organizations as a target because of the accounting system The system of inspection and supervision of customers in our country is still underdeveloped, there is still the habit of using cash Our country is on the path of integration, so the opening to attract foreign investment has not been strictly and effectively managed to create favorable conditions for foreign investors favorable conditions for bad actors to carry out money laundering

 Second, creating negative labor and financial problems for the host country

Human resources are one of the decisive factors in the development of the economy In fact, FDI enterprises often have good treatment regimes and high salaries, leading to the state of good workers concentrating most of these businesses, causing weight loss equal to domestic firms On

the other hand, FDI enterprises also attract good managers in their home country causing a shortage of talent and disadvantage for the host country

Besides, taking advantage of their advantages in attracting workers, FDI enterprises pressurize workers during overtime, and the salary is not really commensurate with the workers' effort, leading to the phenomenon of labor dispute motion

 Third, the phenomenon of imbalance in investment activities

Investment recipient countries often want to receive investment in the right industries and fields that need to be developed, but depending on the goals of foreign investors, the investment coincides with the wishes of the host country to make the investment happen The attraction target is affected if there is no appropriate mechanism but it will easily lead to rampant inefficient investment, exhausted natural resources, slow improvement of economic structure, and distortion of the economy

 Fourth, traditional jobs are lost and eliminated, and workers have not paid enough attention to training

FDI enterprises have created thousands of jobs for workers in developing countries like Vietnam However, this investment has lost a lot of agricultural land, thereby reducing traditional jobs significantly With the goal of minimizing costs and maximizing profits, FDI investors often exploit and use seasonal, less-trained, cheap labor sources without paying attention to the skilled labor movement has not been focused

 Fifth, the phenomenon of "transfer pricing" is common in foreign direct investment Foreign investors often tend to transfer profits out of the investment territory to their home country, through raising the cost of imported capital, selling at low prices when exporting, which causes tax losses for the host country inequalities in socio-economic development

 Sixth, outdated technologies in the world can be brought into the economy

Taking advantage of the laxity in technology management and inspection of the host country, FDI investors bring outdated but expensive technologies causing great waste for replacement, removal or overcoming the consequences later The transfer of outdated technology makes the production capacity worse, the technology of the host country increasingly outdated, but also burdens nurturing and dismantling these technologies

2.3 Impact factors to attract foreign direct investment

Strategic Location of Vietnam: Vietnam's geographical location is very favorable for the development of tourism and tourism services Vietnam has many natural conditions that are very favorable for developing the marine economy and becoming a logistics center for countries in the region and around the world

Central Location of Vietnam: Based on the regional map, Vietnam is located in the center of Southeast Asia, has a long coastline and natural conditions favorable for the development of the marine tourism industry

Clean Energy Focus: Vietnam has seen significant Foreign Direct Investment (FDI) in clean energy projects Solar power projects such as Dau Tieng 1 and Dau Tieng 2 in Tay Ninh Province have attracted substantial FDI (Source: Data from the Ministry of Industry and Trade, Vietnam)

Sustainable Manufacturing: Industries such as information technology and green manufacturing have attracted substantial FDI The World Bank's "Vietnam Economic Development Report 2020" highlights the growth of these sectors (Source: "Vietnam Economic Development Report 2020," The World Bank)

In 2022, although the economy is affected by many unfavorable factors at home and abroad, the picture of attracting investment to Tay Ninh province is still improving The province attracted 16,500 billion VND of total domestic and foreign investment capital, an increase of 4.7% compared to last year Implemented 56 new investment projects, including agricultural, industrial projects, urban development consulting services, including 2 new solar power projects in the Dau Tieng lake area with Total registered investment capital is more than 7,000 billion VND

Notably, in the past year, FDI capital poured into Tay Ninh was quite large, mainly concentrated in the industrial sector Accumulated to date, the province has 370 FDI projects, with a total investment capital of 9.2 billion USD, ranking 15/63 provinces and cities nationwide

in attracting FDI investment In the province, there are currently 7,279 operating enterprises with

a total registered capital of 184,399 billion VND The province's investment environment continues to remain stable, project targets in terms of revenue and budget payment all increased over the same period

Logistics center, dry port and Hung Thuan general port; Moc Bai dry port; Thanh Phuoc dry port, 49 hectare Ninh Thanh urban area, Tan Nam international border gate infrastructure, Dau Tieng 5.1, 5.2 solar power projects, Implementing investment projects: Thematic sightseeing area, Ba Den Mountain Resort, Urban Area serving Ba Den Mountain National Tourist Area,

At the same time, the province focuses on investing in developing industrial zones (IPs) as a premise to attract and invite investors Along with the 6 existing industrial parks, the Provincial People's Committee also submitted to the Prime Minister, ministries and central branches for consideration and approval of the Project to add new industrial parks and expanded industrial parks to the development planning of industrial parks in the Tay Ninh period 2021-2030, vision

to 2050 According to the Project, it is expected that in the coming period, Tay Ninh province will plan 2 new industrial parks and expand 1 industrial park with a total proposed land area of 3,944 hectares to meet the needs of the province meet the increasing demands of investors (Tay Ninh, Business Forum, 31/05/2023)

2 Economic Conditions

Stable GDP Growth: Vietnam's GDP growth rate in the FDI sector is 2.5 times higher than the GDP growth rate of the entire economy The contribution of the FDI sector to GDP is increasing each year

Rapid Economic Development: Vietnam's economy has a rapid growth rate compared to other countries in the region, and the economic structure is shifting from agriculture - industry - services Vietnam's economy is continuing to integrate deeply into the world economy

Market Expansion: The consumer market for "Made in Vietnam" goods is increasingly expanding and stable, which helps Vietnam benefit from international trade

Stable GDP Growth: Vietnam has maintained steady GDP growth rates From 2018 to 2019, the GDP growth averaged 6.8%, and from 2019 to 2020, it was approximately 7.1% ("World Economic" International Monetary Fund)

Economic Diversification: Vietnam's diversification of its economy has attracted FDI According to the United Nations Conference on Trade and Development (UNCTAD) report on Foreign Direct Investment, Vietnam has been recognized as one of the world's top FDI destinations due to its economic diversification (UNCTAD World Investment Report)

In the first six months of 2021, the total FDI commitments to Vietnam declined by 2.6 percent year-on-year to USD 15.27 billion, the FDI disbursement rate, however, rose by 6.8 percent to stay at USD 9.24 billion

Currently, Vietnam has totally 33,787 foreign investment projects with a combined registered capital of USD 397.89 billion, while the disbursed amount stood at USD 241.1 billion, 60.6 percent of the committed amount

Vietnam was up five places against last year’s ranking to reach 19th on the list, according

to UN Conference on Trade and Development (UNCTAD)’s World Investment Report

2021 While global FDI flows fell by 35 percent to USD 1 trillion amid the COVID-19

pandemic, the lowest level since 2005 and almost 20 percent lower than the 2009 trough after the global financial crisis, the FDI in Southeast Asia, considered an engine of global FDI growth for the past decade, contracted by 25% to USD 136 billion Vietnam is still among the three largest investment recipient countries in the region with a decrease of only 2%, while the remaining two countries, Singapore and Indonesia, suffered a decrease of up to 21% and 22%, respectively According to UNCTAD, a slight decline in FDI to Vietnam was due to significantly lower investment contractions in manufacturing and realty activities However, thanks to the rise

in investment in electricity projects, including a USD 5 billion gas-fired power plant proposed by ExxonMobil (US) and a 2.2 billion USD coal-fired power plant developed by Thai MNEs in the Quang Tri Economic Zone, the flow of FDI was still good

As investors, Singapore and Japan topped the list of countries and territories having investment projects, in which Singapore’s reached USD 5.64 billion, 37 percent of the total and Japan invested USD 2.44 billion, a surge of 67 percent in investment compared to 2019 (The Ministry of Finance, 07/2021)

3 Infrastructure Development

Technical Infrastructure: Developing the economic infrastructure of a country and region is the top physical condition to attract quick acceptance of FDI investors Infrastructure must include a modern transportation system with seaports, roads, warehouses and qualified transportation means to serve international production and business needs Public service systems such as health care, customs, finance, and trade must also be developed and diversified Technology Infrastructure: Technology plays an important role in attracting FDI Smart transportation systems, modern telecommunications, and the development of information technology infrastructure are all important factors

Transportation Infrastructure: Vietnam has been investing heavily in transportation infrastructure Notably, the development of the Cai Mep - Thi Vai port complex in Ba Ria - Vung Tau Province has improved logistics and trade connectivity ("Vietnam Infrastructure Report," Business Monitor International)

Energy Infrastructure: The country's focus on renewable energy has attracted FDI in this sector Large-scale wind and solar projects have been initiated, including the Tra Vinh Wind Power Project (the Ministry of Industry and Trade, Vietnam)

Despite these achievements, more needs to be done to support Vietnam’s socio-economic development The structural transformation is not yet complete, with a still uneven playing field between the state-owned and the private sector Infrastructure remains fragmented and of low quality Water pollution is a big challenge; average energy consumption is still low compared to

other emerging markets but is expected to increase dramatically until 2030 The current, especially urban road network is already severely congested during peak hours, with increases in private car ownership exacerbating this problem

4 High Quality Human Resources

Human resources directly affect attracting FDI If a country has trained human resources with high technical skills, capable of serving the production and business needs of FDI enterprises, that country will have a more competitive position than other countries other Vietnam is a country with a workforce that has been trained and knows how to acquire knowledge and skills; Cheaper labor costs than other countries in the region will be an attractive human resource for FDI investors

High Quality Human Resources: Human resource capabilities have a direct impact on FDI attraction A country with trained human resources with high technical skills and the ability to serve the production and business needs of FDI enterprises will have a more competitive position

Social - Cultural Factors: Social and cultural factors of the country receiving investment are also important If a country has similar cultural and social factors to FDI investors, this helps reduce human resources training costs for them and creates favorable conditions for them to integrate into the local community The host country's socio-cultural development characteristics are considered attractive to investors if they have similar educational levels and many aspects of language, religion, customs and traditions with the FDI investors These features not only help reduce human resources training costs for FDI investors but also create favorable conditions for them to integrate into the host community

2.4 Incentive Policies applied to attract FDI Experience from some countries

 China

China has implemented a range of policies and strategies to attract Foreign Direct Investment (FDI) over the years Some of the key policies and measures include:

Special Economic Zones (SEZs):

China established its first SEZs in the late 1970s, including Shenzhen and Zhuhai, with tax incentives, relaxed regulatory frameworks, and infrastructure support to attract foreign investment These zones have been instrumental in China's economic growth Besides, China has streamlined regulations and reducing bureaucratic hurdles can make it easier for foreign investors to set up and operate businesses China has gradually relaxed restrictions on foreign ownership in various sectors, including finance, manufacturing, and services It has also simplified administrative procedures for company registration and business operations Next,

China has invested heavily in building modern infrastructure, including high-speed rail networks, ports, and airports, to facilitate the movement of goods and services China invested

in infrastructure, especially transportation and logistics, can improve connectivity and make the country more appealing to investors (Ministry of Commerce (MOFCOM))

China also offering tax incentives can be a powerful tool to attract FDI, especially in targeted industries China has introduced various tax incentives for foreign investors, including reduced corporate tax rates in certain regions and industries, exemptions from value-added tax (VAT) for certain types of income, and R&D tax benefits

China has taken steps to strengthen Protection of Intellectual Property Rights (IPR) protection, including amendments to its patent and trademark laws, and the establishment of specialized IP courts Chian ensuring strong protection of IPR is crucial to attract technology-intensive FDI (China Investment Promotion Agency (CIPA)

Finally opening up sectors to foreign investment can attract FDI China has periodically revised its Catalogue of Industries for Guiding Foreign Investment, expanding market access for foreign investors in various sectors

Lessons from China: Currently, China is the second most important investment destination

in the world for European and US investors At the same time, China is the country with the largest FDI attraction rate in the region According to data from FDI Market 2018, China attracted 4,535 investment projects from the US Achieving this must include efforts to promote investment attraction in 7 major projects: First, upgrading BMW's Shenyang factory; Second, Airbus's new assembly line in Tianjin; Third, a joint venture between Linde and a subsidiary of Sinopec to produce industrial gases in Ningbo; Fourth, Volkswagen's joint venture with JAC produces electric vehicles; Fifth, 4 new projects of Robert Bosch in Chongqing, Sichuan, Jiangsu, Guangdong; Sixth, Shell's second research center cooperates with Tsinghua University; Seventh, Airbus helicopter assembly line in Qingdao

In addition, we must also mention the commonalities in economic development between the European Union and China Specifically, in 2015, the GDP of Europe and China was 14.72 trillion EUR and 9.75 trillion EUR, ranking second and third in the world after the United States (16.64 trillion EUR) According to the results of the report "EU - China Economic Relations to 2025 - Building a Common Future 21" in addition to increasing trade and investment, strengthening cooperation in the fields of science, technology and innovation, infrastructure and financial services, participating in people-to-people exchanges will cause the quality of FDI capital flows to increase on both sides

 Thailand

Thailand has implemented various policies and strategies to attract Foreign Direct Investment (FDI) and promote economic growth Here are some of the key policies and measures that Thailand has employed:

Thailand has established SEZs in strategic locations, particularly along its borders with neighboring countries These zones offer preferential incentives to attract FDI, including tax breaks, reduced import duties, and streamlined administrative processes Next, is the Board of

Investment (BOI) is Thailand's primary agency responsible for promoting and facilitating FDI

It offers a range of incentives to foreign investors, such as corporate income tax exemptions, import duty reductions, and work permits for foreign employees

Thailand provides various tax incentives to attract FDI This includes reduced corporate income tax rates for specific industries, exemptions from import duties for machinery and raw materials, and double taxation agreements with many countries to prevent double taxation of income

Thailand also has entered into various bilateral and multilateral trade agreements and investment treaties to facilitate trade and provide legal protection for foreign investors These agreements enhance market access for investors

Industrial Promotion Policies:

Policy: Thailand has specific industrial promotion policies that target priority sectors, such

as automotive, electronics, biotechnology, and renewable energy These policies provide incentives and support for investments in these sectors

Renewable Energy Focus:

Policy: Thailand offers incentives and favorable conditions for renewable energy projects, aiming to attract investments in clean and sustainable energy sources

Workforce Development:

Policy: Thailand invests in education and skills development to ensure a skilled labor force

It offers vocational training programs to meet the demands of industries, including technology and manufacturing

Support for Innovation and Technology:

Policy: Thailand promotes innovation and technology adoption by offering incentives for research and development (R&D) activities and supporting startups and technology-driven businesses (Ministry of Thailand Commerce)

Lessons from Thailand: Attracting FDI capital into industrial zones (IZs) is always considered by Thailand as one of the important factors in stimulating economic development In

1959, Thailand established the Ministry of Investment and in 1960 issued the Investment Law

Since 2005, Thailand's FDI attraction policy has changed towards selective investment with a policy of prioritizing domestic investors and supporting the development of non-manufacturing services and other types of services financial services Thanks to these policies, attracting FDI capital into Thailand has achieved initial results

The highlight of Thailand's investment environment in general and attracting FDI to industrial parks in particular is the flexible and synchronous adjustment of policies in accordance with international market fluctuations and the country's overall development strategy This country creates effective support for implementing strategies from developing import substitution, to export-orientation, and recently combining and harmonizing both import substitution and export-orientation

Regarding investment incentive areas (based on per capita income criteria), Thailand is divided into 3 regions to apply different preferential policies At the same time, investment incentives in industrial parks and outside industrial parks also have distinctions, specifically:

Table 1 Investment incentives and outside industrial parks

Import Tax Outside Industrial Parks Incentives inside

Industrial parks

Sector 1 Discount 50% Discount 50%

Sector 2 Discount 50% Import tax exemption

Sector 3 Import tax exemption Import tax exemption

Corporate income tax Outside Industrial Parks Incentives inside

Industrial parks

Sector 1 No discount 3 years tax exemption

Sector 2 3 years tax exemption 7 years tax exemption

Sector 3 8 years tax exemption 8 years tax exemption

Source: Ministry of Thailand Commerce

Regarding the type of enterprise: there are 3 types of enterprises applied to foreign investment: sole private enterprises, partnerships, and private limited liability companies (LLC) The most common form of foreign investment is the private limited company

 Policy to attract FDI in Singapore

Singapore is one of the most successful countries in the ASEAN region in attracting quality foreign investment Singapore's economic strength lies in its open trade regime, stable political and legal environment, prudent macroeconomic policies, competitive tax rates, transparent regulatory environment and effective regulatory framework The outstanding features of Singapore's FDI attraction policy are as follows:

First, Singapore focuses on improving a clean and stable investment environment Singapore does not discriminate between foreign investment and domestic investment, except for some special cases specifically stipulated in law Instead of a separate law, investment activities in Singapore are governed by general laws, such as general contract law, company law, and industry-specific laws Singapore's legal system also works quite effectively Inheriting the legal system from England and developing its own identity, Singapore's legal system is now highly appreciated for its efficiency and consistency The legal basis is continuously updated and innovated to suit the current cultural, economic and commercial environment

Another outstanding advantage of Singapore's FDI attraction policy is that the administrative apparatus handles work quickly and effectively This country is famous for its administrative apparatus that operates very smoothly and quickly, with effective collaboration between relevant agencies to help businesses operate and develop easily

Second, pay attention to policies that encourage foreign investors Another strong point of Singapore is that the tax system is considered "simple and investor-friendly" The Singapore government has issued policies to encourage foreign capitalists to invest capital in Singapore Applying a very special preferential policy, that is: When the business is profitable, investors are free to transfer profits back to their country; Investors have the right of residence and entry (privileges of entry and naturalization); Any investor who has a capital deposit in Singapore of 250,000 Singapore dollars or more and has an investment project will enjoy Singapore citizenship Singapore's highest corporate tax rate is only 17% In addition, Singapore has signed double taxation agreements (DTA) with more than 70 countries around the world, thereby making an important contribution to reducing the tax burden for foreign businesses Third, Singapore implements a selective and focused FDI attraction policy Singapore has clearly determined that attracting FDI capital focuses on three priority areas: new manufacturing industry, construction and export Depending on specific conditions in each period, Singapore advocates attracting FDI capital into appropriate industries Along with the rapid development of the electronics industry and a number of other advanced technologies, the direction of using investment capital of this country focuses on industries such as computer

manufacturing, electronics, goods civil sales, oil refining industry and mining engineering (Economic Development Board (EDB) and Monetary Authority of Singapore (MAS))

 Lessons for Vietnam

Compiling valuable lessons from Asian countries such as Singapore, China and Thailand

on attracting FDI, Vietnam can draw the following specific details:

1 Stable political and legal environment: Vietnam needs to maintain a stable political and legal environment, with transparent laws and effective enforcement This helps create confidence for foreign investors

2 Specialized investment promotion agencies: Vietnam should establish specialized agencies such as Thailand's Board of Investment (BOI) to actively promote FDI These agencies provide information, tax incentives and support to investors

3 Infrastructure development: Vietnam needs to invest heavily in infrastructure, including transportation, seaports and technology facilities, to improve connectivity and logistics systems

In particular, it is possible to consider building special economic zones (SEZs) with special incentives to attract FDI and develop specific areas

4 Competitive tax policy: Provide competitive tax policies and a clear tax system to attract FDI Tax incentives and tax promotions can help stimulate investment

5 Join Trade and Investment Treaties: Vietnam should join Trade and Investment Treaties

to create favorable conditions and legal protection for foreign investors This also expands export market opportunities

6 Sustainable development and clean technology: Support sustainable development and clean technology projects to attract FDI in these fields, especially in the context of increased environmental awareness

These lessons are part of building a comprehensive strategy to attract and retain FDI, and Vietnam needs to combine them with efforts related to education, labor training, and market facilitation competitive market to ensure success in attracting foreign investment and promoting sustainable economic growth

CHAPTER 3: IMPACT FACTORS AFFECTING TO VIET NAM FDI

INFLOW IN THE PERIOD OF 2018 - 2203

3.1 Overview of Vietnam's FDI

3.1.1 Volum of FDI inflow

- Volum of FDI inflow by scale of capital

The current situation of attracting FDI capital in Vietnam over the past 35 years shows continuous fluctuations in the scale of FDI capital over time According to data from the Ministry of Planning and Investment, in the period 2010-2021, the average annual FDI capital accounts for about 22-23% of the entire society's investment capital In 2022, the total registered FDI capital in Vietnam will reach nearly 27.72 billion USD, the level of realized FDI capital will reach a record of 22.4 billion USD, an increase of 13.5% over the same period in 2021 This is the amount of FDI capital highest performance in 5 years (2017 - 2022)

Cumulatively by 2022, Vietnam has attracted nearly 438.7 billion USD of FDI capital;

Of which, 274 billion USD has been disbursed, accounting for 62.5% of the total valid registered investment capital

Figure 1 Realized foreign direct investment capital years 2018-2022

Source: Vietnam General Statistics Office (2022)

Thereby, FDI capital flows into Vietnam have increased 1.17 times after 5 years Some countries have higher increases than Vietnam such as: Cambodia (1.7 times), Philippines (1.64 times) and Singapore (1.25 times) In addition, some countries have improved more

slowly than Vietnam such as: Thailand (1.13 times), Brunei (1.09 times), Malaysia (1.04 times) and Indonesia (0.9 times)

Figure 2 Nations and territories have invested the largest FDI in Vietnam

Source: Vietnam General Statistics Office (2022)

Up to now, more than 80 countries and territories have invested in Vietnam Notably, investment from some major partners such as Singapore, Japan and Korea increases every year The FDI wave tends to focus on industries with high intellectual content such as software industry, electronics and information technology, pharmaceuticals, and mechanical engineering

According to the Ministry of Planning and Investment, Vietnam has a number of strengths in attracting typical FDI such as: stable security and political situation; Favorable geographical location, abundant labor force, Vietnam's institutions, laws and transparency are gradually being improved in association with integration Therefore, Vietnam not only creates conditions for investors to feel secure in long-term operations but also helps businesses participate in the supply chain and global value chain smoothly (Sources: Vietnam General Statistics Office report, 2022)

Nations & territories have invested the largest FDI in Vietnam

Total registed FDI (million usd) Number of projects

3.1.2 Structure of FDI inflow

According to the Report of the Foreign Investment Department (Ministry of Planning and Investment), as of April 20, 2023, the total newly registered capital, adjustments and capital contributions, share purchases, capital contributions (GVMCP) of foreign investors foreign exchange reached more than 8.88 billion USD, equal to 82.1% over the same period

in 2022

Detailed information is as follows:

 Regarding implementation capital:

Till April 20, 2023, it is estimated that foreign investment projects have disbursed more than 5.85 billion USD, down 1.2% over the same period in 2022, up 1 percentage point compared to 3 months early 2023

Accumulated as of April 20, 2023, the whole country has 37,065 valid projects with a total registered capital of nearly 445.9 billion USD The accumulated realized capital of foreign investment projects is estimated at more than 279.8 billion USD, equal to nearly 62.8% of the total valid registered investment capital

Figure 3 Realized FDI in the first 4 months of 2023 and the period 2018 – 2023

Source: Foreign Investment Agency - Ministry of Planning and Investment

- Regarding the import and export situation:

5.1

5.7

5.15 5.5

5.92

5.85

Realized foreign investment capital (billion USD)

4 months of 2018 4 months of 2019 4 months of 2020

4 months of 2021 4 months of 2022 4 months of 2023

Exports (including crude oil) of the foreign investment sector are estimated at nearly 81.19 billion USD, down 10.8% over the same period, accounting for 74.6% of export turnover Exports excluding crude oil are estimated at 80.56 billion USD, down 10.8%, accounting for 74% of the country's export turnover

Imports of the foreign investment sector are estimated at 67.1 billion USD, down 15.5% over the same period and accounting for 65.2% of the country's import turnover

Although export turnover continues to decrease in the first 4 months of 2023, the foreign investment sector still has a trade surplus of nearly 14.1 billion USD including crude oil and a trade surplus of nearly 13.5 billion USD excluding crude oil Meanwhile, the domestic business sector's trade deficit was nearly 8.3 billion USD

 Volum of FDI inflow by the structure of foreign investment capital and capital investment methods:

Regarding capital structure, there were 750 new projects granted investment registration certificates, an increase of 65.2% over the same period, with a total registered capital of more than 4.1 billion USD, an increase of 11.1%

Also in the first 4 months of 2023, there were 386 projects registered to adjust investment capital, an increase of 19.5% over the same period Total additional investment capital reached nearly 1.66 billion USD, down 68.6% over the same period, up 1.7 percentage points compared to the first 3 months of 2023 and up 16.5 percentage points compared to the first 2 months of the year

Also in the first 4 months of the year, there were 1,044 capital contribution and share purchase transactions by foreign investors, an increase of 1.8% over the same period with a total capital contribution value of more than 3.1 billion USD, an increase of 70.4 billion USD % over the same period

Commenting on the FDI attraction situation in the first 4 months of the year, the Foreign Investment Department said that new investment capital increased again after a slight decrease in the first 3 months of the year, with an increase of 11.1% The number of new investment projects continued to increase over the same period and increased sharply by 65.2% compared to 3 months, showing that small and medium-sized foreign investors continue to be interested and confident in the investment environment of Vietnam

Besides, there are signs that large corporations are being cautious and carefully considering continuing to make large investments in the context of the impact of the global minimum tax policy

On the other hand, although adjusted investment capital still decreased over the same period, the number of projects with adjusted capital also increased more strongly, affirming investors' confidence in Vietnam's investment environment and continuing to make decisions

to expand existing projects

Table 2 FDI’s structure in the first 4 months of 2023 & capital investment methods

New registration Register for

adjustments

Capital/ share contribution Total

Source: Foreign Investment Agency - Ministry of Planning and Investment

- About investment partners

Vietnam has attracted investment from thousands of corporations and businesses from

140 countries and territories, of which the largest FDI partners come from the East Asia region In 2022, there will be 108 countries and territories investing in Vietnam; Of which, Singapore leads with a total investment capital of nearly 6.46 billion USD, Korea ranks second with nearly 4.88 billion USD, Japan ranks third with a total registered investment capital of more than 4.78 billion USD, followed by China (2.52 billion USD), Hong Kong (2.22 billion USD)

There are 77 countries and territories investing in Vietnam in the first 4 months of 2023 Investors from Asia and traditional investment partners still account for a large proportion such as Singapore, Japan, China, Taiwan (China), Hong Kong (China), and Korea These 6 partners alone accounted for 75.1% of the country's total FDI capital in 4 months

Of which, Singapore leads with a total investment capital of nearly 2.2 billion USD, accounting for more than 24.7% of total investment capital in Vietnam, down 29.5% over the same period in 2022

Japan ranked second with nearly 2 billion USD, accounting for more than 22.1% of total investment capital, 2.63 times higher than the same period China ranked third with a total registered investment capital of nearly 752 million USD, accounting for nearly 8.5% of total

investment capital, down 30% over the same period Next is Taiwan (China), Hong Kong (China), Korea, etc

In terms of the number of projects, Korea leads in both the number of new projects (accounting for 16.1%), the number of capital adjustments (accounting for 24.4%) and capital contributions and share purchases (accounting for 28.2%)

 Volum of FDI inflow by investment sectors

FDI capital is currently present in most economic sectors of Vietnam As of December

31, 2022, foreign investors have invested in 19/21 industries in the national economic sector system However, the difference in the proportion of FDI capital distributed among industries is quite large According to 2022 data from the Ministry of Planning and Investment, the Processing and Manufacturing Industry leads with a total investment capital

sub-of more than 16.8 billion USD, accounting for 60.6% sub-of total registered investment capital in 2022; The real estate business ranked second with a total investment capital of more than 4.45 billion USD, accounting for 16.1% of total registered investment capital; Next are the electricity production and distribution industries (with registered investment capital of 2.26 billion USD), professional science and technology activities with registered capital of nearly 1.29 billion USD; The rest are other industries

Although the agriculture, forestry, and fishery industries were encouraged, these fields attracted very few projects By the end of 2015, there were only 546 valid FDI projects with total investment of $3989.3 million, accounting for 1.44% of total FDI in Vietnam The scale

of FDI of the projects was small; they were mainly used in livestock production, poultry feed production, and processing of poultry products for domestic consumption and export

Foreign investors have invested in 18 industries out of 21 national economic sectors Of which, the processing and manufacturing industry leads with a total investment capital of more than 5.1 billion USD, accounting for 57.8% of total registered investment capital and down 17% over the same period

The finance and banking industry ranked second with a total investment capital of more than 1.5 billion USD, accounting for more than 17% of total registered investment capital and increased more than 12 times over the same period Real estate, wholesale, and retail industries ranked 3rd and 4th with total registered capital of nearly 972 million USD (down 65.5%) and nearly 372 million USD (down 44.3%), respectively

In terms of the number of new projects, the manufacturing and processing industry is also the leading industry in the number of new projects (accounting for 29.9%) and capital adjustments (accounting for 56.7%)