Current situation and solutions for FDI capital attraction into vietnam

MINISTRY OF PLANNING AND INVESTMENT ACADEMY OF POLICY AND DEVELOPMENT GRADUATION THESIS Current situation and solutions for FDI capital attraction into VietNam Instructor: PhD Le Huy Doan Student made: Nguyen Duc Thinh Student code: 5073106029 Class: KTĐN CLC 7A Hà Nội, tháng 6/2020 Protestation I assure that this is my own research, the research results are independent, no copying The data in the dissertation is used honestly, the cited source has clear, transparent and inherited notes, developed from published documents, journals, research works website I take full responsibility for my pledge of honor Author Nguyễn Đức Thịnh Table of contents Chapter 1: literature review of foreign direct investment in VietNam 1.1 Definition of FDI 1.1.1 Definition of FDI in general 1.1.2 1.2 FDI under the Law on Foreign Investment in Viet Naw 10 The necessity and content of FDI attraction in VN 11 1.2.1 The need of FDI capital 11 1.2.2 The content of FDI attraction 14 1.2.2.1 Creating capital mobilization plan 14 1.2.2.2 Capital attraction policies 15 1.2.2.3 Forms of FDI attraction 16 1.3 Determinants of FDI attraction in VN 21 1.3.1 Natural conditions 21 1.3.2 1.3.3 Economiy conditions 21 Politics – Society conditions 24 1.3.4 The development of infrastructures 25 1.3.4.1 Technical infrastructure 25 1.3.4.2 Development of social infrastructure 25 Chapter 2: Current situation attracting FDI capital into VietNam 27 2.1 An overview of FDI attraction 27 2.1.1 The amount of FDI capital registered, carried out and number of project 27 2.1.2 FDI capital classified by local and economic region 32 2.1.3 FDI capital by economic sectors 35 2.1.4 FDI capital by forms of investment 38 2.1.5 FDI capital by investment partners 40 2.1.6 2.1.7 FDI by regions 42 Contribution of FDI sector to VietNam economy 48 2.1.7.1 Contribution to overall growth of the country 48 2.1.7.2 Positive impact on trade balance 50 2.1.7.3 Creating jobs 51 2.1.7.4 Renewing equipments, techonologies and improve production capacity 53 2.1.7.5 Improving the level of management and business administration 56 2.1.7.6 Utilizing Vietnam’s potential 57 2.1.7.7 Enhancing balance of payment 58 2.2 Factors affecting the FDI attraction in VN 60 2.2.1 Internal factors 60 2.2.1.1 Natural conditions 60 2.2.1.2 Economic conditions 61 2.2.1.3 Social conditions 61 2.2.1.4 The infrastructure 64 2.2.2 External factors 67 2.2.2.1 Global trend of FDI investment 67 2.2.2.2 Investment trend in VN 68 2.3 Policies for attracting FDi capital into VN 70 2.3.1 Policies for improving investment environment 70 Chapter 3: Solutions to enhance FDI attraction in upcoming years 76 3.1 Bases for the formulation of solutions 76 3.1.1 VN development goal until the end of 2030 76 3.1.1.1 Perspective, orientation 76 3.1.2 Orientation to attract investment capital in some in some industries 78 3.2 Some solutions to attract FDI capital into VN 81 3.2.1 Solutions to improve investment environment 81 3.2.2 Solutions to improve human resources quality 84 3.2.3 Solutions for enterprises, organizations 86 3.2.3.1 Renovating the mechanism, organizing the management board of industrial parks, export processing zone and investment promotion centers 86 3.2.3.2 Enhancing management capcacity and brand reputation of domestic enterprises to develop joint ventures with foreign companies 88 3.2.3.3 Developing business development services and auxiliary production for industries and services 89 References 95 List of tables Table 2.1 Foreign direct investment was licensed in the period of 1988 – 2018 divided by Year and Division (Accumulated to December 31, 2018) 31 Table 2.2 FDI capital by locality ( Accumulation of valid projects until December 31, 2018) 36 Table 2.3 Foreign direct investment is licensed according to economics (Accumulated to December 31, 2018) 39 Table 2.4 FDI capital in VN by forms of investment ( Accumultated to December,31 2018) 42 Table 2.5 FDI capital in VN by investment partners ( Accumulated to December,31 2018) 44 Table 2.6 FDI capital by regions ( Accumulated to December, 31 2018 )46 List of charts Chart 2.1 Foreign direct investment was licensed in the period of 1988 – 2018 divided by Year and Division (Accumulated to December 31, 2018) 33 Chart 2.2 Foreign direct investment is licensed according to economics ( Accumulated to December 31, 2018) 40 Chart 2.3 FDI capital in VN by investment partners ( Accumuated to December, 31 2018) 46 Chart 2.4 Number of projects in VN ( Accumulated to December, 31, 2018)49 Chart 2.5 Total capital registered ( Accumulated to December, 31, 2018)50 Chart 2.6 Number of employyes ( Thousand ) 56 Chart 2.7 Factors affecting the choice of investments 67 Chart 2.8 Global trend of FDI flow first half of 2018 72 List of abbreviations ID Abbreviations English meaning IMF International Monetary Fund UNCTAD United Nation Conference on Trade and Development FDI Foreign Direct Investment WTO World Trade Organization GDP Gross Domestic Product ODA Official Development Assistance VAMC Vietnam Asset Management Company PPP Public - Private Partnership Introduction The reason to choose the topic Foreign direct investment (FDI) is an crucial part in the structure of investment capital of any country For Vietnam, we are transforming towards a global trend, not only Industrialization and modernization but also "Sustainable development", because of these changing perceptions, economic transformation and integration also need to select capital sources and investors who are really interested in the issue of "Sustainable development" not only affecting Vietnam but also affecting the sustainable development of the whole world Therefore, the attraction of foreign direct investment is even more important Furthermore, Foreign direct investment has been considered as the key to each nation's economic growth This allows the host countries to attract modern technologies, advanced management experience, etc to exploit their country's comparative advantages, boost exports, increase competitiveness, adjust and shift the economic structure in line with changing regional and world markets The open door strategy to integrate our country's economy into the regional and world economy was implemented by our Party and State more than 10 years ago One of the important contents of this strategy is the policy to attract foreign direct investment Attracting foreign direct investment not only aims to solve the shortage of capital for social development investment but also to create more jobs for workers and to supply the host country's economy with advanced machines and processes, produces many high-quality and high-tech products, contributes to the country's economic development, creating synergy for industrialization and modernization Since the Law on Foreign Investment in Vietnam (December 29, 1987) up to now, the attraction of FDI in Vietnam has achieved important agencies to concentrate on implementing the functions of policy making, forecasting, checking and supervising - Strengthening the mechanism of coordination of foreign investment management between the Central Government and localities and between relevant ministries and branches - Simplifying and publicizing administrative procedures and procedures for foreign investment, implementing the "one-stop-shop" mechanism in solving investment procedures Ensuring the consistency, procedures and procedures in the local area, at the same time, consistent with specific conditions - To raise the qualifications of officials and public employees to ensure the performance of their tasks according to the provisions of the Investment Law and the new regulations on decentralization of foreign investment management - To promptly and promptly handle problems arising in the process of licensing and adjusting investment certificates - Continuing to improve the effectiveness of anti-corruption, negative status and harassment for investors To uphold the sense of individual responsibility in handling work, thrift practice and waste combat in state management agencies 3.2.2 Solutions to improve human resources quality fostering and increasing the level of laws, policies and expertise for staff working in investment cooperation with foreign countries, aiming to meet the requirements of international integration and exchange Having a plan for regular and continuous training of foreign officials, officials in charge of foreign investment management, and officers directly participating in joint ventures, who are not only good at economics and management but must be knowledgeable domestic and international laws, in 84 which attention is paid to key personnel engaged in foreign economic activities, with strong political backgrounds, good skills and expertise, rich knowledge and fluency in foreign languages, understanding know the laws and have the ability to negotiate internationally to ensure good and effective working in an environment of both cooperation and struggle In the long term, it is necessary to recruit excellent university graduates of specialties such as foreign economics, economic law, investment economics to work under the reserve civil servant regime at the Department Planning and Investment, Management Board of Industrial Zones, then organize civil servant and if accepted, go for further training abroad This is a high-quality human resource to complement the contingent of cadres and civil servants working on state management of FDI activities, and may send them to participate in the Board of Directors of joint-venture enterprises with which partners Vietnam side is state-owned enterprises Personnel and training must focus on improving the management qualifications of highly qualified staff to undertake the jobs96 in FDI enterprises Not only through the system of domestic specialized schools to train full-time cadres operating in the field of FDI, but also need to be bravely sent abroad to train as well as hire leading foreign experts to work in foreign countries stages that we can not afford or are weak (such as auditing ) Strongly adjusting personnel, especially key personnel related to external economic activities and especially in the field of FDI There are long-term projects on training and employing young source staff, created basically and come from excellent graduates of domestic or foreign universities It is also a way to quickly access skills in investment activities to better meet the immediate and long-term work Furthermore, with the training of cadres, it is necessary to focus on training skilled workers to work for FDI enterprises under programs that meet the needs and prospects of actual employment of these workers Encouraging 85 and having specific regulations for FDI enterprises regarding vocational training, especially technical training; have policies requiring FDI enterprises to have plans to train workers and enterprise managers On the basis of each industry having a detailed plan for attracting FDI capital for each specific project, there must be a plan for cadres expected to participate in joint venture projects, thereby having specific training plans to prepare qualified staff to appoint key positions in the joint venture For the contingent of cadres who are participating in the joint ventures, it is necessary to have a plan to manage, assist and foster through activities, exchange of experiences, conferences and seminars to raise their qualifications Resolutely handle state officials and employees in any positions with harassment attitudes and actions, making it difficult for foreign investors; to provide allowances and bonuses for people who have made great achievements in foreign investment; Chart of foreign investors doing business effectively and making great contributions to Vietnam 3.2.3 Solutions for enterprises, organizations 3.2.3.1 Renovating the mechanism, organizing the management board of industrial parks, export processing zone and investment promotion centers The operation of the Management Board of industrial parks and export processing zones has not been effective for a long time, such as the fact that a Vice Chairman of the City People's Committee concurrently holds the position of Head of the Management Board of industrial parks and export processing zones must be the optimal solution in terms of personnel Investment promotion activities between the Management Boards of industrial parks and export processing zones of provinces and the Investment 86 Promotion Center are still overlapping, sometimes causing conflicts We need to find a more optimal solution Option 1: Maintaining the two organizations as at present, both agencies belonging to the Provincial People's Committee The Management Boards of Industrial Zones and Export Processing Zones are responsible for state management and promotion of foreign investment projects into industrial zones appraising and issuing investment certificates according to their assigned competence Investment Promotion Center under the Provincial Department of Planning and Investment performs the function of promoting investment projects outside the Industrial Park, appraising and submitting to the Provincial People's Committee for granting investment certificate under the authority of the provincial People's Committee and submitting to the Ministry of Planning and Investment Planning and Investment for large projects are beyond their authority Option 2: Merging these two organizations into an organization called IZ Management Board and attracting investment, performing the tasks of the two sides combined, forming a unified central focal point of operations It has created a dynamic movement, giving investors peace of mind and consistent information, reducing the administrative apparatus In this case, the leadership of this agency must have sufficient capacity, dynamism, good at foreign languages to be able to meet the assigned tasks For investment promotion jobs: Strengthen training of staff working in the field of investment promotion, selecting young, healthy, truly dynamic, creative, enthusiastic staff, and at the same time researching policies to support external funding Salary for this team assured of long-term, stable work Establishing management information system, electronic database such as own website of IZs, EPZs, printing and free distribution of brief on development planning, FDI attraction policies for domestic investors and 87 abroad, regularly update new incentive mechanisms to effectively support investors' information search Establishment of Representative Offices of Investment Promotion Centers in some countries (Japan, Singapore, Hong Kong, Taiwan, United States) to regularly follow big investors Establish a team of collaborators with the Investment Promotion Center both at home and abroad to support the Center's activities, especially in writing opportunity projects, market research, and information provision Increasing funding from the budget for the activities of the Investment Promotion Center to promote image promotion activities, organizing overseas missions to call for investment, however, it should be selective and key to avoid spreading is inefficient, costly and wasteful 3.2.3.2 Enhancing management capcacity and brand reputation of domestic enterprises to develop joint ventures with foreign companies Governments of cities and provinces regularly monitor and grasp the business situation of enterprises in order to detect difficulties and legitimate requirements of enterprises to take appropriate and timely solutions and supports time Promote the development of the private sector, encourage the establishment of business associations and industry associations for businesses to work together and support each other for development Conducting surveys, selecting a number of young, good and good-quality state-owned enterprise management officers to train abroad to improve their management skills and international cooperation to get ready representing the Vietnamese side when joining a joint venture In addition, it is necessary to promote domestic investment encouragement, call on a number of strong domestic economic groups and 88 businesses to expand investment and production and business to contribute to creating a diversified commodity market rich, high quality; creating a vibrant business environment that is attractive enough to entice foreign investors 3.2.3.3 Developing business development services and auxiliary production for industries and services Supporting industry is the concept of all industrial products that support the production of main products Specifically, the components, accessories, spare parts The supporting industry or outsourcing plays a very important role in attracting FDI In addition to creating jobs, attracting redundant labor, supporting industries play a very important role in increasing the competitiveness of main industrial products and speeding up the process of industrialization in a moderate direction broadening and deepening Due to the increasing international division of labor, not all companies in the world produce a finished product Therefore, a product can be assembled from different parts manufactured by different countries The general trend is that the final product to be brought to the market must be close to the large consumer market to reduce production costs, transportation, maintenance and operation If the auxiliary industry does not develop, it will lead to assembly companies and other final product manufacturing companies will have to rely heavily on imports, while reducing the competitiveness of products due to increased import and transportation costs The actual survey on active FDI enterprises indicates that, due to the ineffective operation of domestic enterprises, FDI enterprises are keen on increasing the localization rate to reduce production costs but find less sources provide reliable auxiliary materials Especially, enterprises with 100% foreign capital or export-oriented enterprises tend to use components and materials imported or produced by other FDI companies 89 Besides, services for foreign investors to develop business in Vietnam are also weak From aviation services, ports, banks, beaches to hotels, restaurants, entertainment areas Therefore, the development of services and manufacturing industries serving industries and services is extremely important if we want to improve our investment environment The measures that need to be focused are that domestic enterprises need to make efforts and have the support of the State to invest in manufacturing auxiliary industries in a number of fields such as electronics, mechanics, textiles and chemicals attracting foreign investors to build a number of 5star coastal resorts, 5-star hotels in the central area, high-class condominiums, offices for lease, development of banking services goods, services transporting goods, completing construction and putting into use golf, tennis continue to open more international schools, international hospitals In fact, the achievement in the amount of investment capital, the number of projects is of course important, but overall, the "communication" between FDI enterprises and domestic enterprises in the economy is more important both One of the major purposes of attracting FDI is to create spillover effects from the FDI sector to the domestic business sector When a foreign enterprise consumes products available domestically, instead of importing, it will lead to an increase in income and profit for the domestic company, bringing benefits to the national economy Ultimately, we need to these solutions well: Firstly, focusing on perfecting the legal system and mechanisms and policies in accordance with the requirements of committed international economic integration, contributing to creating a favorable business environment, to attract resources of all economic sectors, both at home and abroad for development investment Develop synchronously and effectively manage market types (real estate, capital, services, labor, science and technology) 90 Secondly, continue to reform administrative under the one-stop mechanism in dealing with investment procedures Handling problems in licensing licensing of investment certificates on time Improve the qualifications of cadres and civil servants to ensure compliance with the provisions of the Law on Investment and new regulations on decentralization of FDI investment management Thirdly, focuing resources to invest in upgrading the infrastructure system, especially transportation, seaports to create favorable conditions for investors in the process of conducting investment activities in Vietnam Fourthly, the State needs to invest in developing human resources to better meet the requirements of businesses At the same time, strengthening supervision and inspection activities for FDI enterprises to ensure fairness for domestic businesses and maintain friendly relationships with investment countries In particular, it is necessary to create a unified legal corridor, ensuring effective management for all business sectors 91 92 Conclution Over 30 years of implementing the open door policy to attract foreign direct investment, it indicates that FDI has been an crucial factor which serve the economic development strategy in Vietnam FDI is the key force that helps us gradually close the economic gap and avoid the risk of lagging behind the world economy Like other countries in the world, Vietnam is in desperate need of capital for the process of economic growth and development The reality of attracting foreign direct investment in Vietnam over the past 30 years has shown that FDI is becoming increasingly necessary for the economy FDI is an appropriate path to meet a part of capital demand, enhance technological potential, acquire advanced management technology, pave the way for regional and world markets, boost exports, increase competitiveness, create more jobs, adjust and shift the economic structure in line with the changes of the international situation, effectively exploit the comparative advantages in each development period However, the process of FDI attraction still has some limitations Therefore, we need to actively improve the investment law, the quality of attraction: foreign investment, the investment environment, organizational innovation and management of cooperation activities with transnational companies and multinational countries in order to stand firm in the process of economic integration of the region and the world The thesis "Current situation and solutions to attract foreign direct investment into Vietnam" conducted an analysis combined with comparative and explanatory methods based on theoretical and economic perspectives In terms of foreign direct investment, Vietnam has achieved the following goals: 93 Pointing out the theory of foreign direct investment, thereby highlighting the nature and movement of this form in international business activities Seeing positive contributions as well as a number of remaining limitations to the economic development of receiving and investing countries Outline the status of foreign direct investment into Vietnam in the period of 1988 – 2015 Basing on the research on the situation of attracting foreign direct investment of Vietnam in the period of 1988 - 2015, the thesis has proposed some of the most general solutions to attract foreign direct investment in the up coming period 94 References Vietnamese references Dự thảo chiến lược thu hút FDI hệ mới, giai đoạn 1018-2030 https://dautunuocngoai.gov.vn/_layouts/fiaportal/uploads/content/Docu ments/D%E1%BB%B1%20th%E1%BA%A3o%20Chi%E1%BA%BF n%20l%C6%B0%E1%BB%A3c%20thu%20h%C3%BAt%20FDI%20 giai%20%C4%91o%E1%BA%A1n%202018-2030.pdf https://text.123doc.org/document/110370-tac-dong-cua-m-a-xuyenquoc-gia-bai-hoc-cho-viet-nam.htm Đầu tư trực tiếp nước cấp giấy phép phân theo 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