Given the significant contributions of investment capital to the local economy, experts say Vietnam needs immediate solutions to attract more FDI and strengthen its resources.
According to data, after 35 years of implementing its open door policy to attract foreign direct investment, Vietnam has so far received investment from 140 countries and territories around the world.
Foreign capital flows are present in most places in the country with projects invested by major global names such as Intel, Microsoft, Foxconn, Samsung, Sanyo, Sony, Fujitsu, Toshiba and Panasonic.
A complete picture of the situation in Vietnam, the annual report on foreign investment in Vietnam in 2021 by the Association of Foreign investment companies (VAFIE) recently published highlights encouraging results.
The report said: “FDI enterprises account for about 25 percent of total social investment capital, 55 percent of the total value of industrial production and more than 70 percent of export turnover.”
It said this proved that the local business and investment environment was getting better and better, leading foreign investors to believe in the success of doing business in Vietnam by adjusting investment capital to expand the business and increase profits.
In particular, the capital injection and share-buying activities of foreign investors in Vietnam have been very active over the past 10 years, accounting for a large part of the registered and realized FDI.
In 2021, the value of corporate mergers and acquisitions will reach USD 12 billion, an increase of 150 percent compared to 2020, matching the record 2017 of USD 13.4 billion, despite the investment climate and the world changed dramatically as a result of the impact of the pandemic.
In addition, non-equity investment (NEM) became a new investment method in Vietnam, such as with Vingroup’s two investment agreements in the Vinfast and Vinsmart brands.
Nguyen Mai, president of VAFIE, said this form of investment enabled multinational companies to coordinate activities in the product supply chain, providing opportunities for domestic manufacturers and suppliers to participate in the global supply chain.
Mai said the resources of foreign investors often include the provision of trademarks, intellectual property rights and business know-how, which could be an investment trend to increase profit margins by finding potential markets without capital injection.
At the same time, International Investment Research Company Limited (ISC) published the 2021 FDI Annual Report, which analyzed the shortcomings and limitations in attracting FDI and made many recommendations for investors and policymakers.
Phan Huu Thang, chairman of the Report Compiling Council and former director of the Foreign Investment Agency of the Ministry of Planning and Investment, told local media: “The current difficulties in attracting foreign direct investment are not new.”
Thang also mentioned that the role of FDI in GDP growth has become increasingly important, with its share of total export turnover, budget contributions, job creation, productivity and technology spillover and supporting industry development being high.
However, he also mentioned the limitations of the inflow of foreign capital, which was reflected in the low quality and efficiency of attracting and using FDI, saying: “The number of projects with advanced and modern technology and European technology was only about 5 percent; there is an imbalance in the attraction and use of FDI in the area; links and interactions between the FDI sector and other sectors of the economy are not tight, the spillovers on productivity and technology are not high.”
“The drawbacks in attracting and using FDI have been slowly overcome, affecting economic development, social order and national defense security.”
Thang said these restrictions had many causes, but the most fundamental was that foreign direct investment institutions and policies had not kept pace with development requirements.
He added: “In the coming period, it is necessary to continue to improve the institutions and laws on foreign investment attracting in order to improve the quality and efficiency of attracting and using foreign investment capital.”
At the same time, he said it was necessary for the active, robust, synchronous and substantive participation of ministries, departments and municipalities to create a fair, open and transparent business and investment environment.
He and his colleagues highlighted the solution for monitoring and evaluating FDI projects, especially the status of ‘hidden’ investments in the form of individual investors in Vietnam. In some cases, they could set up a real estate company with a capital contribution of less than 49 percent, lending money to Vietnamese individuals to set up a business.
He said speeding up the progress of building and perfecting the national foreign investment information system to have an efficient database of information to seriously and accurately evaluate the efficiency of FDI in Vietnam was a solution.
Since the institutions and laws regarding foreign investment were incomplete, overlapping and not strictly enforced, some foreign investors took advantage of legal loopholes to exploit hidden investments in the industries and areas where FDI was limited.
VAFIE said: “It is necessary to continue to improve institutions and laws related to foreign direct investment, including policies to apply a global minimum tax in Vietnam.”
In addition, there should be solutions to improve the efficiency of attracting and using FDI by improving the investment and business environment, revising the investment policy system, supporting investors to solve difficulties, strengthening the state management of FDI from the stage of project promotion, assessment and implementation to the stage of inspection and supervision of implementation.
VAFIE advised the government to decide soon on the set of criteria to evaluate the effectiveness of the FDI sector. The evaluation criteria under construction include 26 specific economic, social, environmental and technological indicators, all of which serve as a basis for foreign investors to self-score and for project screening by places to receive investment.
