Drastic changes needed for further FDI opportunities from Japan

By late 2017, Japan topped nations and territories in the world for pouring investment capital into Vietnam. However, during the first 5 months of the year, Japan had lost its leading position in foreign direct investment (FDI) capital into Vietnam as investment slowed. 

FDI capital flow from Japan not in line with expectations

According to statistics from the Japan External Trade Organization, Japan’s FDI capital flow into Vietnam reached US$1.446 billion in 2015 and US$1.672 billion in 2016. The figure continued to rise going into 2017 with investment capital reaching US$2.001 billion. 

Although Japan remains among the two largest foreign investors in Vietnam, the recent decreased level of investment into Vietnam raise concerns, according to experts.

Nguyen Thi Thu Trang, Director of the Integration WTO under the Vietnam Chamber of Commerce and Industry (VCCI), said many of Japan’s multinational groups have been considering the China Plus One Strategy and Vietnam tops their list of options in which to diversify their operations. However, the figures of Japan’s FDI inflow into Vietnam have not lived up to expectations.

Nguyen Anh Duong, head of the Department of Macro-Economy under the Central Institute for Economic Management (CIEM), cited the statistics of the flow of Japan’s FDI capital into China to point out Japans steady investment into China. Japan’s FDI capital in China has remained fairly consistent in previous years with US$10 billion in 2015, US$9,453 billion in 2016 and US$9,679 billion in 2017.

During the first five months of 2018, FDI capital from Japan into the world’s second largest economy reached close to US$4 billion.

The key factors in the slowdown of FDI capital into Vietnam, according to Mr Duong, can be attributed to the quality of workforce, along with supply chain capability from the domestic market, the current global business climate and connectivity between domestic and Japanese businesses.

Mr Duong emphasized that Vietnam can pounce on the opportunities brought about by the trade war between Washington and Beijing in order to increase Japan’s FDI into the country. The trade war has had a direct effect on a number of Japanese companies who produce goods in China for export to the US market.

Some Japanese companies have even begun to shift their production line from China to countries which are not listed among those that US President Donald Trump has imposed broad tariffs on. The trend of Japanese companies leaving China is projected to grow if the US-China trade war continues to last.

Nguyen Dinh Cung, CIEM Director, said Vietnam’s status as an overseas investment destination in the eyes of Japanese businesses will become clearer once the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) comes into force in early 2019.

The director attributed a number of factors that hinder FDI flow into Vietnam to internal shortcomings within the national economy, noting that these limitations must be removed for more effective cooperation in the future.

The director went on to point out that if Japanese businesses are forced to re-train workers, seek material supplies from territories outside of Vietnam and encounter a further negative business climate, they will re-think investments into Vietnam.

In particular, the director stressed that the lack of consistency in implementing policies and slow progress in deploying cooperative commitments between the two sides in recent times have been the main reasons for the slowdown in FDI inflow from Japan into Vietnam.