Post accession FDI boom

The accession to the WTO in 2007 marked an extremely important milestone for Vietnam’s social and economic development. Memberships in WTO forced Vietnam to make a series of changes to its laws in order to assimilate with international norms.

Foreign investors rushed to tap the country’s potential as an emerging market, and demand grew significantly, said Phan Huu Thang, former director of the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA).

“At that time, the Investment Law 2005 was revised with three outstanding points: creating fairness in treatment between domestic and foreign investors, empowering localities to grant investment certificates, except for mammoth projects, and diversifying investment models such as build-transfer, build-operate-transfer (BOT), and state stake sales”, Thang recalled.

“The WTO membership and the revision of this law led to the biggest boom seen in Veitnam’s FDI during 2006-2008. The total newly registered and expanded FDI in Vietnam hit an all-time high of US$71.72 billion in 2008. Many mammoth projects in this period focused on industrial and real estate sectors, including the US$3 billion Vung Tau oil refinery, and the US$3 billion Quang Ngai steel project”.

Starting in 2007, IT, entertainment services, agricultural, forestry, and fisheries processing, heavy industry, tourism, and industrial park infrastructure were among the most attractive sectors to foreign investors in Vietnam.

According to Thang, Vietnam’s FDI increased year-on-year and grew at a higher rate in comparison to other nations in the region, including Thailand, Malaysia, Singapore, Indonesia, and even the Philippines in some sectors.

Despite a slowdown in FDI during 2009-2012 due to the global economic downturn, Vietnam’s FDI has rebounded in recent years.

Accession to the WTO has also had a positive impact on FDI disbursement, with the rate continuing to grow, a reflection of investors’ growing confidence.

The total FDI disbursement rose sharply from around US$3 billion in 2005 to over US$4 billion in 2006, and to over US$11.5 billion in 2008. Total disbursement reached a record high in 2016 at US$15.8 billion.

Thang attributed the improvements in the local business climate to the revision of the Investment Law 2005, and other related laws such as the Land Law and the Law on Science and Technology.

“After witnessing the post-WTO accession boom, Vietnam’s FDI and disbursement has stabilised in recent years, seeing an average annual rise of 10%-15%”, Thang said.

“The important thing to note is that the FDI absorption of Vietnam’s economy is around US$10-US$15 billion annually. Thus, the country should pay more attention to selecting qualified projects to license with specific criteria, and also increase post-checks to enhance project efficiency”, Thang added.

Thang said that Vietnam’s FDI disbursement is likely to rise 15% in 2017. Meanwhile, the total newly registered and expanded FDI sum is expected to rise 10%-15%, from US$24.37 billion last year. Two or three BOT power projects worth around US$2 billion each are major contributors to these projections. They are to be licensed in the first quarter of 2017.