FDI outlook positive for year ahead

In the run up to the New Year, several major projects have been licensed for foreign direct investment, raising the total registered FDI in Vietnam during 2015 to about US$23 billion.

On December 29, the authorities of Saigon Hi-tech Park in Ho Chi Minh City granted a license to the Republic of Korea (RoK)’s Samsung Group to raise the investment capital of its Samsung CE Complex (SEHC) project from US$1.4 billion to US$2 billion.

The SEHC will facilitate the research, development, and production of hi-tech consumer electronic products and equipment. During the first phase of its strategic business plan, Samsung will focus on producing smart SUHD and LED TVs.

The second phase will oversee the production of other consumer electronics products, such as washing machines, fridges, and vacuum cleaners.

On December 28, the RoK’s biggest retail group Shinsegae officially launched its debut three-hectare Emart hypermarket in Ho Chi Minh City’s Go Vap district. The outlet has total investment of US$60 million.

Emart Vietnam’s director Choi Kwang Ho told VIR that Shinsegae was also planning to build another outlet in the city’s Tan Phu district.

On December 25, Vietnam’s largest US$10.5 billion FDI project-the Formosa steel complex and Son Duong deep-water port in the central province of Ha Tinh-churned out its first rolled steel products.

These three consecutive FDI events meant that in 2015, Vietnam’s FDI climate was very positive, both in terms of registered and disbursed capital.

Statistics from the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency show that up to December 20, 2015, the registered FDI in Vietnam rose 12.5% year-on-year. Meanwhile, the disbursed FDI ascended 17.4% from the previous year.

“This was a record disbursement level for Vietnam. The country had a very successful year for FDI attraction and disbursement,” said MPI Minister Bui Quang Vinh. “This shows the fact that the country’s business and investment climate remarkably improved in 2015, with a strong rise in investors’ confidence.”

Ups and downs

Vietnam began 2015 with difficulties attracting FDI. In the first four months of the year, only US$3.72 billion was registered, down by more than 23% year-on-year.

The downtrend in FDI continued in the following month, with an on-year 20% fall for the first five months of 2015. Overall, the first six months of the year saw an on-year 30% drop, with the total registered FDI of only US$3.84 billion.

At that time, concerns were raised over the effectiveness of the country’s FDI attraction in comparison to other regional nations.

However, the situation gradually improved during July, when the newly registered and additional FDI reached US$8.78 billion.

The situation continued to brighten up in August, Samsung Display was given an investment certificate to raise its investment capital from US$1 billion to US$4 billion, boosting FDI significantly. This pushed the newly registered and additional capital to US$13.33 billion, up 30.4% year-on-year.

Following the Samsung Display project, FDI recovered rapidly, largely thanks to the introduction of several billion-dollar projects, including the US$1.2 billion Emperor City in Ho Chi Minh City, the US$2.4 billion Duyen Hai thermal power plant in the southern province of Tra Vinh, and the US$1 billion Cheng Loong wrapping production project in the southern province of Binh Duong.

Future prospects

Vietnam can expect to attract more FDI in the future thanks to the economy recovery of local production and the country’s participation in various free trade agreements (FTAs), including the Vietnam-RoK FTA, the Vietnam Eurasian Union FTA, the Vietnam-EU FTA, and the Trans-Pacific Partnership Agreement.

The establishment of the ASEAN Economic Community, including Vietnam and nine other nations, will also bring more FDI to the country.

“Vietnam has become the first choice for investment for many international groups. Previously, multi-national companies were hesitant to invest in the country. However, recently established FTAs will now enable the nation to attract more investment from these groups,” said Glenn Maguire, lead economist for ANZ in the South Asian, Southeast Asian, and the Asia Pacific regions.

Several months ago, property consultancy firm Cushman & Wakefield released a list ranking locations for manufacturers in 2015. Vietnam was ranked first among emerging economies that attracted international manufacturers. According to Cushman & Wakefield, projects to make fast-moving consumer goods are expected to boom in the country, thanks to the country’s current retail opportunities.

Additionally, big manufacturers such as Samsung, Intel, Microsoft, Jabil Circuit, Hyosung, and Texhong have gradually turned to Vietnam for their production base. Many of these companies are now waiting to capitalize on the opportunities given by the FTAs signed in 2015.

According to Jonathan Choi, chairman of Sunwah Group and VinaCapital Group, Vietnam currently offers great opportunities to foreign investors in the sectors of infrastructure, agriculture, fishery, and forestry.

However, due to strong competition from other regional nations, in order to consolidate such investments, the country must improve its business and investment environment.

Minister Bui Quang Vinh also warned that, “Laos, Cambodia, and Myanmar are set to join Singapore and Malaysia in becoming the country’s rivals in attracting FDI.”

Propellants

In addition to registered and disbursed FDI, the FDI sector has also boosted the economy via its contribution to the nation’s export-import turnover.

According to the MPI, the FDI sector’s export turnover (which includes crude oil export revenue) is estimated to have reached US$115.1 billion in 2015, up 13.8% year-on-year, and occupying almost 71% of the country’s total export turnover.

Besides, the FDI sector’s import turnover hit US$97.9 billion, up 16.4% year-on-year, and accounting for 59.2% of the nation’s total import turnover.

As a whole, the sector enjoyed a trade surplus of almost US$17.15 billion in 2015.

The sector has also contributed to a large rise in industrial production and GDP during 2015. It has served as the strongest driving force among the four key contributors to the economy, namely the state-owned, private-owned, household individual, and FDI sectors.

An example of this is Samsung’s two projects in the northern provinces of Bac Ninh and Thai Nguyen, which have contributed to expanding economic growth for many northern provinces, according to Nguyen Mai, chairman of Foreign Invested Enterprise Association.

However, concerns have been raised that FDI has been playing too big a role in the country’s economy, while the role of local enterprises remains humble. In response, Mai said that there was no reason to limit FDI, which is functioning as the strongest engine of the economy.

Vinh stressed that FDI remained a crucial part of the economy. “In reality, an economy’s strength must rely on local enterprises, not foreign ones. However, in the context that local economic drivers remain feeble, FDI is very important,” he said.

He highlighted the benefits reaped from the FDI sector, such as employment generation, the acceleration of industrial production, and the increase in exports and imports.

“So I would like to repeat that we must support FDI,” Vinh said.

“However, we must attract high-quality projects that offer large contributions to the country. Meanwhile, we must have good policies and incentives for developing local enterprises, which can then grow to become strong rivals of foreign enterprises,” he added.