Crunch time for FDI attraction

January 18, 2009

Lookatvietnam – 2009 is forecast to be a tough year for countries to attract foreign direct investment (FDI) capital due to the far-reaching impact of the global economic and financial turmoil. Vietnam is no exception.

Lookatvietnam – 2009 is forecast to be a tough year for countries to attract foreign direct investment (FDI) capital due to the far-reaching impact of the global economic and financial turmoil. Vietnam is no exception.

In 2007 and 2008, Vietnam attracted a total FDI capital of US$85 billion, increasing twenty fold as compared to the total volume of FDI for the 19 previous years combined. The FDI sector grew and flourished thanks to an increasing number of newly licensed projects, and the volume of registered and disbursed capital.

To date, more than 4,000 FDI projects have been put into operation, contributing 40.7 percent of the country’s industrial production value. In 2008, the sector generated 28 percent of the country’s GDP against 16 percent in 2004. There was no denying that it provided fresh impetus to the domestic economy to maintain its GDP growth rate of 6.25 percent last year.

Economists attribute the success to investors’ trust in Vietnam’s development prospects and its efforts to improve the investment environment and socio-political stability, gradually finalise market economy institutions, and open up its markets under its commitments to the World Trade Organisation.

Slow progress

However, economists are sceptical of the implementation of big projects capitalised at more than US$1 billion each, because many big international groups and companies have felt the pinch of global financial woes. In addition, “bottlenecks” in the national economy, particularly poor infrastructure and a lack of qualified human resources, are expected to obstruct the disbursement of FDI committed in 2008.

According to economists, the ratio of investment in manufacturing and export industries remains low while the property market attracts a huge amount of FDI. Vietnam needs investment to be poured into infrastructure construction, especially road and hydro-electric power plant projects. However, there are few such projects in the form of Build-Operate-Transfer (BOT) and Build-Transfer (BT).

Dr Nguyen Anh Tuan, editor in chief of Dau Tu (Vietnam Investment Review) points to the fact that slow progress has been made in administrative reform, especially in adopting administrative procedures concerning land and site clearance. He says cumbersome procedures continue to hamper the pace of investment projects in several localities.

Advantages along with disadvantages

The International Monetary Fund (IMF) has forecast that overseas remittances are likely to fall by 20 percent in 2009 and the amount remitted to developing countries will be US$40 billion less than in 2008.

Prof. Nguyen Mai, vice chairman of the former State Commission for Cooperation and Investment, says in the context of the global economic slowdown, overseas remittances by Vietnamese nationals in 2009 will fall compared to 2008, affecting the country’s economic balance, including the foreign currency exchange rate and currency reserves. Weaknesses in the national economy and negative effects from outside will also affect investors’ choices.

According to Prof. Mai, the world will experience a downward trend in FDI as countries are struggling to surmount their own difficulties, including the increasing number of lay-offs.

Claudio Dordi, chief consultant of the European Union-funded Multilateral Trade Assistance Project III (Mutrap III), says WTO membership has built up investors’ trust in Vietnam, but the global crisis has greatly impacted on FDI flows into developing countries, including Vietnam. 

In his opinion, the Southeast Asian nation should focus on stabilising its economy in the long term rather than make a profit, because the country is more vulnerable to outside effects than others. He explains that within the WTO, Vietnam is still considered a non-market economy and therefore it faces many anti-dumping suits from other WTO members. 

The most important thing for Vietnam is to take preventative measures against future crises, says the consultant.

Meanwhile, Phan Huu Thang, head of the Foreign Investment Agency under the Ministry of Planning and Investment, is optimistic about the FDI to be registered for 2009-2010. He says Vietnam remains attractive to foreign investors, citing the country’s socio-political stability, its huge and potential market of 85 million consumers and improved infrastructure and legislation as advantages.

Vietnam is forecast to attract US$20 billion in FDI in 2009, of which US$11-12 billion will be disbursed.

(Source: VOV)

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