Prospect of attracting FDI in 2021

tHong nHat

Prospect of attracting foreign direct investment in 2021

The prospect of attracting foreign direct investment (FDI) in Vietnam in 2021 is bright given the investment diversion of investors from developed countries to the country.

According to Foreign Investment Agency (FIA) under Vietnam Ministry of Planning and Investment, disbursement of foreign direct investment (FDI) to Vietnam rose by 6.7 compared to 2020 to USD7.15 billion in the first five months of this year.

New investment capital registered by foreign businesses in the country also saw a modest yearly rise of 0.8 percent to nearly USD14 billion in the same period. Of which USD8.83 billion went to 613 newly-licensed projects, up 18.6 percent year-on-year, while USD3.86 billion was added to 342 existing projects, up 11.7 percent. Capital contributions and share purchases by foreign investors fell 56.3 percent to USD1.31 billion.

Investors poured money into 18 sectors in the first five months, in which processing and manufacturing took the lead with USD6.14 billion, accounting for 44 percent of the total. Power generation and distribution came next with USD5.43 billion, accounting for 39 percent, followed by real estate with USD1.05 billion and wholesale and retail sales with USD522 million.

In the first five months of the year, Singapore was Vietnam's largest source of FDI with USD5.26 billion, making up nearly 38 percent of the total FDI registered in the country. It was followed by Japan with more than USD2.59 billion and South Korea with USD1.83 billion.

At present, Vietnam is considered as a good destination for highquality FDI inflows. Since the outbreak of Covid-19, many large international corporations and enterprises have been looking for investment opportunities in Vietnam in order to diversify their supply chain and avoid overdependence on the Chinese market. Vietnam has become one of the brightest spots to welcome these diverted inflows thanks to its success in fighting and containing the pandemic. The government has also exerted

Ho Chi Minh City, Vietnam

efforts in administrative reforms and in improving the investment climate.

As of 20 May, Vietnam was home to 33,615 valid foreign-invested projects with a combined investment capital of USD397 billion. Of the total, 60.5 percent or USD240 billion was disbursed. Various incentives for foreign investors have been launched, along with opportunities brought about by new generation free trade agreements Vietnam has signed. Vietnam’s success in attracting FDI could be attributed to a number of other factors. First, foreign investors spoke highly of Vietnam’s socio-political stability as one of the important factors contributing to the implementation of economic development policies. The socio-political stability in Vietnam has built strong trust among domestic and foreign investors. Investors are willing to mobilize capital to increase investment and expand production. The infrastructure of industrial parks, export processing zones and economic zones in the country continue to be improved and upgraded.

Vietnam’s Prime Minister has approved 19 coastal economic zones with a total area of about 871,000 hectares. In recent years, the quality of human resources in Vietnam has been further improved thanks to the Government’s focus on investing in public education. Local labourers have been provided with training on culture, skills, and professional qualification which contribute to increasing labor productivity in Vietnam. This is also a competitive advantage in attracting foreign investment.

With trade agreements that Vietnam has signed, the influx of FDI projects promise to continue into Vietnam in the coming time. For this wave, the Government of Vietnam has offered many special investment incentives and supports to encourage the implementation of investment projects that have great social and economic impacts. However, Vietnam needs to further improve the legal framework, continue to create more favorable and equal business investment conditions for investors.

Despite the negative socio-economic consequences of Covid-19, Vietnam was one of the few countries that recorded positive economic growth in 2020. The country remains a strong candidate for investment from ASEAN and beyond. Given its investor-friendly policies, economic and political stability, cost efficiency, and consumer demand prospects, Vietnam is likely to continue gaining from supply chains restructuring in Asia in addition to attracting a new range of investors in terms of geography and sectors.