Vietnam - Why is fdi decreasing?

Foreign direct investment (FDI) volume reached over US$9.9 billion, just as 72.1 percent as in the same period last year.

The current statistics indicate a sharp decline in the amount of foreign direct investment (FDI) in Vietnam.

By the end of September, FDI volume reached over US$9.9 billion, just as 72.1 percent as in the same period last year.

Economists suggest that the Vietnamese Ministry of Planning and Investment (MPI) and other relevant ministries and institutions need to set up a strategy of attracting FDI and solutions for enterprises involved in this sector so that Vietnam’s economy will achieve its targets in the last months.

Recently, the MPI’s forecast has revealed that by the end of 2011, the expected FDI will be unlikely to reach US$20 billion as planned. According to economic experts, FDI is going to reach only about US$17 billion. Moreover, economic experts also predicted that if the foreign and domestic economies tend to be stagnant as currently, expected FDI will reach a humble number of $15 billion which will show clearly a significant decline.

According to economists, the decline in the flows of FDI is a worldwide phenomenon, not unique to Vietnam. In the widespread economic turmoil, the difficulties of foreign investors are the most important reason for that decline.

As for domestic reasons, necessary conditions to attract the FDI are still stuck at some stages, such as: infrastructure, facilities and quality of human resources which have not met the requirements of international contractors. Furthermore, in this tightened economy, the government has issued many policies to narrow preferences for foreign investors.

According to Bui Quang Vinh, minister of Planning and Investment, Vietnam has to adjust its strategy of attracting FDI and turn it into a new phase with particular criterion.

Specifically, Vietnam should target powerful corporations, which have great potential, high-tech properties and investments in conformity with Vietnam’s orientation. Nokia Corporation, for example, planned to launch a phone production project in Bac Ninh province, and proposed some preferences from preferential policy for high-tech companies. The leaders of Bac Ninh province also submitted this suggestion to the government for some special treatments.

Accordingly, the Nokia investor announced to build a factory of 80,000 sq.m in the Vietnam – Singapore Industrial Park (VSIP) of Bac Ninh province with the cost of 200 million euros. 

However, the government generally stated that the preferential policy is applied for Nokia only as an export – processing enterprise.

And as for high-tech companies, which successfully reach the standards of high-tech companies, can apply for the high-tech preferential policy.

By this example, the government has shown that it did analyse and refine projects and investors rather than satisfy most requirements of foreign investors like before.

Moreover, in order to attract inflows of investment, many provinces have to change local planning schemes approved by the government. This really is the potential risk for the sustainable development of Vietnam economy and it also leads to the danger that projects cannot be implemented in practice.

Facing new trends of economy, focal refinement and selective attraction of foreign investors is a curable dose for Vietnam to grasp potential investors with full of capacity; increase the amount of FDI in the future.

VCCI

Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.