Strong Shifts in FDI Flows

Vnre.blogspot.com - The Ministry of Planning and Investment said the economic growth was estimated at 6.2-6.4 % in the second quarter of 2010 to bring the six-month growth to 6-6.1 %, nearly equal to the target of 6.5 % set for the year and well above the 5.32 % in the same period of last year. Foreign-invested enterprises have contributed greatly to the achievement. In the six months of the year, the foreign direct investment (FDI) capital was projected to climb 5.9 % year on year to reach US$5.4 billion.

FDI channelled into real estate and tourism services

The ministry said in June alone, the country licensed 78 fresh FDI projects with a total registered investment capital of more than US$800 million and the disbursement of FDI capital increased 7 % to US$5.4 billion. Foreign investors averagely disbursed US$900 million a month in the six-month period, an impressive figure in many years.

Foreign invested enterprises surged in tune with recovery of the economy in the period from January to June. Improved production helped foreign companies obtain export turnover of US$17.2 billion in the first six months, a year-on-year rise of 26.2 %. With crude oil excluded, their export revenue grew 39.5 % to US$14.6 billion. The aggregate FDI amount in the first half has therefore contracted 19 % year on year to US$8.43 billion. According to experts, Vietnam is expected to draw US$10-11 billion this year, up some 10% from 2009.

FDI inflows to Vietnam are switching from manufacturing sector to service and real estate. Mr Koichi Takano, Deputy Representative Chief of the Japan External Trade Organization (JETRO) in Hanoi, said his organisation had seen a new trend of Japanese investments in Vietnam. The interest of Japanese investors in the manufacturing sector in Vietnam has been sluggish in the last two years, while there is a growing interest in construction, distribution, retail and other services in Vietnam.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, the FDI capital structure has shifted significantly in the period from 2001 to 2009. In the first stage, FDI for manufacturing and construction accounted for 85 % of the total investment capital but it slumped to only 22 % last year. The foreign finance for the service sector leaped from 7 % to 77 %. The proportion of joint venture enterprises sank from 70 % to 20 % while wholly foreign-invested businesses made up 70 %.

According to the International Monetary Fund (IMF), FDI flows for manufacturing production and long-term investment have been on the sharp fall.

Recently, several U.S. companies have come to Ho Chi Minh City to seek investment opportunities. Visitors took deep interest in infrastructure, health, information technology, education and energy - main investment priorities of the Vietnamese Government. Perhaps, it is time Vietnam select investors carefully, not accept as many as possible as earlier. Vice President of Oracle Group, Joseph Alhadeff, said his group will focus on investing in upgrading wideband, improving the IT application capacity and supporting educational projects in Vietnam.

According to economic experts, the service sector, including financial, healthcare and education services, will grow rapidly over the next decade. Foreign investors are very quick-minded in the market economy and the redirection of investment into more profitable fields is an inevitable trend.

Red carpet and stick

To build an attractive investment environment, Vietnam has laid the "red carpet" and introduced many incentive policies to welcome foreign investors. However, incentives of the Vietnamese Government for investors do not usually come along with commitments of investors for a better business environment. In 2009, a southern province reported that as many as 40 % of foreign-led companies suffered operating loss. This raised doubts about the competitiveness of foreign-financed projects and the honesty of foreign investors. Moreover, many foreign investors ignored environmental protection commitments, including Vedan and Tung Kuang, which were notoriously contaminated the surroundings.

According to Professor Nguyen Mai, the lax coordination between central and local governments results to unclear decentralisation. For example, many provinces and cities simultaneously called capital to cement, steel and golf projects, causing a distortion of the master development investment plan. “Many localities only care about the number of projects not impacts on the national economy," said Mr Do Nhat Hoang, Director of Foreign Investment Department under the Ministry of Planning and Investment. Therefore, strict management is necessary.

Reported by Kim Phuong/ VCCI