What will it take for Vietnam FDI investment in the long term?
- QTH-3Q19 Nguyen Thi Nhung
- Dec 25, 2019
- 6 min read
Updated: Apr 2, 2022
With very few COVID-19 cases and fatalities to date, Vietnam now has the opportunity—and the obligation—to think about its long-term economic goals, even as it responds to the virus's reappearance. To achieve long-term success, Vietnam's authorities must concentrate on concerns and possibilities that existed before the outbreak.
Strategic competition between major countries is increasingly fierce, taking place in many fields, especially in science, technology and security. Therefore, these countries have implemented many solutions to strengthen control and strict appraisal of foreign investment projects, especially merger and acquisition projects. According to a joint assessment released in 2019 by the World Bank and the Vietnam Academy of Social Sciences, success would necessitate annual growth of 7.0 to 7.5 percent from 2021 to 2030, a significant increase from the 6.3 percent Vietnam averaged in the ten years before to 2018.
Vietnam was named one of 11 recent global outperformers in that year, owing to its 20-year GDP-per-capita growth rate of more than 5%, as well as its successful efforts to pull a large part of its population out of poverty. Vietnam has the components in place to continue to outperform, such as rising disposable income, continued infrastructure investment, and a favorable business environment.
COVID-19 pandemic and FDI “filter”
Foreign investment (FDI) plays an important role for all countries in the world. For developing countries, FDI inflows are especially important for growth and international economic integration, because this is an external force supplementing capital, technology, management capacity, business ability, business ability, etc. organize and participate in global supply chains. However, the COVID-19 pandemic has caused profound economic, social and political consequences on a global scale.
In the past, developed countries have opened their doors to foreign investment, while developing countries have limited it due to concerns about the weak competitiveness of domestic enterprises. In recent years, emerging economies and developing countries have attached great importance to the liberalization of foreign investment management regimes, with 63% of newly issued regulations making it easier for foreign companies to invest. easier and only 14% of new regulations make it more difficult.
According to a report of the United Nations Conference on Trade and Development (UNCTAD), developed countries have issued 35 new regulations to strictly control foreign investment projects, of which up to 85% of the regulations are regulated. This determination is made more difficult, citing the risk to national security of foreign ownership of critical infrastructure, core technology and sensitive domestic assets. The new regulations lay out a number of measures to protect domestic businesses during the pandemic and some that are directly aimed at national security. This wave has spread from Europe, to the United Kingdom, Australia, New Zealand, Japan, the US, China, Russia, India, etc.
In the danger, the possibility, the consequences caused by the pandemic to the country's economy is an opportunity for the Government to assess the resilience, vulnerable areas of the economy and how to respond to the pandemic. uncertainties, thereby having appropriate solutions to effectively attract and maintain foreign investment in Vietnam for the country's industrialization process. It is thought that in the coming time, the Government and relevant ministries, branches and localities need to implement a number of solutions to "retain" and promote foreign investment attraction in the coming time:
Firstly, timely review and adjust foreign investment policies to suit and keep up with fluctuations and uncertainties of the global economy and changes in FDI attraction strategies of countries around the world. ; at the same time, building a competitive advantage in attracting foreign investment with investment conditions, a transparent and predictable legal system on the basis of developing a globally connected market economy by the rules of law.
Second, the Government needs to specify a list of industries and fields that need to attract foreign investment, and sectors and fields that can only be implemented by domestic investors. Especially develop regulations and standards as a new filter to select foreign investors with advanced technology, environmentally friendly, capable, able to withstand pressure from outside to maintain and ensure the national security of the country.
Third, mergers and acquisitions are becoming a trend in foreign investment. In the context of Vietnam's extensive integration into international economy, trade and investment, in order to avoid key economic sectors and fields being controlled and acquired by foreign investors, the Government needs to identify the threshold that allows foreign investors to hold shares in equitized enterprises, especially state management agencies are responsible for specifically reviewing large M&A deals, typically in the past few years, to see clearly. existing aspects, to draw lessons from experience on state management in the field of foreign investment in the coming time.
Fourth, continue to consolidate the strong and stable macro foundation; have the right strategy in handling the COVID-19 epidemic, and at the same time speed up the vaccination process to return economic and social activities to normal, eliminate disruptions in the supply chain of goods, create labor build confidence and peace of mind of foreign investors.
Fifth, the Government assigned relevant ministries and branches to evaluate the advantages and disadvantages of 8 groups of advantages to attract FDI of Vietnam, thereby promoting the strengths and overcoming the shortcomings to These 8 advantage groups will be more effective in attracting FDI in the coming time. In particular, the Ministry of Industry and Trade needs to specifically assess the advantages, disadvantages and existence of each trade agreement that Vietnam is participating in, from which there are solutions to promote the effectiveness of the agreements and support. of the international community.
Sixth, in order not to disrupt the labor supply chain, the Ministry of Labor, Invalids and Social Affairs coordinated with localities to urgently support vocational training networks, and support businesses in training and recruiting workers meet the needs of the economy, especially the needs of the FDI sector after labor shocks. Besides teaching vocational skills, it is necessary to train to improve labor discipline, soft skills, ability to cooperate and share experiences so that Vietnamese workers have both high vocational skills and professionalism, meet Labor needs of enterprises in the era of industrial revolution 4.0
Automation is the future
According to experts, in the current context, the industrial revolution 4.0 is an inevitable trend with dizzying changes. Therefore, effectively identifying and implementing the 4.0 revolution is important to the success of the new generation FDI attraction strategy in Vietnam.
The report of the International Finance Corporation (IFC) shows that, in order to promote the development of a smart industry, Vietnam needs to develop an effective strategy to attract new-generation FDI, taking advantage of the industrial revolution 4.0 by how to change the way 'things' are made through technology. Basically, the industrial revolution 4.0 will help streamline production more efficiently, and at the same time, open up new business opportunities thanks to a strong focus on connectivity.
After the digitization period in the processing and manufacturing industries, the development will take place stronger in other fields such as computing, wireless connectivity and especially in the ability to analyze and capture economic information. , in addition to emerging new forms of human-machine interaction or more likely to improve the translation of digital instructions into the physical world (such as advanced automation and 3D printing). In fact, new technologies are born and connected to each other, creating conditions for businesses to quickly improve production productivity. Technology and robots are gradually replacing humans in production labor and this is a growth-promoting trend in countries.
For example, Adidas, which is famous for its manufacturing operations, has 90% of its facilities located in Asia. But recently, the CEO of Germany-based Adidas shared: “Adidas plans to increase production fully automated – 'Rapid factories' in Germany and the US will employ people machine that produces sports shoes with soles made with 3D printing technology.” In Vietnam, a research report from the Vietnam Chamber of Commerce and Industry shows that, “coming here, about 5 million workers in the textile, electronics and retail industries will be affected by the development of advanced technology .”
Global FDI movement is highly volatile
According to a report from the International Finance Corporation (IFC), the global movement of FDI (from 2011 to 2016) is highly volatile and accounts for half of the services-based industries. However, in the ASEAN region, new investment projects have not yet joined that flow when the rate of attracting non-service investment is still quite high, mainly still focusing on the textile, garment and machinery industries- industrial equipment, automobiles, motorcycles, electronics, consumer products and food processing and supporting industries (metal materials, plastics, chemicals, packaging).
Therefore, in order to attract the new generation of FDI inflows, IFC experts believe that although capital flows from Japan and Korea are being effectively attracted, in the coming period, it is important for Vietnam to attract foreign investors. attract more investors from the “performance-seeking group” from Europe and the US. This will help diversify FDI sources for high value-added activities, thereby improving and enhancing technology transfer to domestic private economic zones.
Change investment method
In recent times, global outward investment activities are gradually changing in terms of investment methods through value chains. Multinational corporations turn to new methods of FDI investment (such as outsourcing, service outsourcing, agricultural contracting, franchising, licensing and contract management) in search of good business results.
If in the past, multinational corporations made cross-border investments through direct ownership of facilities in foreign countries, now they can be replaced through the method of non-contributing cross-border investment (NEM). and its importance is increasingly recognized. This method allows multinational corporations to coordinate activities in the global value chain by providing support to domestic suppliers, thereby strengthening linkages between Vietnamese suppliers in the value chain. Specifically, the new form of FDI investment will be through commercial contract mechanisms between foreign investors and domestic enterprises, the investments are usually the provision of trademarks, intellectual property rights, know-how. business, technology, skills, or business processes.
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