It can be considered that with developing and undeveloped countries, the term “Foreign Direct Investment (FDI)” is rather familiar. In simple way of understanding, FDI is possibly referred as a kind of venture capital investment in form of “a cross-border corporate governance mechanism through which a company obtains productive assets in another country” (Nifty Live Charts, 2009). From 1980s, FDI played an important role in the restructuring process of Vietnamese economy from a planned to a progressively market-driven economy (Kokko, Kotoglou and Karlsson, 2003). That is an essential participation in transforming Vietnam from undeveloped to developing country which has a growth potential and dynamic market, ranked as third for investment attraction of Asian countries.
As reported by Ministry of Planning and Investment Portal of Vietnam on 24 February, the FDI inflow is on its upward trend in spite of some economic problem caused by inflations and postponed projects. On 25 February, executive board of Phu Yen province officially sent document to the government asking to cancel $250 billion project of Sama Dubai. The project was approved in 2008, but until this time, it has not been started. This is because Sama Dubai had significantly suffered loss from economic crisis. This project was measured as a very big development aiming at transforming part of Phu Yen to modern city which was forecasted to surpass Hong Kong. The focus on this scheme caused 17% decrease in FDI attraction in 2010, compared to previous year’s.
In this year, within the first 2 months, the FDI fund of $1.15 billion was invested in 93 new projects. It is 4.5% higher than the spending in same period last year. According to analysis of FIA, Vietnam probably attracts $11-12.5 billion in 2011, compared to around $11 billion in previous year. Additionally, there are 80 typical FDI companies, such as Coca-Cola, ANZ, Ford, Toyota, Mercedes-Benz and so on, achieving 2010’s Rong Vang award for contributing around 26% to total FDI fund and 50% ($38.8 billion) to total export turnover in 2010. This might be a good sign of the development of Vietnamese economy. However, there are some existing limitations, which should be eliminated, causing hesitation of foreign investors when establishing in Vietnam. First of all, it is not easy to assess as well as estimate the growth of Vietnam because of lack of reliable data and information. This concerns with traditional behaviours of keeping everything in secret. The related data and information are rarely released to public. Moreover, when it comes to private discussion, actual situation is not totally disclosed. Like profit making businesses, authorities prefer reporting good news. And, as mentioned above, Vietnam has dynamic market, but moderately unstable. It means that investors can face many unexpected risks resulting in huge loss. Therefore, it is government’s role to make suitable and efficient long-term plans, policies and actions to stabilize the economy. Vietnam has advantage in this because it has only one Party in charge.
Many typical FDI companies invest to Vietnam start from 1980s. However, there is reducing FDI in Vietnam due to Vietnam regulation. It led investors lose confidence because Vietnam’s government poor control of economy.
ReplyDeleteSo, how can Vietnam maintain their competitive (attract FDI to Vietnam) when compare with China and India which have rich natural resources (low cost labour, the biggest population in the world, etc) and with open policy?
Very recent shows that Vietnam are facing difficulties supplying electricity. With the electricity outages currently in Vietnam and severe out power cuts, do you think that will discourage foreign manufacturers from using Vietnam as an export base? Plus, with blackouts affecting 91 million people nowadays, and the record 15% increase in cost starting next month, do you think foreign investors would be discouraged to invest in Vietnam in the long-term?
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ReplyDeleteThanks for your comments..
ReplyDelete@Lui Cheung: As far as I know personally, Vietnam always gives priorities to foreign investors. Your information about Vietnam's regulation causing decline in FDI is new to me. Can you make it more specific, please?..In actual, I think the problems are weakness in management and traditional behaviors. Like China and India, Vietnam also has low cost labors, but I do agree with you that China and India are still dominant in this.
@Mohamed: The problems of electricity and blackouts are not instant and recently happened. Authorities always say (on news) that they were trying to eliminate the problems, but the problems haven't been completely solved out yet. Despite the problems over the last few years, investment activities in Vietnam has increased gradually (as shown in UNCTAD and World Bank's reports). I think reversely, this might be a good chance for investors to focus on building nuclear power station in Vietnam (maybe..I'm not sure 'coz now government is monopoly). About the increase in costs, this is really a matter for businesses now. In long-term, I cannot foresee what will happen, but I feel quite negative (but (again but), I hope it's not..:D)
What I mean “reducing FDI in Vietnam due to Vietnam regulation” is Vietnam’s government is set to raise electricity price by 15%, the retail prices of oil products by 24% despite inflation woes. (BBC, 2011) Even the population struggling with a cost of living, they still set to do it. Vietnam government increases the cost of energy that necessary for population. It results the inflation getting worse and economy has started overheating. It caused a sell-off in Vietnam markets.
ReplyDeleteThat’s the reason why investors lose confidence in Vietnam markets and reduce FDI in Vietnam.