Last updated: Thursday, May 23, 2013
Two-Sided FDI PicturePosted: Tuesday, January 03, 2012
The dominant mood regarding foreign direct investment (FDI) may be gloomy in the context of the globally decreasing FDI, however it is also dotted with bright spots.
Vietnam has failed to realise the target of attracting US$20 billion of FDI in 2011. As of November, only 919 projects had been licensed and 324 projects registered to increase investment; the total investment of those had reached US$12.69 billion, down 16 percent against the same period last year. However, the disbursement amount of FDI had not been reduced, and the FDI flow does not only concentrate on the real estate market, but also on other industries, including: production, processing, construction, production and distribution of electricity, and water supply, and it shows a sustainable tendency for FDI and Vietnam’s economy.
Gloomy real estate
For many years, the real estate market has absorbed a huge amount of FDI and frequently taken the lead, however this amount became very low compared to other industries last year. In the first eleven months of 2011, the total amount of newly registered and raised-capital FDI projects only attained US$464.13 million and stood the fourth place among industries possessing the highest FDI investment in Vietnam; the three other industries reaching over US$1 billion of FDI are: processing, production and distribution of electricity, and construction.
It seems to be the fast change, because only two or three years ago, FDI flow in real estate still dominated. In 2008, the amount of FDI flowing to real estate market reached a peak of over US$23 billion. Even during the economic turmoil in 2010, real estate still was the most attractive sector, absorbing nearly US$6.84 billion in FDI. Since the beginning of 2011, because of the sudden decrease of FDI into this sector, the situation has completely turned upside down, making market difficulties much worse.
As a result of global economic turmoil, particularly the breakdown of the investment and real estate markets, as well as difficulties specific to Vietnam such as high inflation and limited liquidity because of the State credit squeezing policy, the situation rapidly reversed itself.
In fact, the real estate market has been cooling down for a long time; the apartment segment, especially luxury apartments, has been frozen and deeply devaluated. Practically, in some big cities such as Ho Chi Minh City and Hanoi, some investors have recently dropped prices of apartments for sale or offices for rent, and many investment projects have been delayed, halting construction. This development has dampened investor activity in this sector.
More capital into production
According to the analysis of newly registered and raised capital projects, there are some positive outlooks in the picture of attracting FDI in Vietnam. Registered capital has been enhanced 50 percent compared to the same period last year. Although this new registered figure did not reach the target, capital flow, which is disbursed into production, has indicated sustainable development. Specifically for investors, the industries of processing and manufacturing are the most attractive, with 382 newly registered projects. Total newly registered capital and increased capital hit US$6.24 billion, 49.1 percent compared to the first eleven months of 2011. In second place, the power production and distribution industry attracted total newly registered and increased capital of US$2.53 billion, holding 20 percent of total investment capital. The amount of newly registered capital and increased capital in 119 new investment projects of the construction industry, which accounts for US$1.19 billion and holds 9.4 percent of total investment capital, stands in third place. In the next position, the amount newly registered capital and increased capital in the real estate industry is US$464.13 million, 3.7 percent of total investment capital.
Therefore, the registered capital figure has strongly reduced compared to 2010, but FDI projects are expected to disburse more than US$10 billion, about 2 percent higher than last year. This indicates that FDI has been disbursed in a good direction and become more and more useful.
Concerning the decline of FDI registered capital, many people have questioned whether Vietnam’s investment environment has become less attractive than before due to limited infrastructure and labour force quality. However, newly registered projects show that many foreign investors are interested in Vietnam’s investment environment. In several hi-technology sectors, such as manufacturing solar cells, Japanese investors are quite interested in supporting industrial sectors and infrastructure. Therefore it can be confirmed that the Vietnam investment environment is still attractive to investors.
Recently the Prime Minister issued Directive 1617/CT-TTg on enhancing performance and improving FDI management. The Foreign Investment Agency (FIA) will examine FDI projects related real estate. According to them, if there is any project that does not satisfy requirements or is unprofitable, its investment license will be withdrawn or FIA will ask relevant organisations to intervene. As for projects that have not been implemented due to proper reasons of investors, the authorities will consider and find a way to solve problems. Moreover, to ensure energy security, FIA will develop a plan reviewing FDI projects related to sectors of steel or cement, and consider corrective measures, because they are projects requiring a lot of energy.
All those moves show that the Government’s orientation is towards attracting FDI for sustainable development, giving priority to investors with real potential, to projects of production sectors using high technology. In 2012, Vietnam aims to attract FDI of about US$17 billion.