FDI Capital: A Driving Force to Develop Economy

The report released by the Ministry of Planning and Investment showed that total foreign direct investment (FDI) capital reached US$64 billion in 2008. In 2009, FDI inflows are predicted to drop as a result of global economic crisis. However, many believe that the inflows will surge after global economies revive. According to economic specialists, Vietnam may draw as much as US$600 billion of FDI in the next 10 years. Many market economy researchers recommend Vietnam to set up investment funds to mobilise foreign-sourced capital to serve its economic development.

 

Vietnam’s gross domestic product (GDP) was estimated to reach US$91 billion in 2008 and investments equalled 44.5 per cent of GDP, or US$41 billion (both private and State investments). Presumably, FDI growth is 5 per cent, the domestic total investment value will reach US$500 billion within the next 10 years, including US$250 from private economies.

 

To implement industrialisation and modernisation policies and integrate more deeply into world economies, Vietnam will equitise more than 1,000 State-owned enterprises from now till 2010. Proceeds from share offerings may amount to US$100 billion. At present, Vietnam has more than 300,000 non-state enterprises. By 2020, the country is expected to have 500,000 enterprises and share offering value may reach US$100 billion. Thus, total proceeds from selling State-owned enterprises may hit US$200 billion. According to the current regulations, foreign investors are allowed to keep 49 per cent of joint stock companies. Thus, total FDI capital is estimated at US$600 billion in the next 10 years.

 

Vietnam is expected to need US$1,000 billion in the next 10 years to develop its economy. Domestic investment is estimated to account for 30-40 per cent and the remainders of 60-70 per cent will come from foreign sources. In fact, Vietnam usually lends up to 70-80 per cent of total investment capital for an investment project while its budgets only account for 20-30 per cent. Thus, Vietnam’s own funds will take up US$150 billion out of US$600 billion of FDI capital forecast for the next 10 years. If Vietnam can mobilise US$50-100 billion and invest its own projects, the reliance on foreign-sourced capital will reduce to a considerably safe level. This is within reach of Vietnam.

 

Mr. Bui Kien Thanh, a senior economic and financial specialist, said Vietnam needs to establish investment funds to raise foreign capital for domestic investment which is preferably managed by Vietnam. Foreign investors do not need to implement their projects on their own. Investment funds are the vehicle to satisfy the “passive” investment need of most international investors. However, Vietnam’s legal framework is not enough to protect the rights and interests of investors. Therefore, the investment funds should be established in foreign nations where international laws are accepted. The implementation can be conducted in two phases: Establishing one or more fund management companies in foreign nations, and contracting with foreign professional partners to be consulted and cooperated to set up investment funds, mobilise capital and support management activities. The role of foreign investors is the key. We needs to attract senior financial managers and experienced financiers to push up our plans. Capital contributing investors will base on the reliability, competency, experience and history of managers to decide their investments. At the same time, they also look at advisory boards. Thus, Vietnam needs to gather well-reputed specialists in Vietnam and in the world. For instance, we can invite former presidents of the World Bank and finance Nobel Award winners. To be effectively operated, our fund management companies should coordinate with world-leading fund management companies and investment banks. For Vietnam, it is a hard job to mobilise US$5-10 billion of investment capital a year but the figure is not big in the world financial market. For example, Morgan Stanley or Goldman Sachs can mobilise US$600-700 billion each year. As of the end of 2008, investment funds in the world managed over US$74 trillion. If risk funds, big private asset management funds and independent management funds are included, the figure would reach US$110 trillion. Thus, it is within our each to mobilise US$5-10 billion a year from now to 2020.