FDI Inflow: Highlight in Economic Picture

10:21:34 AM | 1/7/2022

In 2021, foreign direct investment (FDI) attraction was considered a "high spot" in the economic picture, which was heavily stained by the COVID-19 pandemic. This trend is expected to extend in 2022.

Efforts to overcome the pandemic

The fourth outbreak of COVID-19 (from April 27, 2021 to the present) has spread all over the country, especially in provinces and cities with labor-intensive industries such as Bac Ninh, Bac Giang, Ho Chi Minh City, Binh Duong and Dong Nai. Many of them had to adopt prolonged social distancing under Directive 16, forcing many companies, including FDI firms, to scale down their operations. Transportation, supply and distribution systems were congested, production and supply chains were disrupted and a lot of manufacturing orders were canceled and redirected out of the country.

In fact, there were already fears of FDI outflows from Vietnam when the Government and some provinces and cities applied resolute measures to contain the pandemic. However, what has happened so far is showing that Vietnam continues to be the choice of many large investors in the world.

Specifically, the total new, adjusted capital and share purchases by foreign investors reached US$31.15 billion as of December 20, up 9.2% annually, reported the Foreign Investment Agency (FIA).  Among 106 countries and territories investing in Vietnam, Singapore ranked first with over US$10.7 billion, equivalent to 34.4% of the total, followed by the Republic of Korea (RoK) with around US$5 billion and Japan with nearly US$3.9 billion.

Vietnam continued to accommodate large foreign investment projects, including US$1 billion projects invested by LEGO Group in Binh Duong province; an extra investment of US$132 million invested by Nestlé Vietnam Co., Ltd in Dong Nai province, and an additional investment of EUR5 million for a EUR120 million paper box factory invested by Tetra Pak Company in Binh Duong province.

For the first time, Vietnam was included in the top 20 countries attracting the most foreign direct investment (FDI) by the United Nations Conference on Trade and Development (UNCTAD). This is worthy recognition for Vietnam's efforts to contain the COVID-19 pandemic and to improve the investment environment.

According to Deputy Minister of Planning and Investment Nguyen Bich Ngoc, the COVID-19 pandemic also forced Vietnam to perfect its institutions, enhance governance capacity and improve the business investment environment. FDI attraction policies have been increasingly improved; the infrastructure has been increasingly developed and administrative procedures have been further streamlined. These factors have continued to make Vietnam an attractive destination for large businesses to locate their projects such as Samsung, Foxconn, Nike, Adidas, Gap and Levis.

Continued recovery in 2022

Recent moves and many forecasts show that foreign investment inflows will recover in 2020 when the COVID-19 pandemic is better controlled.

According to economic experts, a good foundation in Vietnam's pandemic prevention will boost FDI inflows in the future. In addition, the adoption of Resolution 128/NQ-CP, which changed Vietnam’s strategy from “zero COVID” to “safe, flexible adaptation to and effective control of COVID-19 pandemic”, will be smoother, helping businesses to make a strong recovery, a good signal for foreign investors to place greater trust when they opt for Vietnam as their investment location.

Besides, FDI flows into Vietnam will rebound robustly when Vietnam plans to resume international commercial flights from the beginning of 2022. This will facilitate investors and experts to return to Vietnam and attract more investors in the year. Besides, in the China + 1 diversification strategy, Vietnam is still an attractive destination for foreign companies thanks to its advantages such as competitive labor costs and a big population. Furthermore, advantages from free trade agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU - Vietnam Free Trade Agreement (EVFTA) and Regional Comprehensive Economic Partnership (RCEP) will also be strong. Registered FDI fund in Vietnam is forecast to increase by 9-10% year on year and the disbursed value to rise by 8-9% in 2022.

Also according to remarks from foreign investors such as the American Chamber of Commerce in Vietnam (AmCham), the Thai Chamber of Commerce in Vietnam (ThaiCham), the German Chamber of Commerce or the European Chamber of Commerce in Vietnam (EuroCham), in the long term, businesses still want to invest in Vietnam when COVID-19 is effectively controlled.

It will be difficult to make an accurate forecast on FDI inflows to Vietnam in 2022 when global economic outlooks are uncertain due to COVID-19. Obviously, with the global investment recovery trend, the opportunity for Vietnam is huge. However, according to economic experts, in the coming time, central and local authorities need to carry out some solutions to retain and attract more giant investors.

Accordingly, Vietnam needs to review and keep up with global economic fluctuations; build a competitive advantage in attracting foreign investment in a transparent legal system.

In addition, domestic enterprises must make efforts to improve capacity in all aspects, from technology to capacity and personnel qualifications; prioritize strategic investors; create global production chains; prioritize enterprises using advanced technology and transferring technology to Vietnamese firms.

Last but not least, Vietnam also needs to solve major problems such as further ameliorating the investment environment, preparing investment premises for such as infrastructure, land, energy and institutions.

Given the complicated development of the COVID-19 pandemic and its great impacts on socio-economic life, FDI attraction is an urgent requirement to increase resources for Vietnam’s economic growth and development.

By Thu Ha, Vietnam Business Forum