FTAs lure foreign investment capital into Vietnam

As of early September this year, the total foreign investment in Vietnam reached US$19.5 billion, down 13.7 percent over the same period last year. However, among 1,797 newly-licensed projects, the registered capital reached $9.7 billion, up 6.6 percent in registered capital over the same period last year. This shows that the new-generation investment attraction policies have been gradually brought into play.
People go shopping at Aeon Mall, a supermarket invested by a Japanese enterprise. (Photo: SGGP)
People go shopping at Aeon Mall, a supermarket invested by a Japanese enterprise. (Photo: SGGP)
The leading foreign investment in Vietnam is still Singapore with total investment capital of $4.6 billion, accounting for 47.2 percent of total newly-registered capital. The runner-up is South Korea with $1.04 billion, accounting for 10.7 percent. The third-place belongs to Chinese investors with $1.02 billion, accounting for 10.5 percent.

However, in comparison with the statistics of the first six months of this year, the position of foreign investors has changed. Except for Singapore, which still maintains the leading position, the second place has belonged to South Korean investors, who previously stood at the fifth place. This shows a strong landing of South Korean enterprises in Vietnam.

Most recently, the People's Committee of Ho Chi Minh City has just submitted an official dispatch to the Government about permitting Samsung to transform its operating model into an export processing enterprise as it has reached an export scale of 90 percent. This transformation will also spur strong investment attraction for the manufacturing and processing industry to Vietnam, especially South Korean enterprises in the global supply chain of Samsung.

From another perspective, many experts said that Vietnam will also welcome a large wave of investment from Japan and Europe. The representative of the Japan External Trade Organization (Jetro) said that the Japanese Government had raised the support package to diversify the supply chain for enterprises in this country to $2.2 billion. The implementation of this support package will accelerate the investment movement of Japanese enterprises to the ASEAN, with a focus on Vietnam. Currently, 3,500 Japanese enterprises are coming to study and have the demand to invest and expand production in Vietnam. Previously, 15 Japanese enterprises adjusted to expand production scale in Vietnam.

Giving a general assessment on the investment environment in Vietnam, Mr. Nicolas Audier, President of the European Chamber of Commerce in Vietnam, affirmed that the free trade agreements (FTAs) that Vietnam has signed with Japan, Europe, and the Eurasian Economic Union are extremely beneficial for FDI capital attraction into Vietnam. Besides, the quick responses, as well as timely solutions to solve difficulties for enterprises amid the Covid-19 pandemic, have increased the confidence index of foreign enterprises in the investment environment of Vietnam. For European businesses alone, the investment and business environment confidence index increased sharply from 27 percentage points in the first quarter of this year to 34 percent in April and has remained stable so far. Currently, more than 30 percent of European enterprises have approached to support policies on tax reduction and land rental costs.

Vietnam rushes to welcome the wave of foreign investment

According to the most recent assessment from the World Bank (WB), Vietnam has advantages to attract foreign investment, including competitive production costs, ideal location in Southeast Asia, strong economic efficiency, and a rapid increase in domestic consumption. Vietnam was ranked at the 70th place out of 190 countries worldwide in ease of doing business in 2020 by the WB. This ranking compared to that in 2019 decreases by a notch, but it is still a significant improvement compared to the 82nd place in 2016.

Moreover, the WB realized that Vietnam had achieved good results in many areas, such as credit granting and paying taxes. This will be the basis for foreign enterprises to choose to invest in Vietnam in the coming time.

To welcome this new investment wave, many provinces have rushed to improve the infrastructure to create the most favorable conditions for FDI enterprises that want to invest in Vietnam. For example, in Ho Chi Minh City, the municipal People's Committee has instructed the HCMC Export Processing and Industrial Zones Authority (Hepza) to review ineffective or delayed investment projects. Thereby, it will withdraw investment licenses and create a land fund ready to allocate to potential investors. On the other hand, the city has also speeded up the construction of export processing zones and industrial zones to welcome investors who need a large land fund. As for export processing zones and industrial zones that have been put into operation but still have the redundant land fund, high-rise factories will be built to serve the number of investors who need a small land fund, suitable for small and medium production scale. 

In Binh Duong, Dong Nai, and Binh Phuoc provinces, with the advantage of a large clean land bank, several industrial parks with complete infrastructure have been built to await investors. Ms. Le Bich Loan, Deputy Head of Saigon Hi-Tech Park, said that in the current context, it is necessary to tighten the conditions to attract investment. Accordingly, authorities must prioritize attracting high-tech investors with research centers capable of spreading, forming, and leading the development of the domestic supply chain. As for investment incentives, such as corporate income tax incentives from 10 percent to 25 percent in up to nine years, and import tariffs on machinery and technology equipment at zero percent, depending on the investment sectors and regions, foreign enterprises are also entitled to many other special preferential policies.

However, the administrative procedure reform is still a stage that needs more effort. According to Mr. Nicolas Audier, it is necessary to concentrate on reducing the number of conditional business sectors, abolishing unnecessary specialized inspection, and removing sub-licenses in business activities. Especially, authorities must be transparent in public investment and reduce inspection activities at enterprises. Moreover, the Vietnamese Government needs to have long-term policies to support enterprises to develop a green economy.

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