|Activities of an FDI enterprise in Tan Thuan Export Processing Zone, HCM City. Photo: VNA|
Advantages thanks to the position of logistics center in Southeast Asia
A report from the United Nations Conference on Trade and Development (UNCTAD) found that the competition among developing countries in attracting FDI would be fierce, especially in the context that FDI inflows were forecast to decrease in 2023 while the need to attract investment capital for the post-Covid-19 recovery and development period was high.
This context poses many challenges for Vietnam, but, the pressures also push the management to innovate thinking, and create visions, thereby opening up new opportunities and dynamics in development cooperation.
The report also showed that global FDI flows tend to focus on the fields such as high technology, innovation, research and development, green economy, digital economy, circular economy, and clean energy.
These are also the areas that Vietnam is giving priority to attracting foreign investment and giving many incentives and investment support, thereby opening up many opportunities for cooperation and development for foreign investors in Vietnam.
Assessing the change in investment trends in Vietnam by foreign investors, Do Van Su, Deputy Director of the Foreign Investment Department (Ministry of Planning and Investment), affirmed that the shift from China to Vietnam is true but not that investors leave China to go to Vietnam or Southeast Asia, in fact, they still invest in China, but share some to Vietnam and some Southeast Asian countries. According to estimates, international organisations’ survey results showed that up to 64% of investors when expanding their investment thought of Southeast Asia and more than half of this considered Vietnam. Vietnam has a great advantage thanks to the position of the logistics center of Southeast Asia, located right next to China and connecting quickly and conveniently with this nation.
Regarding the number of projects, FDI into Vietnam has not slowed down or decreased but even increased. In 2021 this number increased by 16%, 17% in 2022, and 19% in the first three months of the year. On average, an FDI project in Vietnam is estimated at US$ 15 to 16 million. However, to increase the total scale of FDI in Vietnam quickly, huge projects of billions of USD or more are needed.
“Thus, the decrease in FDI into Vietnam is due to the absence of ‘eagle’ investors. First, they are affected by the impact of the global minimum tax, large corporations are mainly affected by those taxes, global investors are reviewing the impact from tax collection countries and investment countries. The Prime Minister has officially assigned the Ministry of Finance to review tax policies while the Ministry of Planning and Investment presides over policies on supporting investors, and increasing new investment. After about two months, solutions will be completed to ensure maximum investment promotion. Second, an important factor affecting investment in Vietnam is the devaluation of the local currency. At the end of 2022, against the USD, the Japanese yen depreciated 27%, the Korean won depreciated 22%. With such a decline in the exchange rate, it is not surprising that even though investors have no intention of cutting back, their investment has actually decreased if measured by the rate of currency decline as above. Therefore, investors will delay new investment projects,” said the Deputy Director of the Foreign Investment Department.
Investment environment is still key
In recent years, many multinational corporations and enterprises with large FDI capital have invested in large-scale projects with modern technology and increasing quality and efficiency, contributing to turning Vietnam into a production base for many important economic sectors and fields, especially the electronics industry, and simultaneously, bringing Vietnam up the ladder of the global value chain. Therefore, despite the decline in global economic growth and Vietnam’s economy facing many difficulties, foreign investors still consider Vietnam a potential investment market in both the immediate and long term.
JETRO’s most recent survey with Japanese investors in Vietnam showed that 60% of enterprises said they would expand their business in Vietnam in the next 1-2 years, this was the highest rate in ASEAN. Another recent survey of EuroCham also showed that European investors ranked Vietnam in the top five global investment destinations, with 41% of respondents saying that they were moving their operations abroad to Vietnam.
Assessing the potential investment environment with many opportunities in Vietnam, Furusawa Yasuyuki, a member of the Executive Board of AEON Group (Japan) in charge of the Vietnamese market, cum General Director of AEON Vietnam, said that many Japanese businesses wanted to invest in Vietnam. AEON researched and found that the Vietnamese market has been in a period of great development with factors similar to the rapid development period of Japan.
Identifying Vietnam as the second key market next to Japan to accelerate investment activities, AEON Group is making efforts to become a familiar brand to Vietnamese people – “a Vietnamese enterprise serving Vietnamese people” and contribute to the development of the country.
Currently, 90% of products in the retail system in the AEON Vietnam system are domestic products. Moreover, the total value of Vietnam’s product exports through AEON’s retail system to Japan and other countries (from 2017 to 2022) reached more than US$2 billion. In addition to agricultural and food products, AEON also exports a variety of fashion, household, and health and beauty care products made in Vietnam to Japan and other countries.
Sharing the development plan for the next 3-5 years, Furusawa said that AEON Vietnam would continuously focus on opening large-scale shopping malls and new stores, bringing quality products and services to locals. To accelerate investment expansion in Vietnam, Furusawa wished that investment-related procedures could be simplified. In particular, the coordination and quick decision-making from local authorities plays an important role in the investment implementation process.
According to Vietnam Association of Foreign-Invested Enterprises (VAFIE) chairman Nguyen Mai, Vietnam is facing two challenges. Firstly, Vietnam needs to clearly understand the factors that are hindering investors, understand the disadvantages of the investment environment, and drastically improve these factors. As policy legislation and policy enforcement are decisive for investment, Vietnam needs to act more slowly to address these issues.
Secondly, the issue of investment procedures also needs to be resolved soon, this factor causes much frustration. Vietnam has talked a lot about digital Government and e-Government, but the administrative system is still cumbersome and has many procedures. Additionally, it is necessary to improve the quality of human resources that can best support foreign enterprises.