FDI in Viet Nam

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FDI in Viet Nam
Group 6Vo Viet HoaTa Thi Thanh ThuyTran Dang
Cong KhanhArnauld Jehl
Lecturer Pr. Dr. Michel Henry Bouchet
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Agenda

• FDI Introduction
• The Roles of FDI
• Vietnam FDI Background
• Updated FDI in Vietnam
• Recommendations

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FDI Introduction

• FDI is a source of funding for development, and a
  means of acquiring foreign technology.
• FDI makes transfer of ideas and information to
  receiving countries.
• FDI is a mechanism by which a national economy
  becomes integrated into the international flow of
  goods and services.

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The Roles of FDI

• FDI meets demands for goods and services where
  domestic supplies are weak and underdeveloped.
• FDI can fill gaps and shift the economy's
  productive focus towards comparative advantages.
  
• FDI is an important element of the corporate
  community in Vietnam, and an equally important
  engine of economic growth for the country.

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VIETNAM FDI BACKGROUND

• Launching Doi moi policy in 1986
• Publishing FDI law in 1987
• Period of 1995-1996
• 1997 Asian economic crisis and its effect on FDI
  inflow in Vietnam
• Period of 1999-2003 with signing BTA between
  Vietnam and USA
• Period of 2003 until now Vietnam joining in WTO

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VIETNAM STEPS TOWARD REFORMS

• 1986 launching Doi Moi policy , Vietnams
  transformation from command economy into market
  economy
• 1987 Publishing of Foreign Direct Investment
  (FDI) law with three types of business
• 1- Business cooperation contract
• 2-100 foreign-owned enterprises
• 3- Joint-Venture companies

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1995-1996 FDI IN VIETNAM

• FDI licensed projects valued at 8.6 billion
  Major firms set up in Vietnam Pepsi-Cola,
  Unilever, Proctor and Gamble, IBM
• A lot of new jobs created and the quality of life
  in Vietnam's largest cities visibly increased
• But there were numerous developing problems
• Weakness of domestic banks lack of security for
  foreign lenders
• Lack of a coherent government FDI policy
• - Excessive red tape prevented business
  operations and contract negotiations
• - Starting a business required as many as
  10-20 permits

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1997-1998 FDI REGRESS IN VIETNAM

• The worth of FDI proposed projects fell to 4.6
  billion, down 3.99 billion from the previous
  year.
• Departure of many foreign investors who suffered
  losses because of their overestimating domestic
  demand in Vietnam.
• Reduction of projects financed by biggest
  investors - regional players such as Thailand,
  Japan and Taiwan due to Asian economic crisis

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CAUSES FOR 1997-1998 FDI REGRESS

• Corruption and excessive business "red tape".
• Difficult-to-interpret and ever-changing
  investment legal system.
• Failure of many foreign investor who
  overestimated domestic demand in Vietnam
• ( They got excited about the 80 million
  people in Vietnam and the idea that it was going
  to be the next Asian Tiger but didn't consider
  the per capita GDP gross domestic product was
  around 320)
• Effects of Asian economic crisis.

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1999-2003 FDI IN VIETNAM

• Favorable situation on FDI in Vietnam
• Preparing for the economically liberal Bilateral
  Trade Agreement (BTA) with the United States
• Taking steps to prepare the country for possible
  entry into the World Trade Organization (WTO).
• Vietnams FDI policy step forward
• Party Congress resolution including improvements
  and transparency in FDI law opened medical,
  travel and tourism sectors to foreign investment
• Foreign joint-venture partners could buy out
  local partners. Two major companies took
  advantage of the new law, Colgate-Palmolive and
  Coca-Cola

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UPDATED FDI IN VIETNAM

• Total FDI capital in last four months has reached
  almost 7.6 billion USD (41 year on year)
• Decrease 64 in projects, but increase 43
  growth in investment capital
• Projects granted investment licenses 210
• The most attractive investment fields
• real-estates development and tourism development

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UPDATED FDI IN VIETNAM (cont.)

• Foreign-invested enterprises were expected to
  post revenue of 7.6 billion USD till the end of
  March, an increase of 27 year-on-year, the
  sector remitted 355 million to the State budget
  (19).
• In Quarter 1, earned US5.4 billion from exports
  (20) and imported US6.1 billion worth of
  products (39)
• Total number of workers employed by
  foreign-invested firms rising 13 to 1.17 million
• The US has topped the list of 82 countries
  investing in VN during the first two months of
  this year with 1.3 billion USD, accounting for
  25 capital investment

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UPDATED FDI IN VIETNAM (cont.)

• For 20 years, Viet Nam has licensed over 9,500
  foreign-invested projects, capitalised at around
  98 billion USD, since 1987 when the Law on
  Foreign Investment was promulgated.
• A 10 billion USD project on Phu Quoc island has
  received the approval and will be licensed this
  year (financed by groups of US and Canadian
  investors)
• ? will become the biggest FDI projects
• Another 4 bil project will be licensed this
  month in tourism service in Vung Tau

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Relation between FDI and GDP in Vietnam (from
2003)
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FDI INFLOW IN VIETNAM
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Vietnam FDI Capital FY2007 classified by
industrial segments
FDI in Vietnam by Sector
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Top Ten FDI by provinces Jan-Apr 08
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FDI Capital by provinces of Vietnam
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Top Ten FDI by country FROM JAN - MAR08
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FDI Mechanism in Vietnam
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Contribution of FDI for Vietnams Economy

• Foreign-invested enterprises share in industrial
  production value 25 in 1995 ? 36.4 in 2006 ?
  43.8 in 2007.
• Involved in almost all industrial areas,
  producing
• 63 of the national motorised vehicle output
• 60 of rolled steel output
• 76 of precision medical equipment output
• 55 of fibre and 49 of leather shoes.
• Helped push up industrial exports
• Industrial products made up 74.4 of exports in
  2007 (only 18.7 in 1985)
• Now Vietnam export to over 100 countries
• Force domestic players accelerate their
  restructuring and reform (particularly in
  technology)
• Trained skilled workers

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Shortcoming in attracting FDI in Vietnam

• Slow increase in the disbursement rate
• Small investment amounts in the agro-forestry and
  fisheries sector
• The limited supply of materials to
  foreign-investment businesses
• Others difficulties and challenges
• Poor infrastructure
• Lack of skilled labourers
• Cumbersome administrative procedures

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Vietnam Governments Efforts

• Perfect the legal system
• Promote administrative reform
• Maintain the socio-political stability
• Increase personnel training quality
• Promptly establish investment promotion sections
  in key areas

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POTENTIAL

• The private sector in Vietnam plays a key role in
  the national economy (40 GDP annually) offering
  attractive and profitable business for foreign
  investors
• Most enterprises expressed their optimism about
  investment prospects in Vietnam (Source IFCs
  survey on the business environment in 2007)
• Becoming membership of the WTO and non-permanent
  membership of the UN Security Council, Vietnam
  has raised its profile and role in the
  international arena
• ? an attractive destination for foreign
  investors
• UNCTAD placed Vietnam sixth in the list of 141
  surveyed economies for investment prospects, just
  behind China, India, the US, Russia and Brazil

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Recommendations

• Improve quality of economic governance
• Continue to adjust the legal system
• Create a more transparent investment environment
• Strengthen intellectual property protection
• Eliminate all discriminations
• Carry out administrative reforms in customs,
  taxation and land Fair treatment between
  domestic enterprises and FDIs
• Speed up infrastructure construction especially
  under seaport and energy projects

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Recommendations

• Set up the information channels between investors
  and the governments (both general and local)
• Improve the skills of workers and the level of
  social welfare
• Focus on sectors and goods with competitive
  advantage such as agriculture
• Priorities will be given to investors in high
  technology industries, subsidiary industry and
  projects using sourced technology and technology
  transfer

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Thank you for listening