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FOREIGN DIRECT INVESTMENT (FDI) TO VIETNAM: CURRENT SITUATION
AND FORECAST
Phung The Hung, teacher Trade union university (Vietnam, Hanoi)
DOI 10.24411/2411 -0450-2018-10098
Abstract. The passing of foreign investment law in 12/1987 have created a legal constrain which enables foreign investing in Vietnam. After 30 years, Foreign investment in general and foreign direct investment in particular have shown an active role in Vietnam's economic and social growth and development. Specifically: Foreign investment contributes to boosting economic growth, improving the efficiency of using domestic investment resources; Foreign investment promotes economic restructuring in the direction of industrialization and modernization; Foreign investment creates jobs, enhances the quality of human resources and changes the structure of labor.
In this article, we assess the activities of attracting foreign direct investment (FDI) in Vietnam, the forecast of Vietnam's FDI from 2018-2020, to attract and use effectively FDI capital in the coming time.
Keywords: foreign investment, foreign direct investment, economic growth, economic development, economic integration, forecast, ARIMA model.
Law on foreign investment in Vietnam brief
Law on foreign investment in Vietnam was first passed on in 1987, 32 years of attracting FDI along with 3 decades of modernizing Vietnamese economics. For the past 30 years, FDI has been an essential contribution to some of the nation's achievements. For example: FDI has made up 22-25% total social investment capital from 1991 to 2017 (27 years), total investment reaches around $161 billion, FDI accounts of 50% gross value of industrial production, FDI created a shift in social occupation, making the industrial and service sector increase in economy's structure, FDI has also created 3.7 million direct and other several million indirect jobs, through which has created a labour force of skilled workers, including trained workers, industrial engineers, service experts, business
administers; increase Vietnamese's workers competitiveness, aiding the transformation of low incoming workers to modern skilful workers with higher income. Moreover, FDI created new means of production, means of distribution and means of consumption in modern society. However, there are issues yet to be solved such as environment pollution, unsuitable forms of FDI, transferring technology through FDI haven't reached target.
1. The current FDI situation in Vietnam
To understand the multi-dimensional view on FDI Vietnam for the past years, it is necessary to analyse the attraction and usage of FDI under different aspects and criteria such as scale of investment, investment sector, investment partner.
Scale of investment
Table 1. Scale of direct investment in Vietnam between 2006-2017 Source: General Statistic Office of Vietnam
Year Number of project Registered capital (million USD) Realized capital (million USD)
2006 987 12004,0 4100,1
2007 1544 21347,8 8030,0
2008 1557 71726,0 11500,0
2009 1208 23107,3 10000,0
2010 1237 19886.8 11000.3
2011 1186 15598.1 11000.1
2012 1287 16348 10046.6
2013 1530 22352.2 11500
2014 1843 21921.7 12500
2015 2120 24115 14500
2016 2503 26890.5 15800
2017 2591 35883.9 17500
40000 35000 30000 25000 20000 15000 10000 5000 0
^ ^ ^ ¿V ^
I Number of investment projects
i Total registered capital
(Million USD)
Total realized capital
(Million USD)
Figure 1. Scale of Vietnam's FDI between 2006-2017
FDI to Vietnam between 2006-2017 can be divided into different periods as follow:
During 2006-2008, registered FDI is high, absolute disburse value is also high but the disburse value to registered FDI ratio is significantly low (25%). This is due to during 2000-2005, Vietnam prioritize highly on attracting FDI and open, integrating economy policies, FDI mainly flowed in commerce, light industries sector. Also during this time, Vietnam became a member of WTO, registered capital increase but mainly focus on industries such as cement, steel, prolong the project execution, slow disburse rate.
During 2008-2010, since the invest-business environment had been improved, legal constrain for investing was aligned with international laws, investment from Korea, America, Japan began flooded the economy, making registered FDI significantly high although disburse rate was dramatically slow.
During 2009-2010, FDI flows into Vietnam were also influenced by the global financial crisis.
During 2011-2015: In 2011, there are 1186 new projects with the total registered capital of $15.589 million (decreased by 21.57% in comparison with 2010). FDI decreased due to global financial crisis, investors lost faith, in-
flation and first-hand expenses increased, land clearance process came across numerous difficulties. From 2012 to 2015, FDI and total registered capital tended to increase.
In 2016, with a number of Free Trade Agreement (FTA) in power, FDI rose. The total value of new projects, supplementary capital, capital contribution, buying shares throughout the year reached $24.3 billion, 7.1% higher than 2015. Noticeably, disburse FDI in 2016 reached $15.8 billion, increase by 9% in compared with 2015, the highest disburse rate thus far.
2017 marks a meaning milestone - 30 years of foreign investment in Vietnam. During the first 11 months, gross FDI newly registered, supplementary and contributed capi-
Although foreign investment to Vietnam increase dramatically and there are more countries willing to invest, according to foreign investment report in 2017 by Foreign Investment Agency, Minister of Planning and Investment, up until the end of 2017 there are 115 countries and territories have invested businesses in Vietnam. However, there are only a few countries with large cashflows: number 1 is Korea with total registered capital of $57.659,54 million, accounts towards 18,27% total registered capital, followed by
tal, shares buying reached $33.09 billion, 82.8% higher than the same period of 2016. The highlight is the disbursed value was about $16 billion and projected to reach $17.5-18 billion after December, increased by 12-15% in comparison with 2016.
However, capital investing unevenly, mainly focus on some sectors: inventing and processing industry earns the highest attention from foreign investors with the total capital of $186.127,82 million, accounts of 58,4% total registered capital, followed by real estate sector with $53.164,71 million, equivalent to 16,7% total registered capital; while electricity production and distribution stands third with $20.820,87 million, which is roughly 6,53% (Table 1).
Japan with $9.463,37 million registered capital, 15.67% of total foreign investment; Singapore and Taiwan lie in 3rd and 4th place with $43.230 million and $30.911,72 million, which are equivalent to 13.38% and 9.79% total registered capital respectively. So the top 4 countries with the highest FDI in Vietnam have made up 57.11% of total registered capital.
2. The limits of FDI attraction between 2006-2017
Table 2. FDI in Vietnam in sectors (Accumulated all projects in effect up until 31/12/2017)
№ Sectors Number of projects Registered FDI (in million USD)
1 Inventing, processing industry 12,456 186,127.82
2 Real estate 635 53,164.71
3 Production, distribution of electricity, water 115 20,820.87
4 Accommodation and dining 639 12,008.97
5 Construction 1,478 10,729.10
6 Resale, wholesale, repairing vehicles 2,790 6,186.38
7 Mining 104 4,914.15
8 Transportation, warehousing 665 4,625.20
9 Agriculture, forestry and sea products 511 3,518.96
10 Media and information 1,648 3,334.13
11 Science and technology 2,466 3,085.92
12 Art, entertainment 131 2,780.18
13 Water supply and waste treatment 67 2,019.01
14 Medical and social aid 134 1,865.15
15 Finance, banking and insurance 81 1,498.36
16 Education 374 758.95
17 Others 151 749.88
18 Administration and supporting activities 298 526.94
19 Household aid employment 5 7.94
Total 24,748 318,722.62
First, legal and policies were not suitable with strategic global economy integration, lack of support for long term FDI attraction. For the past 3 decades, impressive FDI attention rate has contributed dramatically to the overall economy growth. However, attracting generic FDI, prioritizing quantity while not achieving the required targets for job making, foreign invested hi-tech companies so as to create added value for domestic products and expect to revolutionise technologies in production and agriculture - forestry - seafood sector.
Second, FDI attracting policies currently have too many endowments stated in different legal publication, making it very troublesome for governmental agency to control. On the other hand, these endowments with loose regulations, making holes for dishonest investor to take advantage of. The majority of endowments are tax-related, while other encouragement methods such as training workers, industrial link, supply chain, ... are lacking.
Third, hierarchical controlling system to license and endow investment does not work effectively as it should. The purpose of hierar-chizing is to reduce time wasting on getting licensing documents and encourage, attracting new investment to local.
Forth, the current policies and regime do not have the necessary support for linking and
transferring local technology to advanced foreign technology. Survey has shown that 80% foreign invested businesses using mediocre technology, only 5% using high tech, 15% using old, not environmental-friendly technology. Moreover, around 80% business investing in Vietnam has 100% foreign capital - this is a closed format, meaning there is no technology transferring, according to World Economic Forum (2017), effectiveness of FDI to technology transfer is astonishingly low and tend to be left behind by other nations in the region. In particular, in 2009, Vietnam was ranked 57th global on this index, but until 2017, Vietnam was descended to 89th, decreased by 32 positions after 8 years, a much lower positions than other countries in the region such as Singapore (2nd), Malaysia (13th), Taiwan (35th), Thailand (40th), Indonesia (44th), Cambodia (54th), the Philippines
(63rd).
Fifth, post-investment supervising is an important factor in attracting new projects, utilizing the most out of positive impact of FDI on the economy. However, supervising in Vietnam isn't properly executed. This is because current regulations on the role and position of the doers are in short, legal constrain is loose, not aligned.
3. FDI to Vietnam prediction based on ARIMA model.
Null Hypothesis: TRC has a unit root Exogenous: Constant
Lag Length: 2 (Automatic - based on SIC, maxlag=2)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -4.880326 0.0055
Test critical values: 1% level -4.420595
5% level -3.259808
10% level -2.771129
Null Hypothesis: TRC has a unit root
Exogenous: Constant
Lag Length: 2 (Automatic - based on SIC, maxlag=2)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -4.880326 0.0055 Test critical values: 1% level -4.420595
5% level -3.259808
10% level -2.771129
Based on the results collected, the author concluded that FDI flows to Vietnam data series from
Sample: 2006 2020 Included observations: 12
Autocorrelation Partial Correlation AC PAC Q-Stat Prob
i ] i i ] 1 1 0.060 0.060 0.0548 0.815
i 1= i i 1= 1 2 -0.221 -0.226 0.8772 0.645
i m i i m 1 3 -0.313 -0.299 2.7044 0.439
i [ i i C 1 4 -0.081 -0.124 2.8434 0.584
i i 1 c 1 5 0.024 -0.129 2.8569 0.722
i [ i 1 1= 1 6 -0.091 -0.281 3.0865 0.798
i i 1 c 1 7 -0.017 -0.169 3.0960 0.876
i 1 i 1 c 1 8 0.039 -0.161 3.1586 0.924
i □ i 1 1 1 9 0.166 -0.046 4.7036 0.859
i i 1 c 1 10 -0.021 -0.192 4.7393 0.908
i i i 1 c 1 11 -0.045 -0.131 5.0774 0.927
2006-2017 is a stopping data series. Defining data series correlations Defining variables
Dependent Variable: D(TRC) Method: Least Squares Sample (adjusted): 2011 2017 Included observations: 7 after adjustments Convergence achieved after 15 iterations
Variable Coefficient Std. Error t-Statistic Prob.
C 2421.281 1648.690 1.468609 0.2159
AR(4) -0.085761 0.122952 -0.697520 0.5239
MA(2) -0.999746 0.125768 -7.949097 0.0014
R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)
0.847455
0.771183
4865.901
94707973
-67.40396
11.11090
0.023270
Mean dependent var 2379.586 S.D. dependent var 10172.29 Akaike info criterion 20.11542 Schwarz criterion 20.09224 Hannan-Quinn criter. 19.82890 Durbin-Watson stat 1.849066
Inverted AR Roots .38-.38i .38-.38i Inverted MA Roots 1.00 -1.00
-.38+.38i -.38+.38i
Forecasted registered FDI to Vietnam 2018-2020 as follow: Forecasted FDI results in year time
(=) Equation: UNTITLED Workfile: FOCAST::l\ _ n X
| View | Proc | Object | | Print | Name | Freeze | | Estimate | Forecast j Stats | Resids |
- TRCF ----±2 S.E.
Therefore, according to ARIMA forecasting model, Vietnam's FDI in the next 3 years are:
[~G"| Group: UNTITLED Workfile: FOCAST::l\
View Proc Object
Print Name
Freeze
Default
TRC TRCF
TRC TRCF
2006 2006 12004.00 12004 00
2007 2007 21347.80 21347.80
2008 2008 71726.00 71726.00
2009 2009 23107.30 23107.30
2010 2010 19226.80 19226.80
2011 2011 1559100 1559.100
2012 2012 16348.00 16348.00
2013 2013 22352.20 22352.20
2014 2014 21921.70 21921.70
2015 2015 24115.00 24115.00
2016 2016 26890.50 26890.50
2017 2017 35883.90 35883.90
2018 2018 NA 38542.67
2019 2019 NA 40983.21
2020 2020 NA 43374 11
FDI 2018: $38542.67Million FDI 2019: $40983.21Million FDI 2020: $43374.11Million
4. Solution to increase FDI attraction
First, focus on completing the necessary legal system and suitable policies aligned with the required integrating global economy, making a more business-friendly environment, attracting multi local and global economy-resources for investing and development. Develop evenly and manage effectively all types of sectors (Real estate, capital, service, labour, science and technology, ...)
Devise strategies plans to attract and use FDI scientifically and effectively. Make it easier for investor to execute the projects after getting licensed, bringing out the best for both parties.
Orient to develop specialized industrial zone, not generic industrial zone as currently.
Devise strategy to move investment from service and technology sector to those with added value such as supportive technology, production technology, facility development and financial market. Encourage, facilitate FDI projects with linkage to local business because only through this should local business get access to the latest technology and business understanding and eventually master them.
Continue improving administration process for single-door mechanism in processing investing procedure. Raising officials' exper-
tise to follow Law on Investing and new regulations on hierarchical FDI investment management.
Complete legal system related to investing towards consistency, public, transparent, predictive, making it easier for investors and increase competitiveness with other nations in the region.
Ensuring economic and political stability for investor's business activities.
Minimize administration process, eliminate totally those unnecessary, reduce licensing time, helping business to execute project plans as quick as possible.
Concentrate on developing facility and social infrastructure evenly. In addition, training programmes should be created to meet the latest requirements.
Second, promoting effective and reasonable investment
Avoid trend, without focus and unhealthy competition between local areas.Promote investing with focus and visible effectivenessto the overall economy growth. This can be done through extensive economy, market research at universities and governmental institutions.
Third, local authorities should proactively produce new methods of attracting new investors.
Apart fromprovide the support needed for investors to solve necessary administration document and struggles during business activities, local authorities should be well-aware of the regional potential and seek out investors based on these potentials. Methods may vary from making portfolios, hosting Investment conference for local and global investors to invite high-profile politicians and businessmen into the area for realistic on the field experience, create lasting impression for potential investors.
Forth, increase investigations on FDI businesses' activities.
Increase in investigation rate at FDI businesses and heavily punish those that produce environmental risk; use old, rusty technology; working with each other to transfer price, fix price, evade tax; treat their employees harshly; deny, avoid paying debt, ... In order to do so, law enforcers with expertise and quality must be built, equipped with the latest
technology to detect derogation, from which evidently punish violators.
5. Conclusion and recommendations
5.1 Conclusion
FDI has been a major factor in Vietnam's economic since it has contributed highly to the processing and inventing, real estate, production, water, electricity supply sectors, increase Vietnam's overall GDP.
FDI has supplied the necessary capital for development, help increasing productivity, upgrading technology, lifting business management level, raising turn-over rate and alter exporting structures, generate more cashflows for the treasury, create jobs and improve labour skill cap. In addition, FDI has also bene impactful in other sections of the economy, inspiring local investment, shifting economy structure, reforming business, modernizing administration process, promoting integration into global economy.
FDI activities for the past few years have also shown a number of downsides. FDI projects' qualities are, in short, not high, the number of projects utilizing high-tech is limited, low added value, investment in chain production by multi-national corporation is very much in need. Some FDI businesses use low-level technology, polluting environment, while some businesses show signs of tax, debt evasion, producing loss for the treasury.
Based on the statistical analysis above, author pointed out that during 2006-2017, FDI stream to Vietnam fluctuated but generally increases over time. However, to attract and increase the rate of disburse to registered capital, solutions mentioned above should be rigorously followed to maintain stable, manage and use investment the most effectively.
5.2 . Recommendation
5.2.1 For the government
- Continue checking legal publications on investment, business to make changes to inconsistent contents, while adding new ones and discarding investing endowment eligibility conditions that doesn't align with Vietnam and WTO's mutual commitment.
- Continue improving effectiveness in preventing corruption, negativity and harassment towards foreign investors. Dignify personal responsibility in job procedure, start saving, avoid wasting in governmental offices.
- Execute properly the making of a foreign 5.2.2 For the ministry of planning investment information managing system ac- and investment
cording to Government decree number - Research, propose new policies to en-
43/2008/QB-TTg date 24/5/2008 by the courage, attract multi-national corporations. Prime Minister, ensuring information needed There should be distinguished policies for for management. each corporates and key partners such as EU
- Maintaining the current communication members, America, Japan.
mechanism between the government officials, - Boost the speed of construction and ap-
the ministries and investors, especially the proving projects in need, check up and sup-Annual Business Forum to deal with any plement, adjust laggard behind projects, mak-struggles, difficulties with legal procedures ing it easier for investors to plan and execute and policies in time, helping them construct- new ones.
ing and putting business projects into action - Agreeing and act accordingly new regu-
on schedule and efficiently, nurturing inves- lations of Law of investment in planning, en-tor's faith in Vietnam's business environ- suring that new planning on divisions, sec-ment, making positive impact on new inves- tors, products suitable with international tors. commitments.
Reference
1. Hoa Nguyen (2017), Tângdônggôpcûa FDI vàonênkinhtê (Increase FDI contribution to the economy), Magazine of Commerce, published 15/12/2017.
2. Minh Minh (2017), 30 namthuhut FDI vàoViêt Nam: Buacnhiêuhanmât (30 years attracting FDI in Vietnam: Make more than lose), The new newspaper, published 28/9/2017.
3. Ngoc Hoa Nguyen, Thi Thuy Van Nguyen: The current situation of attracting FDI during 1988-2016 in Vietnam.
4. Foreign Investment Agency, Ministry of planning and investment (2018). Report on direct foreign investment in Vietnam in 2017.
5. General Statistic Office of Vietnam (2017). Statistic on foreign investment in Vietnam.
6. Ministry of planning and investment (2017). Report on forms of foreign investment in Vietnam in 2017
7. Vietnam Chamber of Commerce and Industry - VCCI (2017). Challenges of changing policies with foreign investors in Vietnam.
8. Resolution number 103/NQ-CP (2013) on direction to increase effectiveness in attracting and using direct foreign investment in the upcoming time.
9. Box, G.E.P., and G.M. Jenkins. 1976. Time Series Analysis: Forecasting and Control, Revised Edition,Holden Day, San Francisco.
10. The World Economic Forum(2018). The Global Competitiveness Report 2017-2018.
11. Ministry of planning and investment's website: http://www.mpi.gov.vn/
12. General statistic office of Vietnam's website: https://www.gso.gov.vn
ПРЯМЫЕ ИНОСТРАННЫЕ ИНВЕСТИЦИИ (ПИИ) В ВЬЕТНАМ: ТЕКУЩАЯ СИТУАЦИЯ И ПРОГНОЗ
Фунг Тхе Хунг, преподаватель Профсоюзный университет (Вьетнам, г. Ханой)
Аннотация. Принятие закона об иностранных инвестициях в 12/1987 году создало юридический предел, который позволяет иностранные инвестиции во Вьетнаме. Через 30 лет иностранные инвестиции в общие и прямые иностранные инвестиции, в частности, сыграли активную роль в экономическом и социальном росте и развитии Вьетнама. В частности: иностранные инвестиции способствуют росту экономического роста, повышению эффективности использования внутренних инвестиционных ресурсов. Иностранные инвестиции способствуют экономической реструктуризации в направлении индустриализации и модернизации, создают рабочие места, улучшают качество человеческих ресурсов и меняют структуру труда.
В этой статье автором представлены результаты оценки деятельности по привлечению прямых иностранных инвестиций (ПИИ) во Вьетнаме, и прогноз прямых иностранных инвестиций Вьетнама с 2018 по 2020 год, с целью привлечения и эффективного использования капитала ПИИ в ближайшее время.
Ключевые слова: иностранные инвестиции, прямые иностранные инвестиции, экономический рост, экономическое развитие, экономическая интеграция, прогноз, модель ЛЕШЛ.
