Achievements

The second wave of foreign direct investment to Vietnam started in 2006 and saw a sudden increase in 2008, far beyond all forecasts by functional agencies and economists.

According to statistics by the Foreign Investment Agency under the Ministry of Planning and Investment, 1,059 FDI projects with a total registered capital of US$59 billion have been licensed so far this year to Vietnam and with the total figure taken into account for this year. It is estimated at over US$65 billion, up six times against the 2006 figure and three times against 2007.

The implemented foreign direct investment capital despite being lower than the registered capital figure has also grown sharply compared to previous years, at US$11.5 billion, up 1.5 times compared to 2007.

The number of foreign investors from Canada, the US, India, the Middle East has also been on the rise.

The data have proved that in 2008, though Vietnam has met with great difficulties and in the later half of the year, the foreign direct investment flow to Vietnam also suffered from the global financial crisis, foreign investors have still believed in medium and long-term investment outlook in Vietnam.

Worthy of note is the appearance of such large-scale industrial FDI projects as the Nghi Son oil refinery project in Thanh Hoa, the steel project in Ha Tinh province, and other projects to build new urban centres, international university township or international entrepot port.

The results are first of all attribution to the belief of foreign investors in Vietnam's development perspective, to the maintenance of political stability and security, the improvement of investment environment, particularly the perfection of economic regulations and the door opening of the economy according to WTO commitments.

The increases in the number of new FDI projects as well as registered capital and implemented capital have contributed to the increase in the scale of FDI sector in Vietnam.

Of the total 9,700 valid projects with a total registered capital of over US$145 billion so far, over 4,000 foreign invested enterprises are operational, contributing over 40.7% of the country's total industrial production value (the figure is over 35% if oil and gas production excluded). The foreign invested sector also contributes 55.6% of the country's total export turnover (the figure is 38.4% if crude oil export excluded). Currently, over 1.45 million workers are working for foreign-invested enterprises.

Challenges

The feasibility of some projects with investment capital hitting billions of US dollar is still limited, causing anxiety to the progress of project implementation according to their commitments, especially within the current context that many major foreign firms are facing great financial difficulties due to the impacts of the global financial crisis.

On the other hand, it can be seen that the capability to absorb US$65 billion worth of FDI is not easy at all due to the weaknesses of the domestic economy, especially in infrastructure structure and high quality human resources.

In addition, localities nationwide have promoted investment and granted investment licenses to some projects based on their local benefits without taking full account of the general benefits of the country and the whole economy. Especially, all the elements relating to environment, thriftiness in land use and the ability to respond to infrastructure have not received due attention.

Furthermore, the ratio of investment in manufacturing, hi-tech and export industries is still low while there is too much investment in real estate. The country has a great demand for attracting foreign investment in infrastructure projects, especially roads and electric power plants. However, the number of projects in this field is limited.

Post-licensed investment procedures, especially procedures for land clearance, have yet to be improved. On the contrary, in some localities, these procedures are causing great difficulties, hindering the progress of the project.

An environmental pollution warning for both foreign and domestic invested projects, for project both in industrial parks and out of industrial parks, has been sounded. This issue can not be resolved overnight, so this should be given as the top priority in attracting and managing investment projects.

Quality first

According to forecasts by many research agencies, the global financial crisis is likely to last until the third quarter of 2009 and its impacts on the Vietnamese economy is increasing. The foreign investment flow in the world and foreign investment to Vietnam will be affected by the crisis.

The latest survey by the financial information service company WVB Vietnam and Petrovietnam Financial consultancy and investment joint stock company has shown that the business confidence index of Vietnamese enterprises in the fourth quarter of 2008 has reduced to 93 points compared to 100 points in the third quarter.

In this context, the key task for foreign investment activities in 2009 is focusing efforts on creating favourable conditions for already licensed projects, while ironing out difficulties in production and trading activities of enterprises.

With regards to attracting new investment, special attention must be paid to quality. Vietnam do not need to attract investment by all means.

It is also necessary to continue improving investment environment, first of all the legal environment. Vietnam should also make a review of investment in infrastructure and hi-tech sectors to find out the reasons for weaknesses and propose measures to overcome them.

A sectoral and regional investment planning should be soon worked out, thus creating the basis for attracting investment in an effective manner. There also needs a close co-ordination between the central and local administrations, between localities, and between local agencies and departments in the work of investment planning, promotion, and management in order to minimise the recent weaknesses in State management of foreign investment.

Vietnam should also soon issue a policy to encourage foreign investment projects in education, especially vocational training in order to mobilise the participation of all economic sectors for training and increasing the quality of the human resources.

Stemming from the actual situation, a high target for foreign investment attraction for 2009 is not necessarily set. Efforts should be made to promote disbursing the registered capital, which is currently estimated at US$90 billion. Therefore, the top objective is to ensure that the disbursement of investment capital in 2009 should be at least the same as that in 2008. As far as the new registered capital is concerned, it is necessary to sort it out carefully.

The increasing foreign investment flow to Vietnam is creating favourable conditions to select quality projects which suit the country's demand for sustainable economic development that Vietnam refused to grant investment licenses to some big foreign investment projects in some localities which fail to meet the country's requirements in 2008 is a necessary step in that direction and this should be brought into full play on a large scale in 2009.

Source: Nhan Dan