On a brighter note

The Ministry of Planning and Investment (MPI) says the final yearly FDI value will be much bigger than these initial reports, and the Vung Ro oil refinery expansion—worth US$1.48 billion—is still awaiting approval.

Approval would push 2013’s total FDI beyond US$23 billion, easily exceeding the annual US$14–15 billion target. 

Vietnam’s FDI has fallen steadily from 2008’s record high of US$71.7 billion, pushed downwards under the full weight of the global economic crisis.

The sharp increase in 2013’s FDI shows renewed investor trust in Vietnam’s improved investment climate.

Nine projects have been commissioned on a scale unseen in previous years. They include the Thai Nguyen-based US$2 billion Samsung Electronics Vietnam (SEV) electronics manufacturing plant, the Haiphong-based US$1.5 billion LG Electronics Vietnam electronics plant, and the Binh Dinh-based US$1 billion bus tyre manufacturing and service plant from the Bus Industrial Centre of Russia.

Yet respected FDI expert Professor Nguyen Mai says disbursed capital is more important than registered capital. SEV recently broke ground on its Thai Nguyen plant, due to begin operations in February 2014. The US$9 billion Nghi Son oil refinery complex got off the ground in October 2013.

SEV disbursed the first US$400 million of its Bac Ninh project’s augmented US$2.5 billion capital. The Bridgestone-invested US$1.22 billion plant in Haiphong is scheduled to enter operations in April 2014.

FDI businesses earned US$88.4 billion from exports in 2013, making up 67% of the national total. They also enjoyed a trade surplus of US$14 billion compared to domestic businesses’ US$13.1 billion import surplus.

Under reform pressure

Many economists wonder if FDI businesses are outperforming their domestic opponents. Vietnam treats all businesses fairly and equally. The crux of the matter is that domestic businesses must exert a greater effort to increase investment efficiency.

At an investment conference in March 2013, MPI Minister Bui Quang Vinh said Vietnam needs FDI businesses, because they manufacture products for domestic use and exports, pay tax, generate jobs, and bring state-of-the-art technology to the country.

“We should not discriminate between domestic and foreign businesses. We need to restructure wholly State-invested businesses to enable more equal competition with foreign rivals,” he said.

Vinh said Vietnam needs to make itself more attractive to foreign investors, especially as FDI inflows continue to decline and regional countries grapple for the lion’s share.

“We have to do something to placate foreign investor concerns regarding perceived policy risks,” he said. He admitted some Vietnamese policies are inconsistent and unclear, such as the incentives on offer for investors.

Vinh said Vietnam’s investment environment is “problematic”. Both Thailand and Indonesia lead Vietnam in this race and Cambodia and Myanmar are quickly coming up behind. Without intensified reform, Vietnam will lose out to its regional opponents, he warned.

In its 2013 global competitiveness index report, the World Economic Forum promoted Vietnam five rankings 70^th out of 148 assessed economies. Vietnam had fallen in 2011 and 2012.

In Southeast Asia, however, Vietnam’s standing remains far below Singapore’s 2^nd, Malaysia’s 24^th, Brunei’s 26^th, Thailand’s 36^th, Indonesia’s 37^th, and the Philippines’ 59^th.  

To secure more sustainable and consistent flows of FDI, Vietnam has no choice but to accelerate reforms.