Trans-national companies (TNCs) have been carrying out sizable projects in Vietnam since the country started calling for foreign investment nearly 30 years ago, making the country stand out on the world’s investment map, Prof. Nguyen Mai wrote in an article published on the Dau Tu newspaper.
A Snapshot of FDI in Vietnam
In the first three years after the Law on Foreign Investment was approved by the parliament in December 1987, the pioneer foreign direct investment (FDI) projects were mainly of small scale.
From 1998 afterwards, TNCs have marked their presence in Vietnam with landmark projects. The UK’s BP, France’s Total, Australia’s BHP and the Netherlands’ Shell have stepped into the oil and gas industry while Honda, Toyota, Ford and Mercedes-Benz have strengthened their foothold in the Southeast Asian country’s auto and motorbike market.
ANZ, Citibank, Tokyo-Mitsubishi, Dai-Ichi and Prudential have won remarkable market shares in the local banking and insurance sector, Prof. Nguyen Mai, chairman of the Vietnam Association of Foreign Investment Enterprises (VAFIE), named.
Due to the regional economic crisis, disbursed FDI in Vietnam was around $2 billion per year in the 1999-2004 period, with offshore investments largely being small-sized.
After U.S. tech giant Intel was granted a license for a micro-processor manufacturing project with an investment of $1.2 billion in 2006, many TNCs followed suite. Among them, Samsung, Nokia and Canon set up its facilities in Bac Ninh, LG built a plant in Hai Phong while Formosa Plastics proceeded with its steel mill and port complex in Ha Tinh.
According to the Ministry of Planning and Investment, FDI approvals amounted to $6.89 billion in the year to April 20, rising 85% from the corresponding period of 2015. Disbursements of FDI increased 12% year-on-year to $4.7 billion.
TNCs Beefing up Investment
South Korea’s conglomerate Samsung has poured over $10 billion into manufacturing plants in Bac Ninh and Thai Nguyen, offering jobs to 120,000 laborers. Its exports reached $32.8 billion in 2015, accounting for one fifth of Vietnam’s total export revenue.
It plans to put its $2 billion Samsung Electronics HCMC CE Complex (SEHC) in Ho Chi Minh City in the coming months, which will churn out home appliances for domestic consumption and export.
The tech giant has won approval from Hanoi’s authorities to build a $300 million research & development center in Hoang Mai district, where around 4,000 IT engineers will work.
LG, another South Korea-based TNC, has secured a license for a $1.5 billion display panel plant project in Hai Phong after operating a plant to produce TVs, refrigerators and air-conditioners in the same city.
South Korea’s conglomerates seem to have joined a race to ramp up investments in Vietnam as political and economic ties between the two countries are in a good state, Prof. Nguyen Mai noted.
Lotte will strive to catch up with Samsung’s investment scale in Vietnam in the upcoming five years, Kim Chang Kwon, chief executive officer at Lotte Asset Development Co Ltd., told HCM City’s party chief Dinh La Thang recently.
The increasing attractiveness of Vietnam as an investment destination is evidenced by Apple Inc. unveiling a plan to erect a $1 billion R&D center in Vietnam although the U.S. tech giant already has the same facilities in China, Taiwan and Japan.
According to a global investment report by the UNCTAD, Vietnam ranked ninth in terms of investment attractiveness in 2014, climbing two notches from 2013.
A survey conducted by the U.S. firm Frontier Strategy Group in the second quarter of 2014, Vietnam was among the three nations that would drive the largest attention from European and American TNCs in the time to come.
Workers at a Samsung factory in Vietnam. Photo: Thanh Nien.
Competition for FDI
Vietnam’s appeal comes from political, economic and legal stability, which is a guarantee for their long-term investments. In addition, the dynamism and creativeness of Vietnamese workers is a decisive factor, said Mr. Nguyen Mai, a veteran expert on foreign investment.
However, the country is facing rivalry from regional peers and India in boosting FDI which is much needed to fuel economic growth in the context of tightened state budget, he noted.
Member states of the ASEAN
Economic Community (AEC
) are striving to adopt new policies and improve their own investment climates following the formation of the bloc at the end of last year, which will permit the free movement of goods, services and skilled laborers. Meanwhile, Vietnam is staying behind some countries, the economist said.
In addition, India has arisen as China and Vietnam’s strong rival in attracting FDI. The southern Asian country has competitive edges over Vietnam in terms of labor force, both in labor-intensive and hi-tech sectors.
Vietnam will have to drive between $23 billion and $25 billion worth of foreign capital annually in the coming five years, including $17 billion-$18 billion in foreign direct investment (FDI), and the country absolutely has potential to do so, said Prof. Nguyen Mai.
Role of Local Authorities in FDI Attraction
The free trade deals to which Vietnam is a party will add more attractiveness as an investment destination to offshore investors, especially TNCs.
A large number of U.S. investors have advanced interest in investing in Vietnam. However, they are facing strong competition from Japanese and South Korean peers who have competitive edges regarding geographic proximity and cultural similarities, said Marco Breu, managing partner of McKinsey & Company Vietnam.
U.S. investors’ keenness on Vietnam is undeniable, he stressed.
Prof. Nguyen Mai pointed out that, to woe foreign investors, top leaders of Vietnamese localities need to meet legitimate demands put forward by investors.
The success stories of Bac Ninh and Thai Nguyen are vivid examples. The leadership in those localities has fulfilled their commitments made with investors such as Samsung, Nokia-Microsoft and Canon.