Many positive signals from FDI enterprises

Amid the context of economic difficulties, declines in foreign investment attraction are inevitable but there is still light at the end of the tunnel.

Production at a Japanese company. (Photo: SGGP)

Production at a Japanese company. (Photo: SGGP)

On April 1, IHS Markit, an information, analytics, and solution provider for the major industries and markets, announced the purchasing manager’s index (PMI) of Vietnam’s manufacturing industry fell from 49 points in February to 41.9 points in March, the lowest level in nine years. This is also the strongest decrease since July 2012. In March, the number of new orders and production both dropped at the fastest rate in history, forcing enterprises to lay off workers. 

Business optimism was also at its lowest level since the index was added to the survey in April 2012. The survey results of IHS Markit are quite consistent with the figures released by the General Statistics Office of Vietnam at the end of March. Accordingly, in the first quarter of this year, due to the impacts of the Covid-19 pandemic, foreign investment capital into Vietnam only reached US$8.55 billion, accounting for 79.1 percent compared to the same period last year. Of which, the total newly registered capital reached $5.5 billion, up 44.8 percent over the same period last year, but this growth was mainly because of the Bac Lieu LNG-to-power project, whose investment was up to $4 billion, negotiated many years ago. If excluding large projects of over $1 billion, the total newly registered and adjusted capital, capital contribution, and purchase of shares of foreign investors in the first quarter was only equal to 64.6 percent of the same period of last year.

Many multinational corporations, which expressed their intention to strongly participate in the Vietnamese market earlier, have reconsidered the time of investment, including big names, such as Google, Microsoft, Apple, and ExxonMobil. Some ongoing projects have also asked for a delay in the schedule, such as Poongsan System and Ebara Pump Company Vietnam.

Although the downward trend of foreign investment flows at this time is unavoidable, analysts believe that this is only a matter of time. Although the disbursed capital decreased, it was still at a fairly good level, accounting for 93.4 percent compared to the same period last year.

According to Mr. Do Nhat Hoang, Director of the Foreign Investment Agency under the Ministry of Planning and Investment, when the effort of the Government to control the disease is fruitful, measures such as: facilitating the customs clearance of goods, extending permits for foreign workers, simultaneously considering and resolving proposals to extend the project implementation schedule due to difficulties caused by the Covid-19 pandemic, extending the time limit for deposits to ensure project implementation, shortening the time of implementing administrative procedures related to investment projects, might facilitate foreign investors to restore production and business. Moreover, the brand of Vietnam as a safe destination for tourism and investment will be strengthened, especially when the geopolitical factors, the global political, economic, and social environment are becoming more uncertain and more unpredictable, promoting defense mechanism, risk-sharing rather than "putting all eggs in one basket".

Of course, foreign direct investment (FDI) enterprises do not passively wait for the pandemic to end. Many enterprises have researched and implemented strategies to diversify markets and partners, both at input and output stages. Recently, Mr. Hirai Shinji, Chief Representative of the Japan Trade Promotion Organization (JETRO) in Ho Chi Minh City, said that, due to difficulties in material supply from China which will take a longer time to recover gradually, many Japanese businesses have begun importing goods from other regions; of which some enterprises have chosen Vietnamese partners.

Japanese investors are not the only ones who choose this solution. According to Ms. Le Bich Loan, Deputy Head of the Management Board of Saigon Hi-Tech Park, there are more than 80 enterprises in the park with an annual export turnover of over $17 billion. Many companies such as Nidec Vietnam, Jabil Vietnam, and Samsung, have been coordinated raw materials from factories in other countries by their parent companies to stabilize production. Besides, these companies have also increased using domestic raw materials. If the previous localization ratio was only about 28 percent, many businesses now plan to use up to 50 percent of domestic materials.

Although disease prevention remains a top priority at this time, it is not without reason to believe that the economy in general and FDI enterprises, in particular, will soon recover production and business. Mr. Andrew Harker, Economic Director at IHS Markit, said that it is not surprising that the Covid-19 pandemic seriously affected Vietnam's manufacturing sector in March. The current key issue is to control the disease and production will increase again.

By Anh Phuong – Translated by Thuy Doan

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