FDI capital heavily shifts to Vietnam

37 Japanese enterprises had decided to invest in Vietnam. This is the latest information that the Japan External Trade Organization (JETRO) released at the end of December this year. According to analysts, not only Japanese enterprises but many foreign enterprises from Europe, the US, Singapore, and South Korea also choose Vietnam as their investment destination. It has made Vietnam become the safest and most attractive destination for foreign investors in 2021.
Customers go shopping at Aeon Mall Binh Tan. (Photo: SGGP)
Customers go shopping at Aeon Mall Binh Tan. (Photo: SGGP)

Attractive plus points

Analysis from the General Statistics Office of Vietnam (GSO) shows that from the beginning of 2020 to now, foreign investment in Vietnam has reached US$28.5 billion. This level decreased by 25 percent compared to 2019 but was still very remarkable.

According to Mr. Hirai Shinji, Chief Representative of JETRO in Ho Chi Minh City, for Japanese enterprises, the Government is implementing the policies of foreign countries + Vietnam, and Vietnam + Vietnam. As for the policy of foreign countries + Vietnam, the Japanese Government will support enterprises to relocate and partly transfer or transfer all the production activities of Japanese factories to Vietnam. Up to now, 37 enterprises have received investment decisions in Vietnam.

However, in 2020, Japanese enterprises have developed a new program - Vietnam + Vietnam. It means that Japanese enterprises, which have been investing in Vietnam, will build more plans to expand their investment in another province in Vietnam. This program mainly focuses on enterprises in the field of food and foodstuffs processing and manufacturing.

According to the report by the GSO, the whole country had 1,140 times of projects licensed in previous years registered to adjust investment capital with additional capital of $6.4 billion, up 10.6 percent. From another perspective, the European Chamber of Commerce (EuroCham) said that political stability and good control on the Covid-19 pandemic of Vietnam are attractive plus points for investors from Europe.

Mr. Nicolas Audier, Chairman of the EuroCham, said that although 2020 was a tough year for international trade, their survey showed that Vietnam's rapid and effective measures against the pandemic had been fruitful. Leaders of European enterprises felt optimism about their business, as well as the trade and investment environment of Vietnam, and tended to be positive in the coming time.

Besides, after the EU-Vietnam Free Trade Agreement (EVFTA) took effect in the third quarter of 2020, EuroCham immediately sent out questions about the impact of the agreement on the business and investment plans of its member enterprises. One-third of respondents said that the agreement was a crucial part of their decision to invest in Vietnam, with the top two factors anticipated to boost growth, including tariff cuts and easier market access for investors.

Try before you trust

According to analysts, 111 countries and territories are investing in Vietnam, focusing mainly on 18 sectors and fields. The processing and manufacturing industry is the leading sector, followed by electricity generation and distribution, real estate business, retail and wholesale, science and technology, steel, fiber, and plastic.

Noticeably, from the beginning of the year until now, authorities have made efforts to cut 239 business conditions, bringing the total number of business conditions cut so far to 3,893 out of 6,191.  They have also reduced 6,776 out of 9,926 categories of goods that must go through specialized inspection and 30 out of 120 relating administrative procedures.

But it is not enough. According to JETRO, the Vietnamese Government needs to untie three knots to be able to quickly and effectively promote foreign investment attraction. The first one is the lack of identity between the Government and localities in terms of the categories of industries that enjoy investment incentives. The second is the way to calculate the preferential tax. The last one is that the duration and procedures for the licensing of investment projects must be shortened.

Mr. Hirai Shinji took the case of Aeon Mall Vietnam as an example. It took a year for this company to receive the investment registration certificate and land use right certificate. Or like Hoya Glass Disk Vietnam Company, the current new tax calculation method in the provinces has led to a huge loss to this enterprise.

Moreover, the administrative procedures related to import and export activities are still very complicated. The policy of co-recognition of certification from importing areas with higher standards has not yet been applied synchronously and thoroughly in the customs system. Especially, specialized inspection still has many shortcomings, obstructing the operation of enterprises.

Many Vietnamese enterprises said that the attractive domestic investment environment had been heavily luring foreign investment. It has brought great economic effects but also increased the competitive pressure on domestic enterprises for both domestic and export market shares.

Mr. Vu Duc Giang, Chairman of Vietnam Textile and Apparel Association, said that investment attraction should only be prioritized for industries that domestic enterprises are unavailable. Besides, it is essential to build regulations on controlling the quota of materials produced in Vietnam. In which, domestically-made materials must serve the domestic market to prevent FDI enterprises, which invest in Vietnam to take advantage of FTAs, from shifting the source of raw materials for production to the parent companies in their countries. Consequently, Vietnamese enterprises have to both depend on imported raw materials and face cutthroat competition in the export market.

On the other hand, the land fund for investment attraction is also increasingly exhausted. Therefore, authorities should give priority to foreign investment attraction in high-tech fields, such as technology for designing and manufacturing computers, microprocessors, and integrated circuits, high-resolution display technology, and biotechnology, to improve investment efficiency, Ms. Le Bich Loan, Deputy Head of the Management Board of the Saigon High-Tech Park, emphasized.