The global landscape of capital transfer and investment flows is undergoing a significant transformation, marked by the movement of capital from Northeast Asia, including countries like China, Taiwan, Korea, and Japan, towards Vietnam. Additionally, there is a notable shift in investment dynamics, with leading partners from ASEAN, the United States, and the European Union emerging as prominent players in this evolving landscape. These shifts have far-reaching implications for both the source and recipient countries, as well as for businesses and investors seeking opportunities in this changing environment. In this discussion, we will delve into the factors driving these capital transfers and investment patterns, examining their impact on the economic and business landscapes of the countries involved.
Positive signals
Although it has not recovered to pre-Covid-19 pandemic levels, the decline in foreign direct investment (FDI) flows into Vietnam is slowing down, showing foreign investors’ confidence in the Vietnamese business investment, especially from Northeast Asian markets.
In the first six months of 2023, total FDI capital into Vietnam reached 13.43 billion USD, equal to 95.7% over the same period. Although FDI attraction decreased by 4.3%, there are positive signs, that is, the number of newly registered investment projects continues to increase and foreign investors’ capital contribution and share purchase activities have improved. . Specifically, new investment capital reached nearly 6.5 billion USD, a sharp increase of 31.3% and a 71.9% increase in the number of new projects over the same period; Capital contributed and shares purchased by foreign investors increased by 76.8%. The additional registered capital alone decreased sharply by 57.1% although the number of projects adjusted to increase capital still increased by 29.8%. New investment projects still focus on localities with many advantages in attracting FDI capital such as: Hanoi, Ho Chi Minh City, Bac Giang, Binh Duong, Hai Phong, Bac Ninh, Dong Nai…
Investors from Asia and traditional investment partners such as Singapore, Japan, China, Korea, Hong Kong, and Taiwan (China) still account for a large proportion, up to 76.1% of the total. registered FDI capital of the whole country in the first six months of the year. Implemented investment capital of projects reached about 10.02%, up 0.5% over the same period.
(According to Nhan Dan newspaper on July 10, 2023)
A strong shift in investment capital flows
This impressive result is brought together by many reasons, first and foremost is that Vietnam is continuously recognized by the world community for its political stability and positive economic growth; strive to implement a multilateral, peaceful foreign policy, be friends with all countries, and maintain balance between major countries; Continuously improve the investment and business environment in the direction of harmonizing interests, strictly complying with international integration commitments and meeting world good practices in encouraging and protecting the interests of investors.
The New Southern Policy (NSP), with implementation over the past 6 years, is forecast to bring benefits to Vietnam. Under the direction of government policy, economic and trade relations between Taiwan and the economies in the New Southern Policy have opened a new situation, helping Taiwanese businesses continue to exploit and expand business opportunities in these markets.
Field of FDI capital movement and expectations from foreign investors
a. Teleportation field
Before the Covid-19 pandemic, FDI capital invested in Vietnam mainly focused on three main areas: Processing – manufacturing industry, real estate business and wholesale – retail – automobile repair , motorbikes, motorbikes.
Since the Covid-19 pandemic occurred, foreign investors have been shifting their investments, mainly in the fields of: (i) information technology and high technology; (ii) electronic equipment and accessories; (iii) logistics, e-commerce; (iv) consumer goods and retail.
b. Desire
Most foreign investors want the following important factors: (i) Political stability, legal environment and macroeconomics; (ii) Mechanisms and policies (on land, taxes, labor, macroeconomic management such as exchange rates, interest rates)… need to ensure consistency, little change, and predictability. ; (iii) Information is public, transparent, easy to access, easy to look up and also contributes to minimizing opportunities for corruption; (iv) Simple and compact administrative procedures and quick decision-making both help reduce administrative costs and reduce opportunity costs (troublesome procedures can cause businesses to lose business opportunities). ); (v) Synchronous infrastructure (industrial park and accompanying services, electricity, water, transportation, information, logistics…); (vi) Human resources, especially high quality human resources and skilled workers; (vii) Development of domestic supporting industries.
Risks and challenge in Vietnam
The biggest risk and challenge is probably the increasingly “fragmented” global FDI scenario according to alliances; In other words, the geographical footprint of FDI is proportional to the current trend of geopolitical integration, demonstrated by the proportion of FDI between geopolitically linked economies that has continuously increased, surpassing with the proportion of FDI between countries that are purely geographically close.
According to the World Bank (WB), among the root causes of the decline in FDI capital flows into Vietnam, there are also issues related to the business investment environment, absorptive capacity and the Prepare to receive large capital flows, including land, human resources, infrastructure, supporting industries…
In the long term, this is a very good opportunity for Vietnam to restructure its FDI attraction strategy, from the traditional economic model to a circular economy, green and sustainable growth, creating a basis for future projects. billion dollar project in the future. But in the immediate future, to maintain its preferential advantage, Vietnam needs to research and soon come up with non-tax support solutions for FDI enterprises…
Vietnam also needs to redefine its competitive advantages in the new period, not only relying on cheap labor costs and abundant labor resources, but also new factors such as worker skills, infrastructure, and friendly staff. environmental friendliness, level of familiarity with technology projects and intellectual property protection requirements, origin…; oriented to select FDI projects more carefully, improve environmental protection standards, reduce emissions towards sustainable development and comply with commitments to combat climate change, also partly impact on FDI capital flows.
What solutions does Vietnam need to have an advantage in the competitive environment to attract FDI?
In addition, the increasingly fierce competition to attract FDI in the region is causing a tendency to partially shift FDI flows for many reasons, including the loss of competitiveness in worker wages. and the inferiority in meeting green export requirements and net zero carbon emissions in the supply chain… In particular, one of the outstanding hot issues in attracting FDI in the world as well as in Vietnam is The issue of tax incentives in the context of implementing the global minimum tax policy of 15%…
Therefore, Vietnam needs to continue to improve institutions and laws, upgrade policies to attract and use FDI (first of all, business visa duration, procedures and compliance costs for investment licensing, registration, etc.) registration of business establishment, customs inspection and supervision, industrial park land rental prices and elimination of unofficial costs…) to strongly direct FDI into green growth, digital transformation and supply chain connection The response of Vietnamese enterprises to FDI enterprises, especially transnational corporations.
In addition, Vietnam needs to form an ecosystem to effectively support the domestic supplier chain to improve modern management capacity, continuously improve and develop stably and sustainably, producing products that meet the needs of domestic suppliers. Meet world standards (such as the US, UK, Europe…); strive to provide products under its brand to both have high profits and enhance the spirit of national self-respect and pride in the Vietnamese brand.
Conclusion
In conclusion, the capital transfer moves from Northeast Asia to Vietnam signify a significant shift in investment trends within the region. As China, Taiwan (China), Korea, and Japan redirect their capital towards Vietnam, it highlights the country’s growing economic potential and attractiveness as an investment destination. Furthermore, the investment situation from leading partners in ASEAN, the US, and the EU also reflects the confidence and interest in Vietnam’s business environment. As Vietnam continues to implement economic reforms, strengthen its infrastructure, and promote a favorable investment climate, it is poised to become a key player in the global economy. With the ongoing capital inflows and the support from international investors, Vietnam is well-positioned for sustained economic growth and development in the years to come.
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