The reducing of PDI in Vietnam and solutions TCQT NEU

I. Overview
1. Concept
FDI (Foreign Direct Investment) is a phrase used to talk about a form of
long-term investment by organizations and individuals in one country in another
by building production and business facilities. The purpose of this is to achieve
sustainable benefits and take control of the property.
2. The characteristics of FDI inflows
FDI is a form of feasibility and great economic efficiency, so the main purpose
of FDI is to bring great profits to investors. The income that the investor
receives is of the nature of business collection, not profit. Therefore, the profit
from FDI is determined based on the business results of the invested enterprise.
A clear legal corridor and reasonable FDI attraction policies are one of the top
criteria that investment recipient countries need to have in order to be more
favorable in attracting investment and promoting economic development. .
Depending on the regulations of each country, foreign investors need to
contribute a proportion of capital in the charter capital or legal capital through
which to determine the rights and obligations of each party. Accordingly, the
return and risk of investors will also correspond to this ratio. Investors will be
the ones who have the right to make their own investment decisions, to decide
on their own production and business, and to be responsible for their own losses
and profits. At the same time, they are also free to choose the type of field and
form of investment.
Most FDI investors will transfer with the superiority of technology and
techniques, so that the invested countries will carry out projects in a simple way
and improve working productivity.
3. The role of FDI in Vietnam
The presence of FDI enterprises in the past three decades has contributed
to "changing flesh" of the Vietnamese economy. Direct impacts can point to
such as:
FDI enterprises help to supplement important capital sources for
development investment. The structure of investment capital in recent years has

continued to shift in the direction of increasing the proportion of the private
sector - domestic population and reducing the proportion of investment from the
state sector.
The capital source brought by FDI enterprises contributes to GDP growth
and state budget revenue. FDI capital plays an important role in promoting
Vietnam's economic growth. The contribution of the FDI sector to the country's
GDP increased from 9.3% in 1995 to 16.9% in 2008 and 19.6% in 2017. The
proportion of state budget revenue from the FDI sector also increased
significantly, from 1.8 billion USD in the period 1994-2000 to 23.7 billion USD
in the period 2011-2015, accounting for nearly 14% of total state budget
revenue. In 2017 alone, the FDI sector contributed more than 8 billion USD to
the state budget, accounting for 17.1% of total state budget revenue.
FDI enterprises increase the proportion of Vietnam's exports. Vietnam's
impressive export achievements over the years have marked the bold
impressions of FDI enterprises. The proportion of this group's contribution to
exports has increased sharply from less than 50% of the total turnover before
2003 to over 60% in 2012 and has continued to exceed 70% from 2015
onwards.
The spillover effects of exports from FDI enterprises to domestic
enterprises are analyzed in depth in the research of Nguyen Bich Ngoc (2017)
for the processing and manufacturing industry. Research shows that large-scale
FDI projects have created a strong impact on the export results of these
industries in Vietnam. The presence of FDI enterprises in the processing and
manufacturing industry has created pressure, forcing domestic enterprises to
innovate technology, improve production, increase export market research, and
strengthen trade links. commercial. The overwhelming advantage of capital and
technology of multinational corporations has created considerable pressure on
export market share as well as the competitiveness of domestic enterprises. In

addition, from a macro perspective, the position of FDI enterprises is
overwhelming in Vietnam's exports. However, this situation also creates
instability for exports, because production and exports of the FDI sector depend
heavily on regional and global supply chains.
Foreign investment in Vietnam contributes to labor force productivity
growth. Theoretically, FDI inflows have a reciprocal relationship with the labor
productivity of the receiving country, but it should also be noted that it will have


a positive impact when the domestic business sector is capable enough. learn
new technologies, or be able to provide inputs for FDI enterprises. In the
opposite direction, labor productivity is also a factor affecting FDI attraction.
FDI capital has created a technology spillover effect, contributing to
improving technology levels through technology transfer and management skills
transfer to Vietnamese people, creating competitive pressure and innovation.
technology for domestic enterprises.
II. Current status of FDI in Vietnam
1. General information
The current economy is developing under the strong influence of the
trend of liberalization and globalization of economic and trade relations. And
foreign direct investment (FDI) is one of the main drivers for this process to
expand. In Vietnam, FDI plays an important role in promoting economic
growth. The government continuously offers preferential policies and business
environment for FDI attraction.
FDI attraction was a bright spot of the Vietnam economic picture in 2019. As
of December 20th, the actual FDI capital reached $20.38 billion, up 6.7% from
2018; 3,833 new projects were registered with $16.75 billion, equivalent to
93.2%, 1,381 projects adjusted their capital with $5.8 billion, up 18.1%; 9,842
instances of capital contribution and share purchase with $15.47 billion, up
56.4% compared to the same period in 2018, accounting for 40.7% of the total

registered capital. The total newly registered, adjusted, and contributed capital
and share purchases by foreign investors reached $38.02 billion, up 17.2%
compared to the same period in 2019.


In 2022, the total registered FDI in Vietnam reached nearly 27.72 billion
USD, the realized FDI capital reached a record 22.4 billion USD, up 13.5% over
the same period in 2021. This is the amount of FDI capital. highest performance
in 5 years (2017 - 2022).
The economic sectors with the highest proportion of FDI in the country
can be mentioned: The processing and manufacturing industry leads the way
with a total investment capital of more than 16.8 billion USD, accounting for
60.6% of total investment capital. registration in 2022; the real estate business
ranked second with a total investment of more than 4.45 billion USD,
accounting for 16.1% of total registered investment capital; followed by
electricity production and distribution (with registered investment capital of
2.26 billion USD), professional science and technology activities with registered
capital of nearly 1.29 billion USD; The rest are other industries.


Moreover, in 2022, Vietnam has risked a big amount of FDI capital.
There are many factors that help Vietnam attract FDI capitals and promote
economic growth.
2. Reasons for the downward trend of FDI in Vietnam


According to the Foreign Investment Department, Ministry of Planning
and Investment, in the first quarter of 2023, Vietnam attracted new FDI reaching
5.45 billion USD, down 38.8% over the same period last year. FDI done in
Vietnam in the first three months of 2023 was estimated at $4.32 billion, down

2.2% over the same period last year.

To explain for this heavy drop of FDI capital, we divided the reason to 2
main groups: Direct cause and Root Cause
a) Direct cause
Based on foreign context,
Under the impact of many adverse developments in the international
context such as the Russia-Ukraine military conflict, business confidence and
investment of foreign investors declined, significantly affecting the recovery of
the country. Global FDI after the Covid-19 pandemic. At the same time, it
increased disruptions in production and trade, exacerbating inflation.
The trend of major economies to encourage and promote production and
FDI inflows also contributes to reducing FDI inflows into Vietnam. Specifically,
the US has implemented policies to reduce income tax from 25% to 21%,
reform investment licensing procedures, introduce more flexible standards to
improve the competitiveness of some industries. American industries (energy,
automobiles, aluminum, steel, etc.). The European Union (EU) also promotes
"strategic autonomy" in the economy by setting limits on capital investment


abroad. In Asia, Japan has spent $2.2 billion, including $2 billion to support
Japanese businesses to bring their production networks back from China and
$200 million to relocate their production networks out of China. The country
moves to a third country with a number of priority industries such as medical
equipment, auto parts, and electronics.
In Southeast Asia, there is increasing competition to attract FDI among
countries. Indonesia issued new preferential policies to welcome foreign
investors such as reducing corporate income tax to 20% by 2022. Thailand also
promoted investment attraction in the medical equipment sector, giving priority
to high-tech projects are entitled to 50% corporate income tax reduction for 3

years and support for human resource development.
Based on domestic background, statistics show that in the first 3 months
of 2022, FDI investment increased dramatically with large-scale FDI projects
such as Lego project, total registered capital of 1.32 billion USD. This project
accounted for 41% of the total newly registered capital in the first quarter of
2022.
b) Root cause
Issues related to business investment environment, ability to absorb and
be ready to receive large capital inflows, including land, human resources,
infrastructure, supporting industries… :
Foreign manufacturing enterprises, when investing in industrial parks in
Vietnam, are still afraid of legal procedures and businesses often face
difficulties in obtaining environmental and fire protection permits, leading to
waiting time. Waiting for a long application, slows down the investment
progress.
The duration of work visas of some countries in Vietnam is only about
15-20 days, which is not enough for investors to survey the local business
investment environment.
Besides, the rapid increase in land tax in industrial zones in recent years
also affects investment decisions of foreign investors.
In addition, although the quality of Vietnam's human resources has
improved, it is still inferior to other countries in the ASEAN region.


The logistics system has not met the development needs, the costs are still
quite high compared to the region.
The legal environment has been improved, but the implementation is still
inconsistent and lacks transparency.
II. Suggestions for FDI recovery
1. For government

The Vietnamese government should prioritize institutional reform in
order to align with the country's economic and political situation. Specifically,
the government should review and adjust policies in a timely manner to keep
pace with global economic fluctuations and changes in investment strategies
around the world. Additionally, to improve the business environment,
authorities should make efforts to increase transparency and reduce
administrative procedures, strengthen the legal framework, protect intellectual
property rights, and ensure fairness in business practices.
Given that it requires a highly skilled workforce to meet the demands of
FDI projects, the government should increase investment in education and
vocational training. To solve this problem, the government needs to step up
investment in education and training, especially vocational education and
training of highly qualified human resources. The provision of quality training
programs, meeting the needs of FDI enterprises, will help improve the
professional qualifications, skills and capacities of Vietnamese workers.
Furthermore, diversifying investment portfolios is essential to attract new
investment inflows. The government should focus on promoting strong
industries, such as information technology, innovation, renewable energy,
agriculture and food, textiles, shipbuilding, healthcare, tourism, and financial
services.
To ensure national security and development, authorities should
implement stricter filters for selecting foreign investors that use advanced,
environmentally-friendly, and sustainable technologies. Additionally, it is
recommended that the government coordinate with diplomatic agencies,
business associations, consulting and law firms, banks, and investment funds to
actively approach, negotiate, and attract investment into Vietnam. By


implementing these suggestions, the Vietnamese government can effectively
recover FDI and promote economic growth.

Furthermore, the government also needs Adjust some management
principles and investment decentralization. Specifically, Strengthen the
inspection, examination and supervision of foreign-invested projects that have
been granted and adjusted investment certificates. Resolutely suspending
projects that have been granted or adjusted to adjust investment certificates that
are not in accordance with planning, processes and procedures...
2. For enterprises
Vietnamese enterprises that want to attract FDI need to be ready to meet
the requirements of multinational corporations, specifically:
Enterprises need to pay attention to meeting the requirements of
transnational corporations in terms of time for negotiation, signing of
agreements and implementation. Vietnamese enterprises can improve
infrastructure, reduce investment costs and simplify registration procedures...
Thereby contributing to creating a favorable and stable business environment to
attract investors. Foreign investment.
At the same time, businesses need to research and understand the target
market. This includes learning about market needs, cultural characteristics and
consumer habits. Thereby, improving competition with competitors in the
market.
In addition, Vietnamese businesses should also strengthen
communication, marketing and relations with foreign investors. Through
exhibitions, fairs, promotional events or on digital platforms, Vietnamese
businesses can promote their products and services to foreign investors. From
those events, businesses can also seek cooperation opportunities and poll
foreign investors. Thereby, helping to strengthen partnerships and create new
investment opportunities
In order to bring the greatest benefit to the domestic economy, enterprises,
especially those in industries that attract strong FDI, should strive to improve
independently, instead of relying solely on priorities. government incentives. It
is also important that other industries must continuously develop to create more

added value for society and enhance the country's competitive advantage.


Therefore, corporate social goals should be considered as equal to economic
objectives, since the potential negative effects of receiving FDI, such as
environmental damage or capital use, should be considered. ineffective, should
be carefully evaluated.
From the business side, more developed areas such as Hanoi, Ho Chi
Minh City, and Da Nang are attracting high-tech projects related to future
technologies and modern services. Enterprises seeking to engage in FDI in these
areas should be prepared to meet the requirements of multinational corporations
in terms of negotiation time, agreement signing, and implementation.
Vietnam is also highly appreciated by the foreign investor community and
international organizations for its investment business environment.
New-generation free trade agreements such as CPTPP, EVFTA, and RCEP have
come into effect, so the prospect of attracting FDI in Vietnam is very bright.
Investment from Japan, Korea, Singapore and Asia is still increasing, while
investment from the US, Germany, France, UK and some other European
countries in modern technology, future technology, education and training.
Creation, research and development with many large projects also increased.
All in all, we think that with such advantages, as long as the Vietnamese
government and entrepreneurs take steps to develop in line with the current
trend, know how to transform to adapt to the requirements of the new
generation, FDI capital can be Investment in Vietnam promises not only to be
restored but also to grow stronger than in recent years.