Chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), Professor Nguyen Mai spoke with Nhan Dan (People) newspaper about foreign direct investment (FDI) in Vietnam in the first months of 2014.
*Professor, some are worried about the fall in FDI pledges in the first months of the year compared with the same period last year. What do you think about this?
FDI pledges only show a trend and are not so significant economically. So we should not analyse the economic situation based on the amount of pledged capital but should instead focus on the amount of disbursed FDI.
Investment is a long-term activity, so we cannot evaluate the trend of the whole of 2014 and the following years based solely on the data of a single month or quarter. The year-on-year slump in FDI attraction this year has its own cause. In the first three months of 2013, more large projects were granted investment licenses than in the same period of 2014.
For instance, last year Samsung Electronics Vietnam invested 2 billion USD, equal to the amount of newly registered FDI in the first three months of 2014, in a new manufacturing facility in Thai Nguyen province while the Nghi Son refinery project also increased its investment capital to 2.8 billion USD.
*Are you optimistic about FDI attraction in 2014?
I am very optimistic since Vietnam has a great opportunity to attract FDI. Vietnam is one of the largest recipients of FDI in the ASEAN region. Compared with other countries, Vietnam’s competitive advantage is political and social stability.
Although international organisations and foreign investors still complain about Vietnam’s administrative procedures and legal system, in their eyes Vietnam is still a safe investment destination and an attractive place for them to move their facilities from Thailand, China and Japan. No one wants to risk their investment in a dangerous area. We are fortunate to have long-term political stability and we should not waste this competitive advantage.
Foreign investors see Vietnam as a potential market with a large population expected to increase to 100 million in 2020, with about 15 million people earning more than 10,000 USD per year.
A foreign investor once asked me whether he should invest in building a large hospital in Vietnam. I told him that if it were five years ago, I would hesitate but now is the right time because Vietnamese are spending about 2 billion USD each year to seek medical treatment abroad. I advised him to visit the Vinmec International Hospital in central Hanoi to see how crowed it is with people looking for high-quality healthcare services.
In addition to political stability, foreign investors also acknowledge the Vietnamese Government’s effort to improve the investment environment by simplifying administrative procedures and making amendments to investment-related laws.
With these advantages, I predict there will be a new wave of foreign investment from 2014 onward, in terms of both quantity and quality.
*So in your opinion, we should be completely optimistic about the outlook of Vietnam’s FDI attraction this year?
Not completely. I have three concerns. First, the size of new FDI projects approved in the first months of 2014 is too small. Of the more than 300 projects, only three or four have capital of 1 billion USD or higher. On average, each project has an investment of around 3-4 million USD. There are even projects with very small investments of 50,000-100,000 USD. I don’t understand why some provincial governments granted licences for such small projects.
My second concern is the limited impact of FDI projects on the domestic sector. There are many reasons, one of which is the form of investment. During the 1990s, 85 percent of FDI enterprises were registered under the form of joint venture enterprises so the impact was very visible. As long as foreign investors brought their capital, technology and management skills to Vietnam, the situation of an enterprise could change. Since 2001, the ratio of joint venture projects has been on the decline. Among the 2 billion USD in FDI pledges in the first quarter of 2014, only 200 million USD went into joint ventures.
My third concern is investment fads. Recently, many provincial leaders expressed the wish that the central Government approve their plans to attract casino projects. I don’t understand why they are so interested in casino projects. In previous years there was a fad of building golf courses in many provinces. No research has been carried out about the current state of these projects, their benefits and negative impacts. We need to take into account the current socio-economic situation of the country before making any decision to attract FDI into casino projects.-VNA
*Professor, some are worried about the fall in FDI pledges in the first months of the year compared with the same period last year. What do you think about this?
FDI pledges only show a trend and are not so significant economically. So we should not analyse the economic situation based on the amount of pledged capital but should instead focus on the amount of disbursed FDI.
Investment is a long-term activity, so we cannot evaluate the trend of the whole of 2014 and the following years based solely on the data of a single month or quarter. The year-on-year slump in FDI attraction this year has its own cause. In the first three months of 2013, more large projects were granted investment licenses than in the same period of 2014.
For instance, last year Samsung Electronics Vietnam invested 2 billion USD, equal to the amount of newly registered FDI in the first three months of 2014, in a new manufacturing facility in Thai Nguyen province while the Nghi Son refinery project also increased its investment capital to 2.8 billion USD.
*Are you optimistic about FDI attraction in 2014?
I am very optimistic since Vietnam has a great opportunity to attract FDI. Vietnam is one of the largest recipients of FDI in the ASEAN region. Compared with other countries, Vietnam’s competitive advantage is political and social stability.
Although international organisations and foreign investors still complain about Vietnam’s administrative procedures and legal system, in their eyes Vietnam is still a safe investment destination and an attractive place for them to move their facilities from Thailand, China and Japan. No one wants to risk their investment in a dangerous area. We are fortunate to have long-term political stability and we should not waste this competitive advantage.
Foreign investors see Vietnam as a potential market with a large population expected to increase to 100 million in 2020, with about 15 million people earning more than 10,000 USD per year.
A foreign investor once asked me whether he should invest in building a large hospital in Vietnam. I told him that if it were five years ago, I would hesitate but now is the right time because Vietnamese are spending about 2 billion USD each year to seek medical treatment abroad. I advised him to visit the Vinmec International Hospital in central Hanoi to see how crowed it is with people looking for high-quality healthcare services.
In addition to political stability, foreign investors also acknowledge the Vietnamese Government’s effort to improve the investment environment by simplifying administrative procedures and making amendments to investment-related laws.
With these advantages, I predict there will be a new wave of foreign investment from 2014 onward, in terms of both quantity and quality.
*So in your opinion, we should be completely optimistic about the outlook of Vietnam’s FDI attraction this year?
Not completely. I have three concerns. First, the size of new FDI projects approved in the first months of 2014 is too small. Of the more than 300 projects, only three or four have capital of 1 billion USD or higher. On average, each project has an investment of around 3-4 million USD. There are even projects with very small investments of 50,000-100,000 USD. I don’t understand why some provincial governments granted licences for such small projects.
My second concern is the limited impact of FDI projects on the domestic sector. There are many reasons, one of which is the form of investment. During the 1990s, 85 percent of FDI enterprises were registered under the form of joint venture enterprises so the impact was very visible. As long as foreign investors brought their capital, technology and management skills to Vietnam, the situation of an enterprise could change. Since 2001, the ratio of joint venture projects has been on the decline. Among the 2 billion USD in FDI pledges in the first quarter of 2014, only 200 million USD went into joint ventures.
My third concern is investment fads. Recently, many provincial leaders expressed the wish that the central Government approve their plans to attract casino projects. I don’t understand why they are so interested in casino projects. In previous years there was a fad of building golf courses in many provinces. No research has been carried out about the current state of these projects, their benefits and negative impacts. We need to take into account the current socio-economic situation of the country before making any decision to attract FDI into casino projects.-VNA
