Workers at a factory of Samsung. The presence of Korean investors such as Samsung, LG, Hyosung, Hanwha, Huyndai, CJ, Lotte and Posco largely promoted the development of the part-supply industry in Vietnam. (Photo: VNA) The RoK has been by far the most important source of FDI to Vietnamand contributed greatly to accelerating the socio-economic development of theSoutheast Asian country.
The latest figures of the Ministry of Planning and Investment(MPI) showed that the cumulative registered FDI from the RoK in the period from1988 – when the first Law on Foreign Investment of Vietnam was put in force -to September 2022 amounted to more than 80.5 billion USD with more than 9,400valid projects, making the RoK the biggest investor in Vietnam so far.
Starting to invest in Vietnam in 1990s, the RoK quickly became amajor investor in the Southeast Asia country, especially after the twocountries established the strategic cooperative partnership in 2009.
Since the Vietnam – Korea Free Trade Agreement (VKFTA) officiallycame into effect in 2015, the RoK’s registered FDI into Vietnam almost doubled.
The milestone was marked in 2014 when the RoK became the largestinvestor in Vietnam with a total registered capital of 7.32 billion USD.Statistics of the Ministry of Planning and Investment showed that theregistered FDI from the RoK hit a record of 8.49 billion USD in 2017 but sloweddown to 7.2 billion USD in 2018 and 7.57 billion USD in 2019.
Due to the impacts of the COVID-19 pandemic, the FDI from the RoKdropped to 3.95 billion USD in 2020 but bounced back to 4.95 billion USD in2021.
From January to September this year, the RoK registered to pour 3.8billion USD worth of FDI in Vietnam, a slight drop of 2.38% against the sameperiod last year.
Although ranking second in terms of registered FDI value in theJanuary-September period after Singapore, the RoK was the partner with thehighest number of investors who showed interest and made new investmentdecisions in Vietnam in the period, the ministry’s report revealed.
The RoK was increasingly becoming an important investor in Vietnam,not only because of its huge capital value but also because of the compatibilityof the investment to Vietnam’s FDI attraction policies. The presence of Koreanenterprises in most economic sectors in Vietnam was contributing significantlyto the country’s economic restructuring, export growth and job creation.
According to the MPI's Foreign Investment Agency, the RoK’sinvestment was mainly poured into the processing and manufacturing industry (74%as of November 20, 2021) thanks to the heavy investment of high-profileinvestors such as Samsung, LG, Hyundai, and Posco, followed by the real estatebusiness (13.1%) and construction (3.8%).
Research by Bui Thi Hong Ngoc and Doan Thi Thu Huong from the VietnamInstitute of Economics pointed out that the strong FDI inflow from the RoKhelped Vietnam upgrade its participation in the global value chain as well aschange the export structure. Vietnam’s export structure was shifting from largepercentage of low added value products like agro-foresty-fishery and rawmaterials to products with high technology content and high added value such aselectronics.
The presence of Korean investors such as Samsung, LG, Hyosung,Hanwha, Hyundai, CJ, Lotte and Posco promoted the development of thepart-supply industry in Vietnam.
Notably, the network of local vendors to Samsung increased to 254as of the end of 2021, 51 of which were tier-1 vendors, from just four in 2014.
Samsung, now the most high-profile Korean investor in Vietnam withan estimated investment of more than 20 billion USD, said that the group wouldcontinue to provide support to enable domestic enterprises to participate morein the global value chain.
It was estimated that there were more than 8,000 Koreanenterprises operating in Vietnam which provided 1 million jobs domestically andcontributed around 25-30% of Vietnam’s export revenue every year.
How to remain a FDI sweet spot to RoK
Vietnam has been arising as an attractive destination for FDI inthe global production shift, thanks to its stable macro-economy and theGovernment’s drastic efforts to improve the investment climate.
The Vietnamese economy scale reached 370 billion USD in 2021,making it the fourth largest economy in Southeast Asia with income per capitaof more than 3,700 USD. Vietnam signed 15 FTAs with more than 60 countries andterritories, including the largest markets in the world, which helped diversifythe markets, products and supply chains.
The General Statistics Office expected the Vietnamese economy tobeat the target to reach a growth rate of around 7.5-8% this year, after strongpost-pandemic growth of 8.83% recorded in the first nine months of this year.
The International Monetary Fund (IMF) on October 11 forecast theVietnamese economy to expand at 7% this year, compared to 2.6% in 2021, as thecountry was benefiting from its growing importance in global supply chains.
The Vietnamese economy was a highlight in the region when theIMF’s growth forecasts for Asia and the Pacific were lowered to 4% this year,well below the 5.5% average over the last two decades, as inflation exceededcentral bank targets in most countries.
The ASEAN 3 Macroeconomic Research Office (AMRO) in its 2022Annual Consultation Report on Vietnam published on October 12 also predicted 7%growth for Vietnam in 2022 on the back of strong external demand, a recovery indomestic demand and strong FDI inflows.
AMRO’s previous studies suggested that strong FDI inflows were oneof the key factors behind Vietnam’s economic transition to manufacturing,leading to stronger participation in global value chains over the years.
However, the annual export growth of Vietnam was driven by FDIcompanies and their import-export activities, which unfortunately implied thatlocal companies did not participate in the global value chains as much. One ofthe reasons was that many local companies did not yet possess the skills andcapabilities to produce the quality inputs required by multinational companies.
AMRO urged Vietnam to make further efforts to develop domesticsupporting industries in the manufacturing value chains.
Pham Thanh Tung from the Ministry of Industry and Trade’s Agency ofIndustry said that it was important to enable more and more local companies toparticipate in the global value chains to maximise the benefits of the FDIinflows.
He pointed out that there were currently about 5,000 enterprisesoperating in the part-supply industry, 88% of which were of small and mediumscale with limitations in production and technology capabilities.
A recent MPI's report to the Government revealed that the looselinkage between the FDI and local companies remained the biggest limitation inFDI attraction and use. The average local procurement remained low, at around20-25%.
It’s a tough road for Vietnamese enterprises to participate andmove up the global value chain ladder, Tran Thi Lan Anh, General Secretary ofthe Vietnam Chamber of Commerce and Industry said, stressing the importantroles of the FDI inflows and the support in improving capacity for domesticpartners from FDI companies.
Just support from FDI companies could not push the supportingindustry, said Do Thi Thuy Huong from the Vietnam Electronic IndustryAssociation, adding that the Government should raise policies to promote thedevelopment of the supporting industry. Local companies must also make effortsto improve their competitiveness, she said.
Yoon Chang Woo, President of Posco – Vietnam, said that Vietnamneeded to develop an ecosystem for the part-supply industry in which localcompanies could produce high-quality and reasonably-priced spare parts andcould upgrade their participation in the supply chains of FDI companies. Onlythrough this, could Vietnam attract more FDI into industries with high addedvalue.
In addition, it was important for Vietnam to enhance the qualityof the labour force with a focus on well-trained technical talents in order toattract quality FDI, including from the RoK, he stressed.
With a young population, Vietnam held great potential to become apowerhouse of skilled workers which would help attract more sophisticated FDI.
He said that a number of Korean firms were looking to promoteinvestment into Vietnam, urging more efforts from the Vietnamese Government tocontinue to push on with its economic reforms and improve the investment climate.
The global trends such as zero emission and digitalisation whichwere promoted strongly in Vietnam would also help attract quality FDI into thecountry, Yoon stressed.
At the dialogue with the RoK’s Ambassador Park Noh-wan andrepresentatives of Korean associations and enterprises in Hanoi in late July,Prime Minister Pham Minh Chinh pledged to create more favourable conditions forforeign investors in general and the Korean business community in particular,to invest efficiently, successfully and sustainably in Vietnam, with a focus onadministrative reforms.
Vietnam expected to receive more investment from the RoK in thefields of high technology, innovation, research and development, digitaltechnology, renewable energy, electronics and infrastructure development, PMChinh said.
The PM expressed his hope that the FDI inflow from the RoK wouldhelp integrate local firms into the global supply chain network while promotingthe development of a digital economy, green economy, circular economy andsustainable development of Vietnam./.
VNA
