Vietnam’s 30 years of Foreign Direct Investment

In October, I attended a celebration of 30 years of Foreign Investment in Vietnam, which started with “Doi Moi” in 1986 and the passing of the first Foreign Investment Law in December 1987. Sadly former Party Leader Do Muoi passed away last week at the age of 101, but he has to take a lot of the credit for the initial success of Vietnam’s Doi Moi or renovation policy.

The event was attended by Prime Minister Nguyen Xuan Phuc, MPI Minister Nguyen Chi Dung, Governor of the State Bank of Vietnam Le Minh Hung, chairmen of various provinces and business leaders of both foreign and local invested enterprises.

FDI in Vietnam has been extremely successful, for an emerging market, with over 26,000 projects and over US$ 330 billion in committed investment of which approximately 50% has been remitted into Vietnam. This represents about 20% of total capital investment in the country and FDI accounts for approx. 20% of GDP. Almost 60% of the FDI has been in manufacturing and processing and employs over 3.6 million people directly and indirectly creates jobs for a further 5.6 million.[1]

Government representatives stressed some of the limitations and challenges that need to be addressed in the future, which included: Lack of close connection between FDI and local business and lack of integration of local companies into the global supply chain; Limited investment into agriculture, education and healthcare; Low rate of implemented capital; Low level of environmental protection; transfer pricing and compliance with labour regulation.

The Government did acknowledge the need to improve policies and procedures for foreign invested enterprises, administration, and measures to improve the capacity of local enterprises.Other measures needed included a long term plan for innovation, the need to improve and speed up the equitisation of State Owned Enterprises, and to focus on renewable energy, health care, education, agriculture.

Both Government and the private sector talked about the need to improve labour productivity and the need for the introduction of developed high technology and the industrial revolution 4.0 and the need for more transparency and clear regulations and interpretation. There also seemed to be an agreement that whilst the future objective should be high tech investment and introduction of robotics, traditional labour intensive industries are still needed particularly in the rural areas.

Prime Minister Phuc stressed that FDI was and would remain a cornerstone of Vietnam’s development and had contributed significantly in lifting Vietnam from a poor country to a low middle income country.

He stressed that Vietnam needs to be more selective about FDI, in the future, with a focus on collaboration to protect the environment. He would also like to see a focus on high tech, energy efficient investment that produces high value products. Furthermore there is a need to attract and support investment in rural areas. To achieve the Government’s objectives there is a need to continue to perfect the legal framework, to improve incentive policies, and to develop new mechanisms to promote investment, trade and tourism.

Certainly Vietnam has to be congratulated on their past success and if the challenges are addressed and the focus is maintained in the areas outlined the future of FDI in Vietnam is certainly assured.

Kenneth M Atkinson