Improving FDI quality, quantity crucial for Vietnam: Insiders

Amid the slowing down of the global investment flows, experts held that improving both quality and number of foreign investment projects is a heavy task for Vietnam, requiring great efforts from the Vietnamese Government to fulfil the “dual targets”.

According to the Foreign Investment Agency under the Ministry of Planning and Investment (MPI), as of May 20, Vietnam had drawn 10.86 billion USD of foreign direct investment (FDI), down 7.3% year on year, including 5.26 billion USD of newly-registered capital, up 27.8%.

Do Nhat Hoang, Director of the agency said that the increase in the amount of newly-registered capital in five months was higher than the 11% recorded in the first four months of this year.

Meanwhile, the number of new projects in the five-month period also surged 66.4% year on year to 962 projects, showing foreign investors’ strong confidence in the investment environment of Vietnam, he said.

Data from the agency showed that 7.56 billion USD of FDI was disbursed in the first five months of this year, revealing an improvement compared to that in the beginning of previous years.

Hoang affirmed that the slow-down in FDI attraction is not due to Vietnam’s weaker competitiveness but the common trend of the global investment flow.

The application of the global minimum tax from 2024 is also making investors hesitate to make strong investment in Vietnam amid the impacts of the policy, according to the agency.

However, despite the improvement in FDI attraction, a VinaCapital official held that if Vietnam does not promptly enhance its competitiveness, it may be lag behind in the race.

VinaCapital Chief Economist Michael Kokalari underlined two latent risks for Vietnam in drawing FDI inflows – the competition from India, Malaysia and Indonesia, and the influence of the global minimum tax policy.

In late April, Prime Minister Pham Minh Chinh held a dialogue with foreign investors, and right after that issued a directive on a number of tasks and solutions to enhance the efficiency of foreign investment in the new period.  The Government assigned specific tasks to particular ministries, sectors and agencies, focusing on speeding up the design of planning and preparing conditions to attract investors, and strengthening investment promotion activities.

In its report, the Foreign Investment Agency pointed out that FDI has still concentrated in localities with great advantages in infrastructure, human resources, administrative procedures and dynamic investment promotion like Hanoi, Bac Giang, HCM City, Binh Duong, Dong Nai, Bac Ninh and Hai Phong.

MPI Minister Nguyen Chi Dung said that it is necessary to prepare new investment incentives and support packages before the global minimum tax is applied in 2024 to increase the competitiveness of the national investment environment and harmonise interest of investors.

Experts held that in order to improve the quality of FDI inflows, Vietnam should focus on drawing large investors.

Kim Sung-hun, General Director of Amkor Technology Vietnam, which is implementing a semi-conductor factory in Bac Ninh, proposed Vietnam give clear and detailed regulations in fire prevention and fighting, while promptly delivering decisions and measures to respond to the possible worsening investment environment when the global minimum tax is applied.

Kokalari held that the global minimum tax policy may become a barrier for the FDI inflows to Vietnam, as tax incentives are not the key factor for foreign investors to build their factories in Vietnam. The economist said he believes the Vietnamese Government will find out alternative measures to balance tax obligations when the global minimum tax is enforced.