Foreign-invested projects that are valued at less than $1 million continue to make up the majority of ventures as a whole, with enterprises often hedging their bets in terms of diversification and the upcoming global tax overhaul.

According to figures published by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, the five-month number of new projects worth less than $1 million accounted for nearly 70 per cent of the total number of foreign-invested projects registered in the country, but the value only makes up 2.2 per cent of the total.

The Vietnam Association of Foreign-Invested Enterprises (VAFIE) predicts that the inflow of smaller ventures will continue to occur unless domestic firms create enough competition capacity to replace this domination.

VAFIE vice chairman Nguyen Van Toan said, “South Korea is a strong example. Although it still maintains its position as one of the largest foreign investors in the country, the average capital of its projects is still low because they invest in both large projects and micro-projects. The prolonged situation will prevent opportunities for domestic firms, especially supporting companies, to join the global supply chain.”

The FIA evaluated that the growth rate of new projects has been much larger than the total investment, which shows that small- and medium-sized enterprises continued to pay attention to and had confidence in the investment climate of Vietnam to expand operations. Another reason cited is that large corporations were considering their business regarding the impact of the upcoming global minimum tax policy.

Regarding the issue of micro-projects taking up the majority of activity, Toan of the VAFIE said that large manufacturers want to create opportunities for their satellite companies, and to ensure the stability of their production chain. “Simultaneously, it shows a reality that domestic enterprises have yet to be strong enough to join these foreign-invested enterprises’ supply chains,” Toan said.

Nguyen Manh Linh, deputy director of Dai Phong JSC – the developer of My Thuan Industrial Park in the northern province of Nam Dinh – told VIR, “The reason for the situation is the impact of the drop in global foreign-invested capital inflow, and the impact of political conflict elsewhere, making multinational groups confused about their expansion plan overseas.”

Although the government has issued many policies to improve the quality of foreign-invested projects, Linh said that the procedures to get investment licences are still complicated.

“They require approval from many levels, impacting the process of implementing projects,” Linh said.

While many cities and provinces are eager to accelerate promotion activities, and implement solutions to improve capacity, other localities remain reluctant because land in industrial hubs is exhausted. “Thus, there is a reality that localities want to call for large-scale projects but fail to meet the investors’ demand for land. Meanwhile, other localities with enough land do not have enough capacity to welcome investors,” Linh added.

FIA statistics showed that big foreign investors often focus on the larger cities and provinces, such as Hanoi, Ho Chi Minh City, Dong Nai, Bac Ninh, Bac Giang, Binh Duong, and Vinh Phuc.

Meanwhile, many localities such as Yen Bai, An Giang, Kien Giang, Hoa Binh, and Hau Giang saw no newly registered or expanded projects in the first five months of this year. Meanwhile, Quang Tri and Ben Tre provinces only witnessed adjusted capital projects with added capital of $300,000 and $500,000 per project, respectively.

Vietnam Investment Review