Patience a virtue for rally of foreign direct investment

While foreign investment inflow into Vietnam is continuing at a leisurely pace this year, some commitments on large investments ahead could be a glimmer of hope to restrain the decline.

A new report from the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA) has revealed that the amount of foreign direct investment (FDI) into Vietnam is dropping. Specifically, as of February 20, the total newly-registered and newly-added FDI and capital contributions and stake acquisitions into the country stood at $3.1 billion, down 38 per cent on-year, and disbursed capital was $2.55 billion, equivalent to a slight decrease of 4.9 per cent.

However, FIA director general Do Nhat Hoang said that newly registered capital is increasing in both quantity and value. “In the first two months, 261 new projects were granted investment registration certificates with the total registered capital of over $1.76 billion, equivalent to 280 per cent on-year,” he said.

Among new projects is Compal’s $260-million initiative to manufacture and process electronic components, computer parts, and smart devices. Investment certificates were received last month, and a new facility is expected to break ground this quarter and see operations in Q2 of next year.

In addition to the increase in new projects, the number of those reaching $100 million in registered capital is also higher than in the same period last year, with four reaching the mark in 2023 compared to only one in 2022. The most outstanding is Singapore’s Fulian precision technology factory in the northern province of Bac Giang, valued at $621 million, to produce electronics and computer components.

Moreover, capital contributions and share purchases also reported some improvement. There were 440 capital contributions and share purchases (up 10 per cent) in the first two months, equivalent to $798 million and up 3.7 per cent on-year.

However, there were some negative signals in additionally registered capital. The adjusted capital of 133 ongoing projects reached about $535.4 million, down 85.1 per cent on-year.

This is explained by the FIA that many large ventures adjusted capital in the first two months last year, including $920 million into Samsung’s Electro-mechanics facility in the northern province of Thai Nguyen, and GoerTek pouring $306 million into manufacturing of electronic equipment and multimedia products in northern province of Bac Ninh.

They contributed to the $3.6 billion in the additionally registered capital in the first two months last year, 2.2-fold higher than the same period in 2021.

Besides the first two months of this year, the downtrend last year typically saw a decrease reported at between 5-15.3 per cent each month, as compared to 2021. In 2022, only FDI in the first month reported an increase of 4.2 per cent on-year, with the other 11 months reporting a downtrend. Total registered FDI inflow in 2022 sat at $27.72 billion, down 11 per cent.

The decline is also seen in the disbursement of FDI. Disbursement each month last year showed significant improvement on 2021, with an increasing trend of up to 16 per cent. However, January 2023 has seen a drop 16.3 of per cent, and there was a 4.9 per cent dip for January and February combined.

Despite disappointing numbers, foreign investors and partners continue to highlight Vietnam as one of the most attractive and safe destinations to place their money. A survey from the Japan External Trade Organization and the European Chamber of Commerce in Vietnam noted that investors from Japan and Europe will strengthen investment into the country.

“Vietnam was becoming an indispensable part of the global supply chain for Japanese manufacturers by ranking fourth in the world in terms of favoured destinations for Japanese companies, and ranking second only behind the US in attracting funding from Japan,” said Nakajima Takeo, JETRO chief representative.

More than 60 per cent of respondents said that their companies would expand their business in the next two years, a higher proportion compared to any other ASEAN country.

In addition to Japan, some big-scale commitments from giants likely on the way, if not already declared. Two weeks ago, Thailand’s Central Retail announced it would pump $1.45 billion into Vietnam by 2027 to accelerate its activities. CEO Yol Phokasub said, “We see Vietnam as a high-potential key market that has shown continuous economic growth.”

Italian motor vehicle manufacturer Piaggio has also raised its capital in Vietnam by $75 million, its 14th adjustment, to $165 million for a factory in northern Vinh Phuc province.

Chinese manufacturer and supplier of electric and electronic components GoerTek is ready for new investment to pour $1 billion into its factories in Bac Ninh and Nghe An province. Of this, GoerTek will spend $290 million to expand its factory in Bac Ninh first.

The MPI sees that global investment is facing numerous woes due to the tightening of financial resources and the global recession. However, it said Southeast Asia can benefit thanks to the relocation of supply chains from China and the US-China trade tensions. “The relocation attached with FDI inflow may increase funding into ASEAN countries when companies establish factories, warehouses, and distribution network in the region,” the MPI reported to the government.

The FIA expects that new FDI in Vietnam will raise by 30 per cent in 2023 to reach $36-38 billion.

Vietnam Investment Review