Vietnam Continues Reform of its Economic Policy with a Focus on Eco-Friendly FDI
HANOI – Vietnam has announced that it will now focus on attracting eco-friendly foreign direct investment (FDI) projects that are high-tech and consume a low level of natural resources and energy.
The Deputy Minister of the Ministry of Planning and Investment, Nguyen Van Trung, has pronounced that the country will choose investment projects that are more of an appropriate fit to the new development period. Additionally, the government will also seek out more projects from small and medium sized enterprises.
Minister of Planning and Investment, Bui Quang Vinh explained the government’s new policy: “What we need to do is [solve] existing obstructions in attracting FDI. Those are weaknesses in infrastructure, [an] unskilled labor force and slow development in [the] support industry, shortcomings in institutions, policies and administrative procedures.”
In this regard, the government has announced that it is finalizing a legal framework for FDI which will focus on amending the Law on Enterprises and other relevant legal documents.
The country is experiencing increased competition from countries such as Thailand, Malaysia and Cambodia who are also seeing their investment environments improve.
However, Vietnam still remains an attractive FDI destination due to its stable political environment, large and growing consumer market, and its many linkages to the rest of Asia. Additionally, the country is an ideal location due to its soon-to-be-completed trade agreements: the Trans-Pacific Partnership and Free Trade Agreements with the EU and the Republic of Korea.
While facing a poor global economic situation during 2013, Vietnam was still able to attract more than US$20 billion in FDI. FDI accounted for about 18 percent of the country’s GDP, 64-67 percent of export revenue, and 12-14 percent of the national budget revenue. FDI was also credited with creating over 2 million domestic jobs.
However, in 2014, January’s FDI numbers were 22 percent lower than the same time last year. This could be the spur that has forced Vietnam to get serious about reforming its FDI process.
A breakdown of the January 2014 numbers is as follows:
- US$397.1 million in total FDI – 40 new FDI projects (totaling US$211 million) and six existing projects that are expanding investment (US$186.1 million)
- 47.6 percent (US$189 million) of FDI was processing and manufacturing industries
- 44.4 percent (US$176.3 million) of FDI was the real estate sector
- The majority of FDI came from South Korea (US$88 million), then Malaysia (US$27.2 million), and France (19.5 million)
- The southern province of Ba Ria-Vung Tau was the most popular location for FDI, followed by the northern provinces of Thai Nguyen (US$31.3 million) and Vinh Phuc (US$31 million)
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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