Vietnam’s Foreign Investment Climate

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By Chua Siew Joo

Sept. 28 – In the first nine months of 2008, investment by foreign businesses in Vietnam exceeded US$57.12 billion, almost a fivefold year-on-year increase, according to Vietnam's Foreign Investment Agency. Vietnam’s foreign direct investment for 2007 amounted to US$20.3 billion.

The Foreign Investment Agency revealed that the capital for new projects amounted to US$56.2 billion; projects in industry and construction accounted for 57 percent and 55 percent of the total FDI and the overall number of projects respectively. Meanwhile, the service sector attracted FDI of US$23.7 billion for 361 projects; the agriculture, forestry and fisheries sectors attracted FDI of US$1.12 billion.

Ninh Thuan Province is ranked top in amount of FDI received, with a steel project that is worth US$9.8 billion. Ba Ria- Vung Tau province came in second with US$9.3 billion in FDI. Malaysia is the top investor among the list of 40 countries and territories who have invested in Vietnam in the past nine months with US$14.3 billion for 37 projects while Taiwan comes in second with an investment capital of US$8.6 billion and 116 projects.

The EU has also invested more than US$10 billion with more than 750 projects over the last few years. The projects are mainly large-scale projects in oil, gas, manufacturing, infrastructure and telecommunications.

Investment in Vietnam’s service industry is increasing considerably, especially with the decentralization of the right of granting the investment certificates to People’s Committees in the provinces.

Vietnam is an attractive location to foreign investors due to its political stability, high-growth economy and abundant labor pool with low costs. However, it faces challenges from its legal framework, administrative procedures, poor infrastructure and the quality of its labor force.

In early September 2008, Vietnam intends to boost its weak supporting industries, which is undermining its attractiveness to foreign investors. Vietnam’s plans to improve local-sourcing will focus on producing parts and components for electronics, garment and textile, footwear, automobiles and strengthening linkages between FDI and local enterprises, according to Vu Huy Hoang, its Ministry of Industry and Trade at a national conference.

According to the VietnamNet Bridge, the Asian Development Bank has also just announced its plans to lend US$1.196 billion to Vietnam to help upgrade the highway linking Noi Bai in Hanoi to the northern border province of Lao Cai, part of the Kunming-Haiphong communication corridor.

The 244-km highway is an integral part of the Great Mekong Subregion (GMS) Northern Economic Corridor which connects Kunming city in Yunnan province, China, with Hanoi through major ports like Haiphong and Cai Lan in Vietnam. The highway is expected to be completed in 2012.

This enhanced transport link will hopefully help accelerate trade between Haiphong and Kunming, improve socio-economic conditions in the Northern provinces and narrow development gaps among the regions in Vietnam.

With the Vietnamese government’s increasing awareness of the fragility of its natural resources, it has started to take action to treat pollution in the lakes in the city. Scientists will be working with government agencies to treat pollution with a chemical known as LTH-100. Despite its success at initial testing, maintaining the health of the water bodies will be the most challenging task yet for the Vietnamese authorities.

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