Vietnam aims to become the hub of the region and to participate actively in global value chains.

In order to do that, Vietnam is focusing on three sectors: Human Resources (Training),

Infrastructure (Development) and Institutional (Reform). Specifically, Vietnam will amend the
investment law and the enterprises to become more open, equal, free and attractive. At the same
time, a series of administrative reforms relating to taxes customs, social securities and business is
also underway.

In 1987, the economic reform was known as “doi moi” was implemented. After “doi moi”,
Vietnamese economy made a transition from a centrally planned and subsidized economy to a
market economy.

This implementation has transformed from a closed economy to the market-orientation where
new strategies and policies from the government help to improve the attractiveness of FDI
inflows. As a result, the state-owned companies, which are a monopoly on international trade,
have repealed. From that milestone, Vietnamese firms are now legally can engage in
international trade such as imports and exports activities. Furthermore, foreign companies can set
up offshore companies and branches.

Just right after this implementation, the Foreign Investment Law has gone through the
Vietnamese Parliament and opened for almost economics sections. Hence, by adjusting the
friendlier law and competitive labour market have made Vietnam more attracted to foreign
companies' eyes.

Furthermore, the growth of export-oriented FDI become a trend, and it keeps increasing recent
years in many developing countries, which is a "pedal" for these countries to drive through the
difficulties. China is an excellent example of a prosperous country in term of attracting FDI and
one of the foremost vital elements of China to become the second-largest economy country in the
world.

Figure 1 displays the impressive transition among the economic sectors of the Vietnamese
economy within 20 years from 1990 to 2010, showing that contribution of the manufacturing and
industry sector to GDP is getting much improved and taken the most significant position from
the agriculture sector in the contribution of GDP.
 GDP by type of economics sectors in % from 1990 to 2010
50
45
40
35
30
25
20
15
10
5
0
199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Agriculture Manufacturing and Industry Service

Figure 1: GDP by type of economics sectors in percentage from 1990 to 2010. Data by GSO

FDI inflow has contributed to making a vast comprehension in Vietnam economy up to now.
With the average of Gross Domestic Product (GDP) growth around 7% comparing to 3.152%
(data for 2017, World Bank) in GDP growth, Vietnamese economy had been one of the fastest-
growing economies among the world. An increase in real GDP per capita from 389.3 USD in
1988 (World Bank, adjusted in inflation) to 2343.1 USD (World Bank) in 2017; Real GDP from
25.424 Billion USD in 1988 to 223.864 USD in 2017, the Vietnamese economy has developed
very fast and considerably sustainable.
 Vietnam GDP per capita in a year (current US$)
2500

2000

1500

1000

500

0
88 990 992 94 996 998 00 002 004 006 08 010 012 014 16
19 1 1 19 1 1 20 2 2 2 20 2 2 2 20

Figure 2: Vietnam GDP per capita in a year (current US$)

Vietnam has made a remarkable change from a planned economy to a market economy since
1987. It has a relatively short history of FDI compared to other developing countries such as Sri
Lanka (1948).

The chart (data from World Bank) below shows the overall trend of FDI inflow into Vietnam
from 1988 to 2017. Before 2001, the chart was very stable. However, in December 2002, with
the Bilateral Trade Agreement between the USA and Vietnam, it started to increase sustainably.
Besides, after 2007, Vietnam has been a member of WTO, FDI Inflow has a rapid increase in
value and continuously. In 2006, the figure showed that its FDI inflow to Vietnam touch 2.6
billion US dollars. However, just one year after, this figure has become 6.7 billion US dollars,
which were approximately 2.5 times higher within one year. Moreover, in 2017, the Foreign
Direct Investment Inflow to Vietnam reached 14.1 billion US dollars.

Even the figure of Foreign Direct Investment inflow to the Vietnamese economy is still modest
compared to other countries in the world; however, it still distributes a vital role within the
Vietnamese economy for at least two critical elements: widen the sources of capital for Vietnam
and carrying techniques, skills and technologies.
 Vietnam FDI Inflow
$16,000,000,000.00
$14,000,000,000.00
$12,000,000,000.00
$10,000,000,000.00
$8,000,000,000.00
$6,000,000,000.00
$4,000,000,000.00
$2,000,000,000.00
$0.00

Figure 3: Vietnam FDI Inflow

Vietnam occupies a significant proportion of FDI inflow. Comparing to Thailand, the graph
shows that the average proportion of FDI over GDP in 30 years.

Propotion of FDI in total GDP: Vietnam vs Thailand from

1988-2017. Source: World Bank

14%
12%
10%
8%
6%
4%
2%
0%
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
19 19 19 19 19 19 20 20 20 20 20 20 20 20 20

Thailand Vietnam

Figure 4: Proportion of FDI in total GDP: Vietnam vs Thailand from 1988-2017.

(Source: World Bank)

 Average Wage Monthly in 5 Countries (Data has calculated as
current wage in GBP, Tradingeconomics.com,2017)
1800.00
1600.00
1400.00
1200.00
1000.00
800.00
600.00
400.00
200.00
0.00
Vietnam Thailand China Phillipines Hong Kong

Figure 5: Average Wage Monthly in 5 countries (Data has calculated as current wage in GBP)

(Source: tradingeconomics.com, 2017)

Vietnam has a significant stable political and social environment comparing to the regional area.
Furthermore, the abundant of the labour force and the relatively low cost of labour comparing to
the local region. Hence, with the average monthly wage is under 200 GBP, this indicates that the
average wage of plentiful labour country has a significant comparative advantage within the
local region.
Table 1: FDI Projects Licensed in period 1989 to 2017.

Year Number of Project Total Registered Capital

1989 1 0.6

1990 1 .

1991 3 4

1992 3 5.3

1993 4 0.5

1994 3 1.3

1998 2 1.9

1999 9 5.6

2000 15 4.7

2001 13 4.4

2002 15 147.9

2003 24 28.1

2004 15 9.5

2005 36 367.5

2006 36 221

2007 80 977.9

2008 104 3147.5

 2009 91 2597.6

2010 108 3503

2011 82 2531

2012 84 1546.7

2013 93 3107.1

2014 109 1786.8

2015 118 773.8

2016 139 970.7

2017 130 350.1

(Source: gso.gov.vn)

For less developed countries in general moreover, Vietnam in particular, FDI is the source
essential to make up the shortage of capital.

Investment capital is the basis for creating jobs and exchanging new technologies, increase labor
productivity, thereby increasing income, increasing accumulation for Socio-Economic
development. Not like Foreign loans, FDI can help Vietnam overcome the situation

lack of capital without having to borrow. Next, as a result, borrowing from foreign countries
often suffers control over time, sometimes time payment term is too short, causing difficulties in
invest. FDI capital is more flexible, thus more favorable in investment. In more than 20 years,
the FDI capital inflows to Vietnam has enormous volatility. As seen on the table above, the total
number of FDI companies registered in Vietnam has significantly increased after the global
financial crisis in 2008 and remain sustainable for the next ten years.

Table 2: FDI projects licensed by kinds of economics accumulated 2017

Number of Total registered capital (Mill.

projects USD) (*)
TOTAL 24803 319613.1
Agriculture, forestry and fishing 511 3521.2
Mining and quarrying 105 4876
Manufacturing 12460 186514.2
Electricity, gas, stream and air
conditioning supply 115 20820.9
Water supply, sewerage, waste
management and remediation activities 68 2338.5
Construction 1481 10846.5
Wholesale and retail trade; Repair of
motor vehicles and motorcycles 2805 6200
Transporation and storage 666 4646.7
Accommodation and food service
activities 644 12004.2
Information and communication 1653 3336.5
Fiancial, banking and insurance activities 81 1487.8
Real estate activities 639 53226
Professional, scientific and technical
activities 2478 3096.3
Administrative and support service
activities 298 527.1
Education and trainning 376 759.9
Human health and social work activities 134 1867
Arts, entertainment and recreation 133 2781.6
Other service activities 156 762.8

(Source: gso.gov.vn)
Manufacturing is the leader of the economic sector in Vietnam. It accounted for 12460 projects
with a total of money invested up to 186514.2 million USD. This number shows the significance
of changing in a proportion of the economic sector in Vietnam. "Transportation and storage" and
"Professional, scientific and technical activities" brought more than 5000 projects combined and
more than 9000 million USD to Vietnam. Hence, looking at this figure, this somehow shows the
transformation of the Vietnamese economy.

Aside from the transition of the economic sector, the other benefit that the FDI transform and
promote the labour restructuring from agriculture to industrialization. The creation of jobs for
workers here not only reduces the unemployment rate of Vietnam but also increases the income
of workers, thereby creating an increase in domestic accumulation, contributing to stabilizing the
economy and society. On the other hand, the income of qualified and experienced workers in
FDI enterprises is always higher than in other local businesses. This has increased the
competitiveness in the labour market, which is the motivation for employees to have a constant
awareness of learning and improving their skills to meet the foreign language and professional
requirements in FDI enterprises — thereby having a significant influence on the society's
awareness in education and training, contributing to labour restructuring, forming a team of
skilled, technical workers, adapting to the requirements of the sustainable economy. On the other
hand, in the process of investment, production and business in Vietnam, foreign enterprises and
joint ventures must bring a team of engineers, managers, competent experts come to Vietnam to
work. Hence, considering this as a favourable condition for Vietnamese businesses as well as
labourers to learn knowledge and experiences. Besides, FDI enterprises, although they do not
want to, they must also participate in the training of human resources for Vietnamese workers to
meet technical and technological requirements of enterprises or investment projects. As a result,
Vietnam is now having teams of qualified engineers, technicians and managers who can replace
foreign experts in taking over and operating production and business. Thus, directly or indirectly,
FDI has also contributed to improving and improving the quality of Vietnam's human resources
in recent years.
Among the total 107 countries and territories investing in the country, Hong Kong was the
largest investor with $6.45 billion, followed by South Korea with $5.52 billion and Singapore
with $4.21 billion.

Besides the positive effects and the significant contribution to the economic growth of Vietnam,
the activity of FDI in Vietnam recently has also caused harmful effects.

The very first disadvantage is the cost of entry. These are some individual costs at which it
cannot avoid, such as lobby costs, transaction costs, and more. Furthermore, before 1999, the
Vietnamese government had executed the dual price system. Knowing that a dual price system is
discrimination and the obstacle, after 1999, one price system has implemented to encourage and
stimulate foreign investment.

Although FDI is a crucial supplementary capital source for the total investment capital of the
whole society, most of this capital source concentrates for resource exploitation projects, labour-
intensive, urban exploitation projects. FDI activities do not have a high spreading effect,
contributing to the unbalanced development of Vietnam's industry structure. Specifically, the two
industries and services are the two sectors where FDI focuses on investing the most, while
agriculture enterprises are inherent strengths of Vietnam but do not attract many FDI projects,
making agricultural products have not improved their value compared to other industries.
Besides, most FDI enterprises only focus on labour-intensive industries such as textile, leather
and garment ... because, with these industries, FDI enterprises only need to invest in a relatively
small scale, the number of little capitals. Also, labour in these industries is abundant; the cost of
vocational training and wages is also low. FDI enterprises in these sectors account for the
majority of foreign enterprises investing in Vietnam.

Moreover, sectors that can attract large amounts of foreign investment such as infrastructure,
heavy industry, real estate, seem slow to progress and have been saturated. Although all local
provinces in Vietnam have attracted foreign investment projects, the majority of projects focus
on big cities and provinces. Hence, contributing to an increase in investment and development
imbalance between regions, between provinces and cities.
Domestic firms cannot meet the specific requirements of the required input; FDI firms engage in
importing raw materials, input and also equipment and machinery. It makes an increase in
Vietnam's trade deficit, causing macro instability such as inflation and trade deficit.

One of the conditions to attract foreign investment in Vietnam is the abundant and cheap labour
force, so most FDI enterprises invest in manufacturing, processing, preliminary processing and
processing industries to exploit cheap, less-trained labour resources. Many businesses also apply
the probationary mechanism to replace labour, reduce salary costs regularly. The common
characteristic of these enterprises is their high working time, high risk of occupational diseases
but low salaries and allowances.

While running businesses in Vietnam, many FDI enterprises only focus on exploiting natural
resources, especially non-renewable resources such as minerals, destroying the natural
environment. In addition, many FDI enterprises have not paid much attention to environmental
protection, being indifferent in building treatment systems and hazardous waste management,
polluting the ecological and living environment of the people.