Professional Documents
Culture Documents
INTERNATIONAL INVESTMENT
Major: External Economics
Name Student ID
Nguyen Phuc Lam Kieu 1911155041
Bui Thi Thuy Lien 1911155043
Huynh Khanh Linh 1911155044
Nguyen Thi Anh Linh 1911155045
Tran Minh Luan 1911155046
Pham Thi Quynh Mai 1911155047
Class: K58CLC5
Contents
TABLE OF CONTENT ............................................................................................. 1
ABSTRACT ............................................................................................................... 4
INTRODUCTION ..................................................................................................... 1
OVERVIEW ............................................................................................................... 1
1. FDI overview................................................................................................... 1
1. 2000-2007........................................................................................................ 7
2. 2008-2014...................................................................................................... 16
3. 2015-2021...................................................................................................... 21
CONCLUSION ........................................................................................................ 27
1. Implications ................................................................................................... 27
REFERENCES ......................................................................................................... 28
TABLE OF FIGURES
Figure 1. FDI and net flow in Vietnam....................................................................... 7
Figure 2. FDI over years ............................................................................................. 8
Figure 3. Detailed FDI in Vietnam ........................................................................... 10
Figure 4. FDI inflows to Lao from 1986-2015 ......................................................... 16
Figure 5. FDI trends from 2006-1Q2018 .................................................................. 17
Figure 6. FDI inflows to Vietnam and project registration, 2011-2020 ................... 22
TABLE OF TABLES
Our research is divided into three parts. The first part provides the general knowledge
of FDI and its impacts on the economy, in overall. The second part looks deeper into the
case of FDI inflows in Vietnam, which is divided into three sections corresponding with
three phases of the research period. This paper is mostly based on secondary data from
international organizations such as World Bank and previous studies on the subject.
OVERVIEW
1. FDI overview
1.1 Definition
However, definitions of FDI tend to vary across countries and organizations:
The common feature of these definitions lies in terms of ‘control’ and ‘lasting
interest’, which represents the most important feature that distinguishes FDI from other
forms of international investment - the element of control over management policy and
decisions.
1
1.3.2 Merger & Acquisition (M&A)
When an investing firm merges with or acquires an existing local firm in the host
country. In a cross-border merger, the assets and operations of two firms belonging to two
different countries are combined to establish a new legal entity.
Impact on investment
TNCS may crowd in domestic investment when they introduce new goods and
services to the host economy that may offer new investment opportunities for domestic
2
firms , create upstream or downstream linkages with domestic producers or even increase
the efficiency of financial intermediation.
FDl may crowd out domestic investment by entering activities already populated by
local firms in which there is little room for further expansion, in which domestic firms are
unable to compete with foreign affiliates, or by using their size and " bankability " to gain
privileged access to local capital markets.
Technology diffusion
The diffusion of technology and skills from foreign affiliates to a host economy may
occur through four channels.
Competition with local firms stimulating the latter to improve efficiency and
technological capabilities and raise productivity.
Cooperation between foreign affiliates and local suppliers, customers and
institutions with which they have linkages, leading to information exchange
and technical collaboration that enhance the technological capabilities of the
linked local agents.
Labour mobility, particularly of highly trained personnel, from foreign
affiliates to domestic firms including supplier firms set up by former TNC
employees, often with the support of their former employers.
Proximity between foreign and local firms, leading to personal contact, reverse
engineering, imitation and the formation of industrial clusters facilitating
technological upgrading in host countries.
3
Technology generation
To the extent that they locate their R&D activities in host countries, FDI has the
potential to increase technology generation and strengthen innovatory capacities in host
countries. More developing countries and transition economies are now attracting R&D by
TNCs, including some highly advanced R&D activities thanks to the growing availability
of educated and highly trained human resources in a number of developing countries.
In host countries with adequate education and capabilities. TNCs can help create
dynamic comparative advantages by means of new skills and advanced technologies
introduced through their foreign affiliates' production activities. In countries with more
advanced industrial and technology bases, TNCs can feed into innovation by setting up
R&D centres and interacting with local research.
Successful exporting needs not only competitive products but also marketing
expertise and access to international markets. FDI can provide a major benefit in this aspect,
especially in markets in which established brand names and large distribution networks are
important assets. Where trade is internal to TNCs, as in some high technology products,
joining TNC networks is often a necessary condition for increasing exports.
When they first enter a host country, TNCs may tend to use overseas suppliers with
whom they have strong linkages, however, there are advantages to having suppliers nearby
4
and TNCs invest in developing local suppliers when the cost of building their capacity to
the necessary technical and quality levels is modest. Over time, linkages with local firms
increase, creating opportunities for local supplier firms to expand sales not only to export
oriented foreign affiliates in host countries but to venture directly into the international
market.
Employment generation
TNCs differ from other firms in that they distribute their employees in different
locations. The large TNCs can generate substantial volumes of employment in host
countries. Additionally, FDI increases host country employment directly when it involves
setting up new foreign affiliates or expanding existing affiliates. It can increase
employment indirectly by stimulating additional employment in suppliers and distributors.
In the medium term, employment can also increase through multiplier effects from the new
income generated by FDI or through the higher demand stimulated by improved efficiency
and restructuring of competing firms.
Wages
Foreign affiliates generally pay higher wages than domestic firms in similar activities.
The difference is more marked in industries that demand higher levels of skill, technology
5
and marketing and in export - oriented activities that need to ensure consistent quality and
timely delivery.
Job security
Foreign affiliates tend to offer greater job security because of their size, competitive
strength and need for a stable workforce.
Working conditions in foreign affiliates are often better than those in ·local firms. In
particular , large and visible TNCS tend to comply with local and international labour
standards and even with labour standards in their home countries.
Enhancing skills
TNCs tend to upgrade skills of foreign affiliate employees in host countries by
investing in training. Training may be on the job, or formal training within the firm or in
specialized institutions. Generally, TNCs also induce local suppliers and buyers to train
workers to meet their quality standards and thereby indirectly influence local competitors
or unrelated firms to emulate their training practices.
6
FDI TRENDS AND IMPACTS ON VIETNAM ECONOMY
1. 2000-2007
In the whole period 2000 - 2007, a couple of years after Doi Moi Policy was
implemented and not long before the global financial crisis 2008, Vietnam witnessed two
main FDI trends, which are slightly flat in the first two-thirds of the period (from 2000 -
2005) and skyrocketing in the remaining time (2005 - 2007). This trend clearly showed
the positive effects of Doi Moi policy on national economic growth when international
trade was first facilitated.
7
1.4 FDI size and growth
1.4.1 From 2000-2005
From 2000 to 2005, the background of Vietnamese economy is that many countries
especially China started to invest strongly in their economy to attract foreign investments,
threatening the competitiveness of FDI of Vietnam.
8
Table 1. FDI from 2000 - 2007
Regarding capital inflows, in 2000, Vietnam had an amount of registered capital of
2,763 billion USD, rising to 6,840 billion USD in 2005 with only slight fluctuation in the
year 2001 - 2002 which is not remarkable. As for implemented capital, Vietnam showed a
flatter trend compared to registered one. Specifically, the figure for implemented capital
fluctuated between 2,399 billion USD in 2000 and 3,301 billion USD in 2005. While
registered capital seemed to increase rapidly at the end of the period, the numbers of
projects went reverse. In the first half period of 2000 - 2002, the number of projects rapidly
grew from around 350 to around 700 projects, followed by a moderate growth from 700 to
around 850 projects in the remaining years. Although the numbers of projects were stable
along the period, most of the projects were small and medium scale ones.
In general, in the 2000 - 2005 period, total registered capital contributed about 22,806
billion USD, which was about 1 billion less than that in the previous period (1996 - 1999)
and total implemented capital contributed about 15,843 billion USD which was about 4
billion greater than that in the previous years.
It can be seen that although the market in Vietnam was lack of experience to attract
much investment from foreigners at that time, FDI capital inflows appeared stable along
the way from 2000 to 2005 thanks to the stability of macroeconomic conditions and
9
national politics in Vietnam, but the trend still performed a little poorer than that in 1996 -
2000 period in which Doi Moi policy was just implemented nationally.
As for capital flows, Vietnam witnessed the higher number of registered capital than
ever before, with over 10,000 billion USD in 2006 (the first two-digit number for the figure
of registered capital flow), increased by twice greater in 2007. Similarly, figures for
implemented capital were 4,1 billion USD and 8,034 billion USD in 2006 and 2007
relatively.
10
1.5 Other type of FDI
1.5.1 Distribution by sector and industry:
1.5.1.1 Industry and construction sector:
As shown by the table, light industry and heavy industry performed the most
outstandingly in the three categories: number of projects and investment capital,
implemented capital respectively. Investment capital and implemented capital of heavy
industry were 23,976,819,332 USD and 7,049,365,865 USD respectively. As for light
industry, its number of projects accounted for 2,542, followed by 2,404 projects of heavy
industry.
11
1.5.1.2 Service sector
It is clearly shown that culture- medicals - education; real estate and tourism appeared
to be the top strongest components. Specifically, culture - medicals - education brought the
highest number of projects (271 projects). There were over 9,000 million USD of capital
invested in real estate, accounting for nearly 42% of total foreign investment in the service
sector and over 2,000 million USD implemented in tourism, accounting for 24%.
12
Table 4. FDI in agriculture and forestry sector
By the end of 2007, there was a total registered capital of more than 4.4 billion USD,
about 2.02 billion USD of implementation. Agriculture and Forestry received great capital
of registration and implementation, which were around 4 billion USD and 2 billion USD
respectively, accounting for nearly 90% of the total.
13
to 2006 (31.19%) with many projects on building seaports, trading real estate, building
entertainment and entertainment areas.
14
1.5.3 Countries of origin:
15
1.7 Comparison FDI trends between Thailand and Vietnam in 2000-2007
2. 2008-2014
2.1 FDI trends during 2008-2014
Generally, Vietnam witnessed a sharp decrease in foreign direct investment from
2008 to 2014, along with that, there was a marked fluctuation during this period.
16
Figure 5. FDI trends from 2006-1Q2018
Specifically, the figure in 2008, which was 9.663%, reduced more than a half to
3.941% in the last year of the surveyed period (2014). There were many factors
contributing to this sharp increase in FDI in 2008. In particular, thanks to the participation
of Vietnam in WTO, the totally newly registered capital in 2008 was significantly high
compared to the previous years, this figure peaked at US$60.22 billion with a total of 1,171
investment projects.
Of these projects, there were 311 ones adding by US$3,74 billion to the registered
capital, which multiplied by 222% compared to the last year 2007. Regarding the
investment sectors, there were assumptions that the real estate sector attracted FDI most,
but the reality showed that the construction sector was dominant in totally newly registered
capital, with a total of 537 projects, making up 53.7% of investment projects and 55.7% of
totally registered capital.
Regarding investment location, Ninh Thuan Province attracted FDI the most among
43 provinces invested by foreign companies, followed by Ba Ria- Vung Tau, Ho Chi Minh
City and Ha Tinh Province. Specifically, thanks to the joint venture between two
corporations - Lion (Malaysia) and Vinashin (Vietnam), Ninh Thuan attracted a total of
17
US$ 9.3 billion in registered capital. Regarding investment counterparts, there were 44
foreign countries registered investment in Vietnam.
Of these partners, Malaysia was the leading investor, followed by Taiwan, Japan and
Brunei, with US$ 14,9 billion in registered capital, accounting for 4.2% in terms of
investment projects and 25,5% in terms of registered capital. 2008 also welcomed the
participation of many big foreign corporations such as Good Choi (The US), Berjaya
(Malaysia) v.v… However, the FDI figure no longer remained that high in 2009 and it fell
to US$20 billion. This is the first time it dropped in the past five years due to the negative
effects of the global crisis. In particular, there were totally 215 projects, increasing US$
5.13 billion in registered capital, equaling 98.3% compared to the previous year.
Regarding the investment sectors, accommodation and food services were the most
attractive to investors, followed by real-estate activities and manufacturing and processing.
To be specific, in the accommodation and food services sectors, there were 32 new projects
with total investment capital of almost US$ 4.8 billion. Also, there were 8 projects with
expanded investment capital by US$ 3.8 billion. Regarding investment location, Ba Ria -
Vung Tau province took the first position in attracting foreign direct investment, followed
by Quang Nam province, Binh Duong province and Phu Yen province, with total newly
registered capital and capital gain of US$ 6.73 billion.
Regarding the investment sector, the real-estate sector was the leading one in
attracting foreign direct investment in 2010 with a total of 27 new projects and 6 projects
with expanded investment capital, resulting in the total newly-registered investment capital
18
and additional registered capital reaching US$ 6.84 billion, composed of 36.8% total
registered capital in Vietnam.
In terms of the other two consecutive years (2011 and 2012), manufacturing and
processing were dominant sectors with 435 and 498 new projects in 2011 and 2012. 435
and 498 new projects correspondingly contributed to US$ 7.123 billion and US$ 9.1 billion
in the total registered investment capital. Regarding investment location, Quang Nam
Province, Ho Chi Minh City and Binh Duong Province were the most three attracted spot
for investors in the 2010, 2011 and 2012. Of the projects in Quang Nam in 2010,
contributing to US$ 4.2 bilion in the newly registered capital and additional registered
capital, the project invested by Singaporean investors called “South Hoian resort” attracted
US$ 4 billion to the total capital. In terms of Ho Chi Minh City and Binh Duong Province
in 2011 and 2012, the total newly registered capital and additional registered capital were
US$ 3 billion and US$ 2.53 billion.
There were 1843 new projects granted with investment certificates (a year-on-year
increase of 14%). Regarding investment sectors, processing and manufacturing led with
total investment capital of almost US$ 15.5 billion, accounting for 70.7% of total registered
investment capital. Regarding investment location, Thai Nguyen province continued to
lead the list with a large project worth US$ 3.35 billion, accounting for 15.3% of total
registered investment capital. Regarding investment counterparts, South Korea led the list
with total investment capital of almost US$ 7.7 billion, accounting for 35.1% of total
investment capital in Vietnam.
Generally, over the period of 2008-2014, 2008 witnessed the highest total registered
capital (US$60.22 billion) and 2012 witnessed the lowest total registered capital (US$
13.013 billion). Real estate sector, processing and manufacturing took turn to rank first in
the investment sectors. Moreover, Binh Duong province, Thai Nguyen province, Ho Chi
Minh City and Ba Ria Vung Tau province were the attractive spots to investors during this
period. Lastly, ASEAN member countries, Japan, South Korea and Taiwan were the
outstanding foreign investing countries in this surveyed timeframe.
3. 2015-2021
21
3.1 FDI trends during 2015-2021
From 2011 onward, Vietnam experienced a down cycle in FDI as the market
overheated from tremendous capital inflow. However, it appears to stabilize in 2014-2016,
thanks to reforms to the Law on Investment in 2014 along with successful FTA
negotiations. FDI registered capital reached a peak of $35.88 billion in 2017, up 44.4% as
compared to the previous year, which is the highest since 2009. Meanwhile, the
implemented capital also witnessed a significant rise to $19.1 billion in 2017. In the
following 2 years, FDI registered capital remained steady and reached $38 billion in 2019.
Several factors were the reasons for this sharp growth. First and foremost, many billion-
dollar projects were licensed in 2017, most of these come from major traditional investors
such as South Korea and Japan. The capital of many large projects from various MNCs
such as Samsung, Bosch, Panasonic, etc. were increasingly adjusted to invest in research
and development. In addition, due to the ongoing trade tensions between the U.S and
China, Vietnam has been seen as one of the beneficiaries of major companies looking to
move operations, or relocate altogether, from China in order to diversify and protect their
interests, which contributed to the sharp growth in FDI registered capital.
22
FDI capital inflows decreased to $28.53 billion in 2020, down 25%, while the
number of newly registered projects also declined approximately 35% as compared to the
previous year. The dramatic fall in FDI growth can be attributed to the negative effect of
Covid-19 on global value chains. The interrupted supply chain affects investment
activities and trade, thereby reducing the growth of the world economy in general and
many countries and regions in particular. According to the United Nations Conference on
Trade and Development (UNCTAD), due to Covid-19 crisis, “global FDI flows are
forecast to decrease by up to 40 per cent in 2020, from their 2019 value of $1.54 trillion.
This would bring FDI below $1 trillion for the first time since 2005. FDI is projected to
decrease by a further 5 to 10 per cent in 2021”.
Regarding distribution by sector and industry, until March 2021, the manufacturing
and processing sector accounted for the highest proportion with $225.73 billion, accounting
for 58.5% of total investment capital. Real estate ranked second with investment capital of
over $60.1 billion, accounting for 15.5% of the total registered investment capital. It is
followed by electricity, gas steam and air conditioning supply; accomodation and food
service activities with the total registered capital of nearly $28.74 billion and $12.52
billion. It can be clearly seen that manufacturing and processing continues to account for
the major portion of FDI, as Vietnamese government sees supporting the industry as key
to boosting socio-economic development. In addition, Vietnam has benefited due to
companies moving manufacturing to Vietnam as costs in China started to increase, and the
US-China trade war has accelerated the process. Besides, the real estate market continues
to attract foreign and domestic investors in many years. Many companies and investors still
have a strong interest in Vietnam’s industrial real estate market despite the pandemic-
induced slowdown. Before Covid-19, increased tourism and large infrastructure projects,
such as the Hanoi and Ho Chi Minh metros projects, along with the shortage of affordable
housing are expected to push demand for real estate. Electricity, gas steam and air
conditioning supply also experiences a significant growth in total investment capital, with
a recent major project called Liquefied Natural Gas (LNG) Plant, having total registered
23
investment capital of $4 billion with the goal of producing electricity from liquefied natural
gas.
24
Province Number of Percentage Registered capital Percentage
projects of total (million USD) of total
25
6 British Virgin 871 2.6 22262 5.7
Islands
7 China 3170 9.5 19540 5.0
8 Malaysia 645 1.9 12938 3.3
9 Thailand 607 1.8 12677 3.2
10 Other 6898 20.7 70604 18.0
Table 10. Source countries of FDI, accumulated as of March 2021
3.2 Impacts of FDI trends in Vietnam during 2015-2021
FIEs have brought a new investment attraction model with spillover effects to propel
economic growth, thus inspiring the more effective utilisation of domestic resources. FDI
has been an important investment channel, making up a quarter of the total social
investment capital. In the meantime, the share of FDI in Vietnam’s GDP stands at about
20% until 2019. Besides, FIEs have accounted for an ever-increasing proportion of
Vietnam’s total export value, with the ratio reaching 72.3% in 2020. More importantly,
FIEs have helped reshape Vietnam’s export items by reducing the percentage of raw
materials and semi-processed products in total overseas shipments and raising the
proportion of finished products with high added-value. Furthermore, FIEs played an
integral part in restructuring the Vietnamese economy towards industrialisation. Until
2018, 58.2% of FDI has been channelled into the manufacturing and processing sector, and
FIEs have generated more than 50% of the country’s total industrial production value.
26
CONCLUSION
1. Implications
This paper gave a thorough research about the indicators of FDI in Vietnam and stated
the effect of FDI on the Vietnamese economy. By analyzing the trends in Vietnam’s FDI,
although FDI regularly fluctuates, the paper has shown a significantly positive growth of
FDI overall and the major impact on Vietnam economy, even during when the COVID-19
pandemic spread worldwide. Some important milestones of the Vietnam economy are that
being a member of WTO in 2007, reforms to the Law on Investment in 2014 along with
successful FTA negotiations, which made the FDI trends in Vietnam become brighter.
Besides, Vietnam is also one the beneficiaries during the trade war between the US and
China. In 2020, Singapore successfully became the biggest investor in Vietnam, surpassing
the 2019 number one - Korea. However, until March 2021, Korea is leading the game with
large scale projects.
3. Future research
A recommendation for future research is to find a way to maximize profit Vietnam
can attain from this kind of investment by utilizing effectively the benefits gained. In
addition, in the current situation, another suggestion for future research is finding solutions
to attract more investment in Vietnam. At the same time, analyzing in which ways FDI is
made used by foreign companies and establishing more appropriate policies to protect
domestic companies is a good move.
27
REFERENCES
1. Anh, Ngoc & Nguyen, Thang. (2007). Foreign Direct Investment in Vietnam: An
Overview and Analysis the Determinants of Spatial Distribution Across Provinces. SSRN
Electronic Journal. 10.2139/ssrn.999550.
28
7. Foreign Investment Agency - Ministry of Planning and Investment (2012), Tình
hình đầu tư trực tiếp nước ngoài 12 tháng năm 2012
10. Le Minh Tuong (2010), Đầu tư trực tiếp nước ngoài năm 2008
11. Ministry of Planning and Investment (2020), FDI Brief Report in eleven months
of 2020
12. Pham Thien Hoang (2019), Tầm quan trọng của khu vực FDI đối với phát triển
kinh tế - xã hội Việt Nam
29