FDI attraction needs new vision

According to the Ministry of Planning and Investment, Vietnam attracted USD64 billion in foreign direct investment (FDI) in 2008. The inflows of FDI fell significantly in the first half of this year, but is expected to rise again in the second half as the national economy is showing signs of recovery. The projected figures may reach between USD500-600 billion over the next 10 years.

Indirect investment untapped

Economic analyst Bui Kien Thanh says that it’s time for Vietnam to establish a system of indirect investment funds in big global financial markets to raise between USD5-10 billion for the country annually.

Vietnam’s GDP last year hit approximately USD91 billion, of which USD41 billion (or 44.5 percent) was generated from state and private investments. If the national economy grows at 5 percent a year, the total domestic investment will reach between USD400-500 billion in the next decade, half of which will come from the private sector. “As a result, FDI will retain its domination over domestic investment and Vietnam will face a high risk of losing economic sovereignty,” says Mr Thanh.

Le Dang Doanh, a senior economic expert, echoes Mr Thanh, saying that “Businesses are ready to invest in Vietnam if we have attractive investment funds and good management skills.”

Vietnam needs between USD750 billion - USD1,000 billion for national development in the next 10 years and domestic investment is expected to hover around somewhere between 30-40 percent of the total.

On average, up to 70-80 percent of the capital for a project in Vietnam comes from foreign businesses, and the remainder is from domestic sources. If Vietnam attracts USD600 billion in foreign investment capital in the next 10 years, its own capital will be USD150 billion.

Experts say that if Vietnam can achieve between USD50-100 billion from domestic sources for development projects, the amount of FDI will drop to a safe level and it will not be necessary to rely too much on FDI. 

A new strategy needed

According to Thanh, foreign businesses do not need to draft and develop projects themselves but the investment funds will mostly take over their role. However, due to Vietnam’s incomplete legal system, these funds should be set up in foreign countries that have standard legal systems.

Talking about a new “trap” in FDI in the post-crisis period, Dr Tran Dinh Thien, director of the Vietnam Economic Institute, warns that there will be a growing tendency to transfer old technologies to underdeveloped countries. Vietnam should be highly vigilant, or it will pay a high price for importing such out-of-date technology at rock bottom prices, says Mr Thien.

Le Xuan Nghia, vice chairman of the National Finance Monitoring Committee, suggests that Vietnam draw up a new investment strategy in the post-crisis period. He explains that as soon as the crisis ends, the demand for Vietnamese products in the world will continue to fall and the flow of foreign investment into Vietnam will not be as strong as before due to fierce competition in the world.

Dr Dinh Van An, director of the Central Institute for Economic Management, points out that Vietnam will lack capital for socio-economic development due to a fall in exports and GDP growth in the post-crisis period. He says that many foreign investors, including those from the US, have been forced to withdraw their capital to cope with the impact of the global financial meltdown. Instead of pouring more capital into Vietnam, some are keen to use all sources of capital available in Vietnam which should have been allocated to domestic investors to carry out their projects, mostly in the field of real estate development.

Now, to be sure, it is becoming much more difficult for domestic businesses to access capital than to find hens’ teeth and not a few are in danger of going to the wall.