Vietnam no longer an FDI magnet

Although the ongoing global economic slowdown can be blamed for the drop in foreign direct investment (FDI) this year, they note that other members of the Association of Southeast Asian Nations, or ASEAN, are doing better than Vietnam.

It is also unlikely that FDI inflows will recover in the near future despite opportunities seen as a result of the stimulus measure – QE3 – announced by the US recently, they add.

FDI inflows in the first three quarters of the year fell 1.2 percent from a year ago to US$8.1 billion, the Planning and Investment Ministry’s foreign investment agency said in a report.

Foreign investment pledges in the January-September period were estimated at $9.53 billion, down 27.9 percent from the same period last year, it said.

An official of the agency said the pledge reductions were mainly due to the global economic downturn, which makes for thinned FDI flows.

But several experts say Vietnam is also to blame for not sorting out several things including policy shortcomings, poor infrastructure and a shortage of skilled labor.

Nguyen Duc Thanh, director of the Economy and Policy Research Center of the Economics University, under the Hanoi National University, said the lower FDI pledges show that the Vietnamese business environment has become less attractive.

Bigger FDI inflows have poured into other ASEAN members like Indonesia, Thailand and Myanmar, but not Vietnam, he said.

Investors from Japan, the US and EU may shift their investment from Vietnam to other ASEAN countries with better business environment when ASEAN removes the tariff barrier as scheduled in 2015, he said. "It will be difficult for Vietnam, in the next 10 years, to attract FDI of some $60 billion a year, as it reached in the 2007-2008 period.”

Kenneth Atkinson, managing partner at Grant Thornton Vietnam, an auditing and business consultancy firm, said: "The level of FDI in terms of remitted capital has been fairly constant over the last few years at $11-13 billion. I think investors still believe in Vietnam. However, you must realize there is competition from Indonesia, Cambodia and Myanmar.”

Vietnam needs to be looking at measures to make the legal environment more predictable and increase transparency, he said.

The most common challenges faced by investors are economic policy changes, poor infrastructure, currency issues, and corruption, he said.

"These issues are of course not just issues faced by foreign investors but by local companies as well, and many of them cannot be fixed overnight.”

Some economists said the US’s third round of quantitative easing, known as QE3, announced by the Federal Reserve on September 13 will be an opportunity for Vietnam to attract investment from the country, contributing to increase its FDI inflow in the coming years. The QE3 involves monthly purchases of an additional $40 billion worth of mortgage-backed securities with the aim of kick-starting the US economy.

Economist Bui Kien Thanh said: "The QE3 could present an opportunity for Vietnam to attract investment from the US, as US firms may borrow capital to invest in other countries with lower production costs and good business environments, instead of developing production at home.”

However, it is not easy to grab the opportunity, he said. "We may fail to make use of the opportunities if we do not increase our legal transparency, improve skills of laborers, and reduce corruption.”

Nguyen Mai, chairman of the Vietnam’s Association of Foreign Invested Enterprises, said US investment inflow into Vietnam has not increased sharply as expected. "We have not yet much benefited in terms of technology and management experience from leading US investors.”

US-backed investment pledges for Vietnam have reached some $10 billion to date, according to the foreign investment agency. The country was the 11th biggest investor in Vietnam as of August, it said.

Disbursement of foreign investment may fall to $10 billion this year, lower than an earlier forecast of $11 billion, the agency said.

Vietnam aimed to attract $15 billion to $16 billion of pledged foreign investments in 2012. However, it is likely to miss this target, said agency head Do Nhat Hoang.