FDI continues to decline, is it worrisome?

Fears of FDI attraction in 2018 will be difficult to reach 2017 FDI attraction. Photo: H. Anh.

Not to escape from the fast reduction of FDI

If the same period of last year, it attracted FDI with a spectacular increase compared to 2016, the results of 4 months in 2018 are gloomy.

The information from the Foreign Investment Agency (Ministry of Planning and Investment) shows that the total of new registered capital and increased capital and share purchase of foreign investors at the end of April reached US $ 6 billion, down about 24% over the same period in 2017. This is the fourth consecutive month of decline of FDI attraction from the beginning of this year. At the same time last year, Vietnam received nearly $11 billion from foreign investors, up 40.5 percent from the same period last year.

Analysis of specific factors shows that besides the capital from the capital contribution, buying shares of foreign investors is satisfactory when the country has more than 1,800 capital contribution, purchase shares of investors with a total of capital contribution of $ 2.26 billion, up 67% over the same period of 2017, the rest attract new FDI and investment projects are all in decline.

Specifically, the country welcomed 883 new projects with the total of the registered capital of $ 3.55 billion, down 24% over the same period in 2017. In addition, 303 projects registered to adjust investment capital with total capital. In addition, the registered capital increased by USD 2.24 billion, down by 42% over the same period in 2017. It is worth mentioning, the increase of 4 months of 2017 had a record increase of 241.8% over the same period 2016 with $ 4.36 billion, and the share capital through equity participation also increased 106.8% over the same period of 2016 with $ 1.35 billion.

According to experts, FDI will have big changes when there are "billion" projects, but unfortunately, over the past four months, Vietnam has not received a "billion dollar" project, while In 2017, only two projects, namely Samsung Display Vietnam, increased its capital and the Block B - O Mon gas pipeline project was licensed. Vietnam had nearly USD 3.8 billion.

Assessing the causes of the decline in FDI flows in the first months of the year, economist Nguyen Tri Hieu said that US tax policy affects the overall attraction of FDI, including FDI attraction to Vietnam in particular. Specifically, in order to call on US businesses to return to invest instead of investing overseas, the US Government reduced income tax of business from 35% to 21% while applying foreign policy protection of trade to protect domestic production. Although US investors have not invested much in Vietnam yet, this policy also affects the US investment in Vietnam.

FDI is subject to the great impact of relevant international issues. Specific analysis on this issue, Associate Professor Dr. Dinh Trong Thinh, Head of International Financial Management (International Finance Faculty, Academy of Finance) said that FDI will now enter the country and the regions where obtaining more favorable and privileged circumstances, such as having a better legal system and business conditions. Therefore, not only Vietnam but other developing countries are facing these issues where in the first half of 2018 FDI capital has reduced, and this source of investment is mainly going to developed countries.

"The United States lowered the income taxes of business to spur on US manufacturing growth, and investment of US investors and foreign investors into the US suddenly increased from late 2017 to now. US investors are more likely to invest capital in the United States, and because of returning to invest in the United States, their investment in developing countries and countries with institutional changes will be reduced," said Dr. Dinh. Trong Thinh.

It is difficult to reach milestone 2017

According to Prof. Dr. Dinh Trong Thinh, the US government not only reduced income tax of enterprises, but also taxed relatively high with developing countries which have exported goods to the US. For example, Vietnam has several items such as steel, aluminum, agricultural products ... and this is a barrier for foreign investors to consider, because when they invest in Vietnam and export goods to the US market, they will encounter higher costs and greater risks.

Not only the US, but some European countries as well as some familiar markets of Vietnam in recent years have seen higher taxes, imposing sanctions and technical barriers to Vietnamese products, which may discourage foreign investors from investing in Vietnam.

Apart from the objective factors mentioned above, experts also said that the domestic economic developments as well as the internal constraints of the economy have been the factors affecting the attraction of FDI.

According to Nguyen Tri Hieu, volatility of Vietnam's stock market in the first months of the year may have an impact on foreign investors. Assoc –Dr. Dinh Dinh Thinh said that Vietnam is in the process of restructuring the economy, the change of our policy has not changed significantly. Some factors related to the investment environment are slow to change, especially administrative procedures, investment licenses and business conditions...

Forecasting FDI attraction in 2018, the expert Nguyen Tri Hieu said that it is because the internal economy of Vietnam has not really improved. In addition, the transition in the world economy has disadvantages for Vietnam, so he is not optimistic with the situation of FDI into Vietnam in 2018, both in direct and indirect investment. Assoc - Dr. Dinh Trong Thinh said that if the reform of the administrative system and investment environment is not significantly promoted, it will be difficult to reach the 2017 milestone, not to mention beyond 2017. (2018 ?)