Pathway for Vietnam to attract greater FDI inflow in post-pandemic world

Car assemblers are resuming operations after the novel coronavirus epidemic was brought under control in Vietnam

At present, Vietnam enjoys a number of advantages in terms of luring foreign investment, of which an economy that possesses a high stable growth is considered to be a leading factor. In recent years, the Vietnamese economy, boasting close to 100 million consumers, has grown rapidly by approximately 7% per year, with the figure forecast to remain unchanged ahead in the 2021 to 2025 period.

Moreover, many foreign investors believe that the nation represents a safe environment in their post-virus landscape, with firms shifting their investment strategy to reflect this. Financiers will therefore feel at ease when selecting Vietnam as a potential destination following the easing of the COVID-19 which has been brought under control with a very low local infection rate and no deaths so far.

In addition, the country enjoys an abundance of cheap labour coupled with low land rents which represent a great opportunity for many investors.

Despite these positives, there are severe challenges ahead in order to receive a new wave of foreign investment from globally renowned firms like Apple, Panasonic, and Foxconn. Indeed, Dr. Tran Dinh Thien, a member of the Prime Minister’s economic advisory group, believes that Vietnam has changed its foreign direct investment attraction strategy over the course of several years, with a primary focus on luring large-sized projects that utilise high technology and guarantee environmental protection.

This policy has allowed the country to attract a large number of FDI projects over recent years, although many of the projects have been gradually downsized, with scales equivalent to 70% of their original size.

At present Vietnam is lacking a transparent investment environment, a skilled labour force, and quality logistics infrastructure, all of which represent large barriers in the mindset of foreign firms, Dr. Thien notes.

Echoing Dr. Thien’s view, economic expert Pham Chi Lan states that the slow growth in terms of local supply chains, especially with regard to the support industry, poses yet another barrier to FDI attraction.

Vietnam cannot be considered an attractive FDI destination if investors are forced to move all parts of their production lines from an overseas market into the country, according to Lan.

Prime Minister Nguyen Xuan Phuc recently decided to establish a special working group with the goal of improving shortcomings and finalising legal matters in order for it to be conducive enough to receive a fresh wave of foreign investment following the easing of the COVID-19.

Based on this information, Dr. Thien suggests that in order to select quality FDI inflows, Vietnam should develop clear rules for investors to follow and set a series of long-term goals while erecting technical barriers to impose control on the flow of investment.

According to Dr. Nguyen Duc Thanh, former director of the Vietnam Institute for Economic and Policy Research, the global economic order is still adapting to the effects of the COVID-19, therefore without a new strategy it is likely that the country will lag behind other rivals in terms of its foreign investment attraction strategy.

While financiers are still coming into the nation, investment will remain at a small scale unless drastic changes are taken, Dr. Thanh notes.