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The UNCTAD 2020 report on the impact of COVID 19 on global FDI inflows shows that two-thirds of the top 100 largest companies are affected by COVID-19; At the same time, it is expected that global FDI inflows in 2020 will decrease by 30-40%, M&A activities will decrease by 70%.
1. International context
The scale of global foreign investment flows tends to decrease. Overall, developing countries in Asia remain the biggest attraction for foreign investment and the inflow of foreign investment into this region is also relatively stable. The developed countries in Europe and North America also attract a large amount of foreign investment capital, but fluctuations are quite large, causing fluctuations in global foreign investment flows. Meanwhile, regions and economies in Latin America, Africa and the transition countries attracted much lower amounts of foreign investment, accounting for a small proportion of the total global foreign investment capital.
In the region, a number of countries are implementing economic restructuring. Thailand deployed economic development model Thailand 4.0 to adapt to Industry 4.0. Singapore has developed the Smart Industry Readiness Index to drive innovation in the manufacturing sector. China is transitioning from an export-based growth model to an economic development model based on domestic demand. Some industries and fields using low technology and many labors will move to Vietnam, Cambodia, Laos, and Myanmar. This is an opportunity for Vietnam to attract foreign investment but also requires careful selection of quality projects, resolutely rejecting outdated technology projects, causing environmental pollution. It is important for Vietnam to attract foreign investment by foreign investors to invest in our country mainly in order to seek markets, take advantage of cheap costs, tax incentives and production protection policies.
In the context of the Fourth Industrial Revolution (Industry 4.0), the world economy is entering a period of growth mainly based on technology, innovation and creativity. These are the unlimited drivers of growth based mainly on resource extraction, capital use, and unskilled labor – which are traditionally finite inputs. If developing countries promptly grasp new trends, make appropriate and effective investment in scientific and technological research and application, they will have a chance to catch up with developed countries. In contrast, emerging economies with low-skilled labor and poor flexibility will suffer the negative effects of the explosive growth of machines, automation and smart technology.
Trade conflicts between major economies in the world continue to develop tense, creating opportunities for Vietnam to attract global foreign investment flows to Vietnam, including investment shift of countries from China to countries in the region, in which Vietnam is the area prioritized by foreign investors. According to a survey conducted by the Bank for International Cooperation of Japan and the Institute for Foreign Investment of Japan, Vietnam ranks third in the list of countries / regions with potential for mid-term investment. Japanese companies in 2019 are also considered as a new destination for Japanese investors to replace China due to the US-China trade dispute.
Competition in attracting foreign investment is taking place more and more fiercely between countries in the region and around the world, requiring us to improve the investment environment more strongly to strengthen the competitiveness of Vietnam. Male; The world economic situation has many complicated developments, creating many challenges for the Vietnamese economy.
Particularly in 2020, the world economy has some aspects and fields that can recover slightly (trade, investment …), but basically still in a cycle of slow and difficult growth with many uncertain risks. The developments in the world situation in the beginning of 2020 show that the world political and economic environment in the coming time is very complicated and unpredictable.
The epidemic of acute respiratory infections COVID-19 is happening complicatedly, affecting the production and business situation of businesses as well as new investment decisions and expanding the scale of existing projects. Foreign investment. Investigation of investment opportunities of potential investors in China in particular and other countries in general is also delayed, including investment opportunities, seminars, and seminars. business groups, investment promotion forums, etc. Business and production activities of FDI enterprises were also affected greatly. The impact of the epidemic will greatly affect the inflow of foreign investment into Vietnam in 2020.
The UNCTAD 2020 report on the impact of COVID 19 on global FDI inflows shows that two-thirds of the top 100 largest companies are affected by COVID-19; At the same time, it is expected that global FDI inflows in 2020 will decrease by 30-40%, M&A activities will decrease by 70%.
2. Domestic background
There are three groups of factors that have a great influence on the demand for foreign investment in the coming period, including: goals and orientations for socio-economic development; impacts of international integration commitments to foreign investment attraction; and internal problems of the economy related to foreign investment.
a) Objectives and orientations for socio-economic development and attracting and using foreign investment
The new Politburo issued Resolution No. 50-NQ / TW dated August 20, 2019 on the orientation to perfect institutions, policies, and improve the quality and efficiency of foreign investment cooperation to 2030. In which There are many orientations and major solutions to enhance the attraction and promote the efficiency of foreign investment, which will create more favorable conditions for attracting quality foreign investment in the coming time.
Regarding the industrial development orientation, the Politburo issued Resolution No. 23-NQ / TW dated March 23, 2018 on the orientation to formulate national industrial development policies to 2030, with a vision to 2045. Resolution No. 23 sets out general and determined goals, including: (i) By 2030, Vietnam will complete its industrialization and modernization goals, essentially becoming an industrialized country in the current direction. great; belong to the group of three leading ASEAN countries in industry, of which a number of industries are internationally competitive and deeply involved in the global value chain; and (ii) Vision to 2045, Vietnam will become a modern industrialized country. Regarding the policy orientation to attract foreign investment in a new context, especially in Industry 4.0, Resolution 23 also shows the determination to adjust the attraction of “high-quality” foreign investment, shifting from quantity to quality and importance. focus, focus, friendly with the environment, promote technology transfer and link with domestic businesses through 03 priority orientations: (i) technology; (ii) investment form; and (iii) partner.
In addition, Resolution 10-NQ / TW of the 12th Central Committee of 2017 on the development of the private economy into an important driving force of a socialist-oriented market economy (Resolution 10 ) proposed a viewpoint on “Promoting the development of all forms of linking production, trading, supplying goods and services according to the production network, the market value chain between the private economy and enterprises with capital. foreign investment aimed at receiving, transferring, creating a wide spread of advanced technology and modern governance, enhancing added value and expanding consumption markets ”.
Currently, Vietnam is building a Socio-Economic Development Strategy to 2030, with a vision of 2045 – two very important milestones, 100 years of Party establishment (2030) and 100 years of founding a country (2045). Accordingly, the economy will grow on the basis of high labor productivity, research and application of modern technology, and define innovation as a new driving force and a fulcrum for breakthroughs … is an objective requirement that needs to adjust the policy on attracting and using foreign investment to suit the new development stage of the country.
b) Impact of new generation FTAs on FDI attraction:
Vietnam has actively participated in deep integration into the world and the region economy, signed many bilateral and multilateral agreements, and cooperated with partners in the world [1]. In fact, the multilateral and bilateral trade agreements have been and are having positive effects on FDI attraction and activities of this area in Vietnam.
Implementation of the new generation FTAs will bring positive benefits to the Vietnamese economy and businesses. In addition to the direct benefits from capital flows and exports, the opportunities to improve linkages between domestic and foreign invested enterprises can increase significantly. At the same time, it may promote foreign investors to invest in projects with higher quality, higher added value, not just outsourcing projects. This will be an opportunity for supporting industry development.
c) Some internal problems of the economy:
Advantage:
– The private economic sector is developing strongly and rapidly, being the economic component with the highest proportion of GDP, creating the most jobs, an important driving force of the economy. Many policies have been issued to encourage and create favorable conditions for this region to develop rapidly and sustainably in terms of quantity, size, quality, and contribution to GDP. A number of domestic private economic groups started to form and develop, which is a prerequisite for effective joint ventures and links with foreign investors.
– Vietnam is always ranked highly for political stability, highly appreciated by the international community, creating a feeling of peace of mind for active foreign investors and attracting new investors who are looking for a location. investment point. At the same time, Vietnam is located in a dynamic growth area, with many fast growing economies. Moreover, Vietnam is also in the region where foreign investment flows in and out associated with the internal supply chain movement in ASEAN and East Asia, notably the inflow of foreign investment from East Asian developed countries like Japan , Korea.
Difficulties and challenges:
– Growth model relies too much on resource mobilization, but has not been used effectively, many input factors have been exploited. An excessive increase in inputs to drive growth will have to trade off with macroeconomic instability and deterioration in the quality of growth. Vietnam’s per capita income is still low compared with the average income of the world (more than 10,000 USD / person), while Vietnam is one of the countries with the fastest aging population in the world. gender and forecast are likely to end the period of “golden population” around 2020 – 2025.
– Vietnam is still in the transition process, the market economy institution continues to be completed but is not really complete and synchronous according to the practices of the market economy in highly developed countries. more, hindering innovation and taking advantage of opportunities of integration, including attracting and using foreign investment. The market for production inputs has not operated effectively, especially the market of raw materials and intermediate inputs, increasing production costs.
– Abundant and cheap labor force will no longer be a factor creating a competitive advantage in attracting foreign investment into Vietnam, especially in the context of Industry 4.0. The trend of capital-intensive technologies and skills is developing rapidly, prompting the shift of production from countries with many unskilled workers to countries with many R&D centers. At the same time, products with complex, sophisticated structures are demanding design and manufacturing sites close to each other.
Vietnam has economic and trade relations with more than 220 countries and territories, is a member of more than 70 international organizations and international forums. Vietnam has joined a series of new generation FTAs (in January 2019 joined CPTPP and on June 30, 2019 signed EVFTA and EVIPA agreements.
Source: Foreign Investment Agency