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SURVEY

Overview / Foreign Investment in Vietnam

 The result of attracting and utilizing foreign investment


There have been about 13.544 licensed foreign investment projects in Vietnam from 1988 to the end of 2010 with total registered capital of US$ 213 billion, implemented capital of US$ 77.95 billion.

In the 1988-1990 period, despite the newly enforcement of the Foreign Investment Law, there were a total of 211 projects with a registered capital of US$1.6 billion.
In the 1991-1996 period, there was a remarkable increase in the foreign investment capital (i.e. 1,781 projects with a total registered capital of US$ 27.82 billion). This is the period in which the investment-business environment in Vietnam started attracting investors by low business cost, cheap manpower, new market, and so on. The rapid development of foreign investment had positive impacts on the objectives of socio-economic development of the country.


The 1997-2000 period witnessed the considerable decrease in foreign investment due to the financial crisis in the region. There were only 1,352 licensed projects with a total registered capital of US$ 16.1 billion. Also in this period, many projects were halted because of investors’ financial problems. In the 2001-2005 period, foreign investment showed signs of slow recovery. However, there were 3,935 licensed projects with a total registered capital of US$ 20.72 billion. In general, during this period, the investment capital increased year by year. But the majority of these projects are of medium and small scale.


The foreign budget invested into Vietnam in the period from 2006 to 2010 experienced a significant rise of 5,441 licensed projects with US$ 113, 43 billion registered capital. Especially for the first two month of the period (2006-2007), the investment surged by 2,432 licensed projects with a total capital of US$ 32.3 billion. The appearance of many large-scale projects in industry and service sectors indicated that the second foreign investment wave into Vietnam had came. The next 3 years witnessed the continuous increase in capital investment into Vietnam (3,734 licensed projects with registered capital US$ 113.43 billion, implemented capital US$ 32.5 billion), inspite of the highly damage of the global economic crisis.
Along with attracting new foreign investment projects, many projects which have operated effectively have extended their business and production scale and increased the investment capital. Till the end of 2010, there have been approximately 4,895 turns of investment capital, increasing the total capital by US$ 29.17 billion. The supplementary capital mainly focused on the Asian investors’ industrial projects which were mainly implemented in the Southern key economic zone. According to a recent survey, 70% of the foreign invested enterprises have got plans to increase their capital, which shows their trust in the Vietnam’s investment environment.

 

FDI registered during the period 1988-2010

Period

Project Number (new license)

Registered Capital (billion USD)

1988-1990

211

1,6

1991-1996

1.781

27,83

1997-2000

1.352

16,09

2001-2005

3.935

20,72

2006-2010

5.411

132,58

 


In terms of the foreign investment by sectors, till the end of 2010, industry and construction makes up the highest proportion with 8,375 projects (accounted for 61.9% total projects) and with a registered capital of US$ 119.5 billion (obtain 56% total foreign investment capital). Sectors attracting investment include oil exploration, exploitation and processing, electrical and electronic products, construction material products, textile, information technology and so on. In the service sector, there are 4,420 investment projects with a total registered capital of US$28.6 billion, and implemented capital of US$7.4 billion. This occupies 32.6% of the projects, 43.9% of the total registered capital. The investment in this sector mainly focuses on real estate (construction of offices, apartments, development of new urban areas, trade of the infrastructure of industrial zones), tourism-hospitality, transportation and postal service, and so on. In the agriculture-forestry-fishery sector, there are on-going 749 projects with the total registered capital of US$ 4.4 billion, which makes up 5.6 % of the total projects and 0.2% the total registered capital. These projects are mainly in agricultural product processing, planting forests and forestry product and see food processing.

FDI divided by sector in the period 1988-2010

Sector

Project Number (Still valid)

Registered Capital (billion USD)

Realized Capital (billion USD)

Industry- Construction

8.375

61,83

119,5

56

20,042

68

Service

4.420

32,6

93,5

43,9

7,4

25,1

Agriculture - Forestry

749

5,6

4,4

0,2

2,3

6,9

Total

13.544

100

213.025

100

29,7

100

In terms of the investment area, to date, all provinces have had foreign investment projects. However, these projects mainly focus on key regions with high competiveness, and are the driving force for the development of the national economy. The Northern key economic region has 3,557 in-operation projects with the total capital of US$ 41,145 billion, making 26.3% of the projects and 19.3% of the total registered capital of the whole country. In this region, Hanoi takes the leading status (i.e. 987 projects, registered capital of US$12.4 billion). Then come Hai Phong (268 projects, US$2.6 billion), Vinh Phuc (140 projects, US$1.8 billion), Hai Duong (271 projects, US$1.7 billion), Ha Tay (74 projects, US$1.5 billion), Bac Ninh (106 projects, US$0.93) and Quang Ninh (94 projects, US$0.77 billion). The Southern key economic region attracts 5,923 projects with the total investment capital of US$44.9 billion, making up 62% of the projects and 54% of the total registered capital of the whole country. Ho Chi Minh leads the region (2.398 projects, US$16.5 billion of registered capital). Then come Dong Nai (918 projects, US$11.6 billion), Binh Duong (1.570 projects projects, US$8.4 billion), Ba Ria – Vung Tau (159 projects, US$6.1 billion) and Long An (188 projects, US$1.8 billion). The Central key economic region attracts 419 projects with the total registered capital of US$8.6 billion, occupying 6% of the projects and 10% of the total registered capital of the whole country. In this region, Phu Yen takes a leading role (39 projects, US$1.9 billion of registered capital).Da Nang ranks second (113 projects, US$1.8billion. Quang Ngai takes the third place (14 projects, US$1.1 billion). The Northern midland and mountainous region, Central Highlands, and Mekong river delta have low rate of foreign investment, which is below their potentials.

 

FDI registered devided by region in the period 1988-2010

Region

Project Number 

Registered Capital (billion USD)

The Northern Economic Region

3.557

26,3

41,14

19,3

The Southern Economic Region

7.791

57,5

95,43

44,8

The Central Economic Region

901

6,7

58,92

27,7


Till the end of 2010, the two most popular forms of foreign investment in Vietnam are 100% foreign investment and joint-venture investment. Other investment forms including business cooperation contract, Business-transfer contracts (BOT, BT, BTO, and so on) and joint-stock company are rarely chosen.

In the last 20 years, there have been 81 countries and territories investing in Vietnam, 69% of which is Asian countries, mainly East Asian (Japan, Korea, China, Taiwan, Hongkong), which occupies approximately 50% of the total investment capital. ASEAN countries make up 19%. 24% of which is European countries, in which EU occupies 10%. American countries take up 5%, 3.6% of which is from the United States. However, if the investment capital from American investors’ branches in the third country is counted, the total US investment capital in Vietnam occupies about 6%. Two countries in Australian continent make up only 1% of the total registered investment capital. At present, there are 15 countries and territories guaranteeing the investment capital of above US$1 billion. Among these, Korea takes the leading status (US$13.5 billion). Then come Singapore (US$10.7 billion), Taiwan (US$10.5 billion), Japan (US$9 billion). However, in terms of the capital disbursement, Japan ranks first with nearly US$5 billion. Singapore ranks the 2nd (US$3.8 billion) andTaiwan (US$3.1 billion), and Korea (US$2.7 billion)

FDI registered devided by forms of investment in the period 1988-2007  

Period

Total revenue

Export Value (billion USD)

Proportion in GDP (%)

1991 – 1995

4,1

1,2

6,3

1996 – 2000

27,4

10, 5

10,3

2001 – 2005

77,4

34,4

14,6

2006 - 2010

85

34,4

18



In the last 20 years, this sector has made remarkable contribution to the socio-economic development. The average contribution rate to GDP has increased from 6.3% in 1991-1995 to 10.3% in 1996-2000, 14.6% in 2001-2005 and 17% in 2006-2007. The total revenue of the foreign investment sector was 4.1 billion USD in 1991-1995, 27.1 billion USD in 1996-2000 and 77.4 billion USD in 2001-2005 and 85 billion USD in 2006-2010. The export value of the foreign investment sector was 1.2 billion USD in 1991-1995, 10.5 billion USD in 1996-2000, and 34.4 billion in 2001-2006. The export value of the two years 2006 and 2007 was equivalent to that of the previous 5 years.
Chart 6: Contribution of foreign invested sectors to GDP

Impact of foreign investment on the economy


Foreign investment, which is an important supplementary to the investment capital to meet the demand of social development and economic growth, made up 13.1% of the total social investment capital in 1990, 32.3% in 1995, 18.6% in 2000, 14.9% in 2005 and above 16% in 2007. Foreign investment has contributed to the transformation of the economic and labor structure, enhancing the industrial production capacity. Its proportion in the total industrial production value increased from 23.8% in 1991 to 41% in 2005. Besides, foreign investment also promotes the advanced techonology handover to Vietnam and has pervasive impact on other economic sectors. Foreign investment has considerable contribution to the state budget with the US$1.49 billion in the 1996-2000 period (not including crude oil), which is 4.5 times higher than the five year period from 1991-1995. The 2001-2005 period, the budget revenue from foreign investment enterprises was over US$3.6billion. In two years 2006 and 2007, it was over US$ 3 billion. Foreign investment has contributed to Vietnam’s broad and deep integration into the global economy. The export proportion of the foreign investment sector in recent years has been over 55%, with high proportion in some products such as crude oil, electronics-computers, leather and footwear, textile, and so on.

Foreign investment has created jobs for more than 1.2 million direct labours and millions of other indirect labours and has contributed to improving the quality of human resources and enhancing the living standards of one part of the population. The operation of foreign invested enterprises also encourages domestic enterprises to renovate their technology and management methods to sharpen competitiveness. Foreign investment contributes to broaden the international relations and international economic integration and speed up the process of trade and investment freedom. In terms of the environment, there is high proportion of foreign investment enterprises which obey Vietnam’s environment standards.

However, foreign investment also has some shortcomings such as imbalance in business and territories. As investors aim at profits, they only pay attention to sectors and localities with profitable conditions and high competitiveness. This leads to a high level of division. Labor dispute in foreign investment is not dealt with timely. There is also limitation in technology handover in foreign investment enterprises.

 

Attracting foreign investment in Vietnam in the coming period

Priority in attracting foreign investment is given to sectors which have the highest impacts on handing over the technology especially advanced technology and source technology, and boosting export, creating jobs, and projects to make highly competitive products and services, and infrastructure construction projects. Industries that particularly encourage investment are information technology, electronics-transitor, biological technology, and so on. Foreign investment is also attracted to auxiliary industries to cut down the input price of materials and contribute to improve the competitiveness of domestic products. Step by step open the service sectors according to international commitments and create the driving force for the development of other economic sectors such as banking, finance, transportation, and telecommunication. Encourage foreign investment in infrastructure construction by suitable investment mechanisms. Continue to encourage foreign investment in raising and processing agricultural, forestry and fishery products.


It is forecasted that foreign investment will still mainly concentrate on regions with favourable geographical and natural conditions, especially key economic zones in the near future. To intensify the attraction of investment in regions with difficult socio-economic conditions, besides detail incentives, the infrastructure should be improved; The focus is to put on attracting foreign investment in the planned industrial and economic zones. In terms of counterparts, efforts are made to attract investment from multi-national corporations, especially those from the USA, EU, and Japan by implementing big high-technology projects aiming at exporting, and creating good conditions for building centers for research and labour force training.

 

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