Covid-19 success could boost post-pandemic FDI inflows

By Dat Nguyen   May 5, 2020 | 03:46 pm PT
Covid-19 success could boost post-pandemic FDI inflows
A worker arranges steel structures at a construction site of an office building in Hanoi. Photo by Reuters/Kham.
Vietnam’s declining foreign investment inflow will be reversed soon with the government’s drastic anti-pandemic measures proving effective, experts believe.

"The drops are only temporary. When investors see that Vietnam has been able to contain the virus, investment will surge," Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises (VAFIE).

FDI attraction in the first four months fell 15.5 percent year-on-year to $12.3 billion, with drops in the number of newly-registered projects and value of stake acquisitions, according to the Ministry of Planning and Investment.

The ministry’s Foreign Investment Agency said that travel restrictions have discouraged investors from making new investment decisions. Most investment trips from Japan, South Korea, Singapore and other countries have been canceled.

Vietnam has received international praise for containing the spread of Covid-19 by taking early action and implementing drastic measures. The country has confirmed 271 coronavirus cases so far with no deaths, compared to 3,000 cases in Thailand and 11,200 in Indonesia.

The World Health Organization (WHO) has lauded Vietnam for quickly issuing prevention guidelines when the number of confirmed cases in China was low, and beginning the quarantining process very early.

Dinh Trong Thinh, head of the International Finance Faculty of the Academy of Finance, said that Vietnam’s success in containing the disease shows prospects for future investment.

There have been many reports of major foreign companies considering starting production in Vietnam as a new manufacturing hub as they seek to shift away from China.

Taiwan’s Pegatron, which manufactures Apple iPhones, has announced plans to set up a factory in Vietnam by the end of the year.

The company, which is the world’s second largest contract manufacturer of electronics behind fellow Taiwanese company Foxconn, is set to establish a factory in a northern province to make devices for internet connectivity. It is scheduled to begin operation next year.

Taiwan's Inventec, Apple's main assembly partner for AirPods, is reportedly preparing to establish a unit in Vietnam.

Google is set to begin production of its low-cost smartphones with Vietnamese partners this year, while Microsoft is scheduled to produce notebooks and desktop computers in the northern region in the second quarter.

Japan’s Nintendo has also made plans to shift some of the production of its Switch gaming consoles from China to Vietnam.

Furthermore, foreign investors have been seeking real estate to set up their factories. Despite Covid-19 impacts, industrial land prices in the first quarter rose 6.5 percent in the north and 12 percent in the south, according to a report by real estate service firm Jones Lang LaSalle (JLL).

The report said companies looking to diversify their manufacturing portfolio outside China are attracted to Vietnam, thanks to its proximity to the former.

Quality emphasis advised

But several experts say that regardless of how many FDI projects are registered, their quality is more important.

Mai of VAFIE said that although FDI pledges value in the first four months rose 27 percent to $6.8 billion, most of it came from a $4 billion liquefied natural gas (LNG) project in the southern province of Bac Lieu, invested by a Singaporean investor.

"Without this one project, an average FDI pledge was $2.8 million, compared to $8-10 million in previous years. This shows a decrease in FDI value."

Vietnam has been attracting FDI for over three decades, but the government in recent years have been calling local authorities to be more selective in FDI attraction by selecting the high-tech and clean sectors to reduce environmental pollution.

But there were few projects of this type this year, Mai said.

"The decrease in total value is inevitable because of the pandemic, but in the long run Vietnam needs to seek more projects that prioritize advanced technologies and environment friendliness," he added.  

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