The flows of FDI to Vietnam: From policy to implementation

ABSTRACT:

The main objective of this study is to investigate whether the patterns of FDI inflows in Vietnam have achieved the aims of Vietnams government policies. The analysis in this study is mainly based on data from1988 to 2016, compiled with the Vietnam Statistical Yearbook (various issues) published by the General Statistical Office of Vietnam and other legal documents on FDI published by the Vietnamese authorities. The evidence presented in this research shows that although Vietnams government policies have played vital roles in attracting FDI inflows to the country, some aspects of FDI inflows have met the aims and objectives of Vietnamese governments policies while others have not. Based on the findings and their explanations of this paper, several significant policy implications are discussed in the context of policy development and reform that Vietnamese policymakers should consider in order to boost FDI and to attain the desired profile and inward FDI to develop the countrys economy.

Keywords: FDI, FDI Policies, Vietnam, Provincial Distribution, Source Country, Ownership Structure, Sectoral Composition, Special Economic Zones.

1. Introduction

FDI is expected to bring to host nations not only capital but also finished products, materials, components, new technology and intangible assets such as knowledge about management, production processes, distribution channels and markets. Further, FDI can contribute to the economic wellbeing of host nations and the advancement of their competiveness. While most countries attempt to attract FDI inflows, the important question is how a host country can compete effectively with other countries.

To develop the countrys economy, the Government of Vietnam has made efforts to shift towards a market-oriented economy and has opened the door to FDI since the countrys economic reform policy known as the Renovation (Doi Moi) policy was adopted in 1986. To attract FDI to meet the goal of the Doi Moi policy, Vietnam has gradually improved its policy frameworks on FDI (UNCTAD 2008). Policy factors that affect FDI inflows to Vietnam are those relating to FDI inflows, including the Law on Foreign Investment (LFI), which has been the main regulator of FDI in Vietnam. This Law dates from 1987 and has been amended several times with the aim of creating a favourable legal and business environment to attract more FDI inflows.

In response to the Doi Moi policy and the LFIs, flows of FDI to Vietnam increased from almost nil in the late 1980s to a total planned capital of US$246.3 billion and implemented capital of US$100.2 billion with the total balance of 15,904 FDI projects by 2012 (GSO 2013). The general picture of the progress of FDI projects and FDI flows to Vietnam in the period 1988–2012 is presented in Table 1. Due to the fundamental reforms of FDI-related policy in late 2005, implemented FDI flows to Vietnam experienced a sudden increase of US$65.7 billion with 8,625 projects in the sub period 2006–2016. However, Vietnam still faces several problems in terms of FDI attraction. For instance, there have been unbalanced provincial, regional and industrial distributions of FDI and most FDI projects have been small in scale with moderate use of technology from Asia.

The main objective of this paper is to investigate whether the patterns of FDI inflows in Vietnam have achieved the aims and targets of Vietnams government policies. This paper investigates key changes in the Law on Foreign Investment and the reasons for the amendments and supplements to this Law to attract FDI inflows. Further, the patterns of FDI inflows in Vietnam over the past two and a half decades are carefully analysed in terms of provincial distribution, source country, ownership structure, sectoral composition and FDI inflows to special economic zones. The analysis in this study is mainly based on data for the period 1988 to 2016, compiled from the Vietnam Statistical Yearbook (various issues) published by the General Statistical Office of Vietnam (GSO) and legal and policy documents on FDI published by the Vietnamese authorities.

The rest of this paper is organised as follows. Section 2 analyses FDI policies under the Doi Moi policy in Vietnam with a main focus on the anticipated role of the LFI in attracting FDI inflows from the first LFI in 1987 to the amendments to this Law in 1992, 1996, 2000 and 2005. Section 3 critically examines the patterns of FDI inflows in Vietnam from the perspectives of provincial distribution, source country, ownership structure, sectoral composition and FDI inflows to special economic zones, and offers some evidence-based explanations for the actual outcomes of FDI flows into Vietnam. Section 4 presents some conclusions.

2. The aim of the lfi in attracting fdi inflows to Vietnam under the Doi Moi policy

In 1986, the Vietnamese Communist Party formally endorsed a program of Renovation, known as the Doi Moi policy with the aim of reducing macroeconomic instability and accelerating economic growth, and agreement that all economic levers (price, wages, fiscal, monetary) were to be used to achieve these objectives (Tran 1997). To strengthen the role of the private sector in the countrys economy to meet the goal of the Doi Moi policy, the Government of Vietnam has developed policies to encourage the development of domestic private enterprises and policies to attract FDI. After the Law on Foreign Investment was issued on 27 December 1987 and came into effect on 9 January 1988 (LFI 1987), overseas investors responded positively; and thus Vietnam attracted more FDI inflows (see Table 1.1).

The LFI 1987 was amended in 1992, 1996 and 2000, and was replaced by a unified Investment Law in 2005, with the aim of minimising much of the red tape that had burdened companies, including government restrictions and administrative procedures that had been more onerous in Vietnam than in most other nations. Each amendment to the LFI played a crucial role in the progress of attracting FDI flows to the country.

2.1. The aim of the LFI 1987 in the period 1988-1992

The LFI 1987 established a legal framework for FDI activities. This law regulated the key aspects relating to FDI such as FDI sectors, FDI partners, FDI forms, FDI protection, tax and financial regulations, and investment licensing procedures, to promote and protect FIEs in doing business in Vietnam. The law aimed to expand economic cooperation with foreign countries, promote national economic growth and increase exports on the basis of efficient utilisation of natural and labour resources as well as other potentialities.

The Law specified the following main issues: (1) Vietnam would allow overseas organisations and individuals to invest in sectors of its national economy with encouraging large national programs;(2) multinational corporations in Vietnam were exempted from import duties on machinery, equipment and materials for production and business; (3) foreign investors could invest in Vietnam via three forms of business cooperation contracts (BCCs), joint ventures (JVs) and wholly foreign-owned ventures (wholly FIEs); (4) foreign investors could transfer capital and profits out of Vietnam; and (5) their paid income tax would be returned if profits were reinvested into projects within three years.

2.2. The aim of the 1992 amended LFI in the period 1993-1996

In the early 1990s, the Vietnamese government made considerable efforts to attract outside investment through improvements to the LFI. In 1992, amendments and supplements to the LFI were needed for four critical reasons: (1) attracting foreign investment has become increasingly competitive between countries throughout the world; (2) practical cooperation in investment had helped Vietnam to be more aware of the importance of FDI in developing the countrys economy; (3) after the enactment of the LFI 1987, a number of new possibilities and opportunities arose, as well as new orientations requiring amendments and supplements to the legal framework for foreign investment; and (4) the government recognised that the role of FDI in promoting exports, infrastructure and manufacturing industries was significant for developing the national economy.

On 23 December 1992, the National Assembly of Vietnam revised the Law on Foreign Investment (LFI 1992) to try to create a more favourable legal and business environment to attract FDI in order to promote exports, develop manufacturing industries and encourage infrastructure development. In particular, the LFI 1992 granted foreign investors more rights and incentives, introduced export processing zones (EPZs) and export processing enterprises (EPEs) and added the Build-Operate-Transfer contract (BOT) as one more form of investment.

2.3. The aim of the LFI 1996 in the period 1997-2000

With the new aim of attracting more FDI inflows, especially in rural and remote areas, encouraging investment in manufacturing sectors, and improving export, technology and productivity, the National Assembly of Vietnam approved a revision of the Law on Foreign Investment on 12 November 1996 (LFI 1996). According to the LFI 1996, foreign investors could freely choose their preferred investment form, investment location and Vietnamese partner in most types of projects; FDI projects with an export proportion of over 80% were given priority in licensing; and FIEs in export-oriented and high technology industries were encouraged. Additionally, FIEs could lease land in industrial zones and exporting processing zones to third parties, FIEs in prioritised sectors and areas were exempted from import duties within five years of commencement of operation and foreign partners supplying inputs to FIEs were exempted from import tax on raw materials and intermediate goods with corresponding proportions.

2.4. The aim of the 2000 amended LFI in the period 2001 - 2005

To deal with the problem of the Asian financial crisis, which contributed to the decrease of FDI inflows in Vietnam during the period 1997-2000, the Vietnamese government tried to make the business environment more attractive and friendly for foreign investors by passing another amendment to the Law on Foreign Investment on 9 June 2000 (LFI 2000). The LFI 2000 aimed to reduce the difficulties and risks in business for FIFs and improve the import tax exemption and tax on profit transfer abroad.

The amended Law granted FIEs the right to mortgage assets attached to the land and the value of the land use rights for borrowing from domestic as well as foreign banks operating in Vietnam instead of only mortgaging these assets for taking out loans from Vietnamese banks. This amendment was significant for multinationals that were considering investing in Vietnam because it could facilitate a new means of financing through which capital might be raised. Moreover, the LFI 2000 sought to minimise much of the red tape that had burdened foreign firms, including governmental restrictions and administrative procedures that were more onerous in Vietnam than in other countries (Arkadie & Mallon 2003). For instance, some of the FIFs, especially those that exported more than 50% of their production, were no longer required to obtain investment licences but were only required to register the firm. Foreign investors welcomed these amendments and viewed them as a positive step to alleviating the day-to-day headaches faced by almost all foreign investors in Vietnam.

2.5. The aim of the LI 2005 in the period from 2006 up to now (2016)

Twenty years after the introduction of the Doi Moi policy, 2006 became a significant year for Vietnam in the development of its economy and its integration with the world economy. Under the former investment policy regime, overseas and domestic investors had been subject to different regulations, foreign investors being governed by the Law on Foreign Investment and domestic investors being governed by the Law on Promotion of Domestic Investment. From 1 July 2006, a new investment regime comprising a unified Investment Law applying to both foreign and domestic enterprises activities came into effect, granting a more level playing field for overseas and domestic investors than under the previous investment policy regimes.

The LI 2005 states that except for prohibited and conditional sectors, investors are permitted to invest in all sectors as well as in all industries and trades, and have the right to autonomy and to make decisions on investment activities in accordance with the law of Vietnam. The new law introduces a new parallel system of registration and licensing for all enterprises, depending on the size of the investment, the sector of investment (conditional or non-conditional) and the nationality of the investor (domestic or foreign). According to the principles stipulated in this Law, the government will decide on the licensing of important projects; the provision of guarantees for loans, supply of raw materials, sale of products and payment; and will guarantee the performance of other contractual obligations (Article 66). This facilitates the development of a favourable legal environment for FDI in Vietnam.

3. Short conclusion for part 1 of article

In short, the content in the paper has drew the scope of definition of FDI in Vietnamese according to period of mile-stone. FDI is considered to take to host countries which are finished products, materials, components, new technology and intangible assets. FDI can build to the economic wellbeing of host nations and the advancement of their competiveness. the paramount questionare is the way for a host country can compete with the rest of countries. In terms of isusse, the Government of Vietnam has made efforts to shift towards a market-oriented economy and has opened the door to FDI since the countrys economic reform policy known as the Renovation (Doi Moi) policyThere are five stages which are related to making create, build up and effect to FDI of Vietnam in “Renovation” policy.

In the next paper, under “Renovation” policy, what patterns of inward FDI would be analysed.

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Dòng chảy FDI vào Việt Nam: Từ chính sách đến thực hiện

Lê Thanh Hoà

Khoa Kinh tế, Tài chính và Marketing, Đại học Rmit

Lê Huỳnh Phương Chinh

Khoa Luật, Đại học Cần Thơ

Tóm tắt:

Nội dung chính của bài viết là nghiên cứu về vấn đề đầu tư trực tiếp nước ngoài FDI ở Việt Nam có đạt được những kết quả so với mục tiêu và chính sách pháp luật của Việt Nam. Những nội dung phân tích chủ yếu được nghiên cứu trong giai đoạn từ năm 1988 đến năm 2016, theo những kết quả phân tích hàng năm được công bố bởi cơ quan thống kê và các nội dung pháp lý, các văn bản liên quan đến chính sách về đầu tư nước ngoài trực tiếp được phát hành từ cơ quan có thẩm quyền ở Việt Nam. Các kết quả minh chứng từ nghiên cứu này đã cho thấy, mặc dù chính sách của Việt Nam được thực hiện theo nguyên tắc thu hút nguồn đầu tư trực tiếp FDI vào Việt Nam, nhưng một số lĩnh vực đầu tư trực tiếp FDI vẫn không tương thích với mục tiêu chính sách pháp luật Việt Nam. Dựa trên những tìm kiếm và lý giải trong khuôn khổ bài viết này, một số vấn đề quan trọng trong thực thi chính sách sẽ được đề cập để hoàn thiện chính sách phát triển và một số đề xuất cho những nhà hoạch định chính sách đầu tư Việt Nam, nhằm tối ưu hóa việc thu hút nguồn vốn đầu tư trực tiếp nước ngoài FDI nhưng vẫn đảm bảo yêu cầu phát triển kinh tế bền vững.

Từ khoá: FDI, chính sách FDI, Việt Nam, phân bố cấp tỉnh, nguồn gốc, cơ cấu sở hữu, thành phần ngành, các đặc khu kinh tế đặc biệt.