Rolling out the red carpet with a new filter

Dr Phan Huu Thang - Dec 29, 2019 | 09:36 AM GMT+7

TheLEADERThis is the time to install a filter to select foreign investors who are truly qualified, environmentally friendly and socially Vietnamese.

New trend of movement

In 2019, foreign investment flow into Vietnam has some noticeable new trends. In terms of investment, mergers and acquisitions (M&A) increasingly account for a large proportion and attained a rapid growth rate. Although the capital is still focused on manufacturing and processing industry, but it is growing faster in infrastructure services, investment in agriculture is still low.

The statistics on foreign investment attraction results in the first 11 months of 2019 reflect such a fact. Specifically, the total direct investment capital reached $20.5 billion, newly registered capital and adjusted registered capital decreased compared to the same period in 2018. Meanwhile, investment capital through M&A channel reached $12.24 billion and increased 47.1 per cent over the same period.

It is understandable that foreign investors increasingly prefer M&A because investing in Vietnam through this method is faster, less time-consuming than directly establishing new legal entities to implement new projects. 

When investing directly, for projects with a scale of several tens of million USD or more or with a land use scale of a few dozen hectares or more, it usually takes at least a few years to carry out investment procedures. 

In addition, the cost of direct investment has many difficulties, while investing through M&A is often a clearer budget package. The shareholders, or the higher level, have the authority to approve the decision on the cost of the deal.

Regarding foreign partners, as of November 20, 2019, investors from Hong Kong (China) ranked first with a registered capital of over $6.8 billion; followed by South Korea of $5.7 billion and Singapore $4.4 billion. 

It is worth noting that registered capital from China and Hong Kong (China) increased sharply compared to previous years and Hong Kong topped the ranking of foreign investors  in Vietnam within one year. With those mutations, according to statistics in 2019, the investment of traditional partner Japan is only ranked 5th.

In the field of investment, capital inflow has followed the general trend for many years. Accordingly, the capital flows most strongly in the field of manufacturing and processing industry, accounting for nearly 70 per cent. 

The next sectors atrracting strongest investment inflows include real estate business which accounts for 20.4 per cent while wholesale, retail, repair of automobiles and motorbikes makes up for 6.4 per cent. However, it is regrettable that potential fields that Vietnam is in need of and encouraging investment such as hi-tech agriculture have not attracted a lot of foreign capital yet.

Adjusting capital flow

When comparing the figures of $20.5 billion of direct investment and $12.24 billion through M&A method, it can be seen that the direct investment capital still plays a leading role. 

M&A method also raises the question of whether or not it is necessary to design policies to "adjust capital flow " or let the market and investors decide by themselves. Because up to now, there has not been any official assessment comparing advantages and limitations between these two forms of investment. Therefore, it is impossible to accurately assess the specific benefits that each form brings to foreign investment in Vietnam.

Continue spreading the red carpet with a new filter
Dr Phan Huu Thang, former general director of Foreign Investment Agency, the Ministry of Planning and Investment

Actually, there should be in-depth study on this issue to supplement the policy orientation to attract foreign investment. 

For example, should a predetermined percentage of each phase (eg 5 years) be attracted to how many per cent of the direct channels and how many per cent by the M&A channel? Or should we identify which industries and fields that need and do not need to encourage investment under the M&A channel. 

In order to comprehensively assess the results of foreign investment attraction in 2019 through capital contribution channels to buy shares, the state management agency needs to consider in detail large M&A deals, typically in the past year, to see clearly the negative and positive aspects, from which to draw lessons on state management in the field of foreign investment in the coming period.

Regarding the rapidly increasing investment capital from China and Hong Kong, there have been studies showing the reasons including the influence of the US-China trade war and the current instability situation in Hong Kong. 

In addition, the project screening and orientation for attracting foreign partners of Vietnam has not been clearly defined and agreed in the whole system of management of attracting foreign investment.

Many foreign investment research experts in Vietnam still have certain concerns for many reasons, including the quality of the project will be transferred to Vietnam, and who are investors? 

So now is the time to install a filter to select foreign investors who are really capable and environmentally friendly. Along with rolling out the red carpet, a new filter is needed to select and protect the prestige and investment efficiency of serious investors and at the same time to protect the effective development of foreign investment in Vietnam in the coming period.

Coping with bad effects

Regarding the results of attracting and using foreign investment capital in Vietnam in 2019, it can be generally considered that foreign investment in Vietnam continues to be successful with the capital implemented in the next year higher than the previous year. 

Vietnam's business investment environment continues to be highly appreciated by reputable international rating organizations. 

Foreign investment has made positive contributions to Vietnam's socio-economic development in the past year, including adding important capital sources, promoting exports, contributing to the state budget, collecting attract high technology, creating jobs and contributing to enhancing the role and position of Vietnam in the process of international economic integration.

However, there are still problems in management of foreign investment. 

For example, police has arrested hundreds of foreigners gambling in the Our City real estate project in Hai Phong. This case shows that it is necessary to draw lessons on avoiding similar incidents repeated in other localities across the country.

Experiences must be drawn in not only management of foreigner immigration but also all other specific fields related to foreign investment, including projects which have been licensed for many years but not been implemented or causing environment pollution. Particular attention should be paid to the operation of wholly foreign-owned enterprises.

Whether the investment trends in 2019 are temporary and short-term or long-term depends on two main factors, including the context and situation of international trade and investment and secondly, the initiative in attracting foreign investment of Vietnam.

The international context will greatly affect the situation of attracting foreign investment of every country but not all countries will have to bear the bad effects. Previously, Vietnam was surrounded by sanctions and experienced regional financial crisis but we know how to proactively overcome. Up to now, in the face of external turmoil, the closure or opening of anyone or the choice of project is our own initiative and right.

Therefore, this is the time to install a filter to select foreign investors who can be truly qualified, environmentally friendly and socially Vietnamese. 

This initiative of Vietnam will determine the trend of foreign investment inflows in the coming period, bringing the highest efficiency for Vietnam and for true investors in Vietnam.

Entering a new development stage with many difficulties and new challenges, in August 2019, the Politburo - the Central Committee of the Party Central Committee issued Resolution 50-NQ /TW on directions to perfect institutions and improve the effectiveness of foreign investment cooperation by 2030. 

This is a particularly important resolution that needs to be seriously implemented from the central to local levels. It will promote activities of attracting and using foreign investment in Vietnam in the coming period in the right direction, bringing higher socio-economic efficiency and sustainability in all aspects of economy and society, security, defense, culture and foreign affairs. The resolution will surely get the consensus and appreciation of international friends, especially of true investors.