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Needed: Tailor-made incentive packages for foreign investors

Vietnam attracts foreign investment in a proactive and selective manner, giving priority to project quality and efficiency, technology and environmental protection. Projects with advanced and clean technology, modern governance, high added value, spillover effects, technology transfer, which link with global production and supply chains are prioritized.

Preparations for new investment flows

According to a report released by the Ministry of Planning and Investment, from January 1 to November 20, Vietnam attracted an additional US$26.43 billion of foreign direct investment (FDI), 83.1 percent of the capital in the same period last year. An estimated US$17.2 billion of this amount has already been disbursed, equal to 97.6 percent of the amount in the same period of 2019.

Economists say the declines are not worrying in the context of falling global FDI, especially given that foreign investors in the country have been doing good business and are still strongly optimistic about Vietnam’s investment environment. A large number of additional foreign investors are also eyeing Vietnam.

Vietnam’s advantages, said Mary Tarnowka, Executive Director of the American Chamber of Commerce in Vietnam (AmCham), are its location, high global integration and stable political situation. Its success in controlling the Covid-19 pandemic is also a draw for foreign investors considering a shift of their supply chains.

Trade conflicts between major economies have led international corporations to relocate production to avoid high tax rates, while lessons from the Covid-19 pandemic has encouraged them to speed up investment restructuring in order to minimize dependence on one market. Apple, for example, is increasing its connectivity with Vietnam through the presence of Foxconn, Winstron and Luxshare in the country. Hoya, a Japanese manufacturer, might leave China for Vietnam, where the company runs two factories.

Vietnam’s foreign investment orientation prioritizes quality, efficiency, technology and environmental protection as the main assessment criteria. Projects with advanced and clean technology, modern governance, high added value, spillover effects, technology transfer, and links with global production and supply chains will be prioritized. To prepare for the FDI inflow expected to shift to Vietnam, Do Nhat Hoang, Director of the Ministry of Planning and Investment’s Foreign Investment Agency, said the government had recently revised the Enterprise Law and Investment Law to simplify procedures and create an open legal corridor, both favorable conditions for foreign investors.

Tailor-made incentives packages

Nguyen Minh Cuong, principal country economist of the Asian Development Bank (ADB) in Vietnam, said that in 2021, investment in Vietnam will be boosted by improved public investment disbursement, shift of investment from China to Vietnam, recovering Chinese economy and the newly implemented EU-Vietnam Free Trade Agreement.

Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM), said Vietnam must clarify what it wants and design tailor-made policy packages for specific investors, taking specific actions to deal with problems faced by investors.

The Ministry of Planning and Investment, the Ministry of Natural Resources and Environment, and localities are working to withdraw licenses of tardy and inefficient projects in order to vacate land for new projects. Vietnam is reviewing the industrial parks’ land reserves, training human resources, developing action plans, promoting supporting industries, and connecting with big FDI projects.

To remove difficulties and speed up the process of creating an open legal corridor for investors, the government has established a working group to promote investment cooperation led by Deputy Prime Minister Pham Binh Minh. Minister of Planning and Investment Nguyen Chi Dung is the deputy group leader for removing bottlenecks in investment and attracting large-scale, technology-intensive projects.

The Ministry of Labor, Invalids and Social Affairs is working with ministries, sectors and localities to boost training of a high quality workforce for information technology (IT), electronics and telecommunications application, engineering and manufacturing industries. It is also compiling lists of Vietnamese technicians who worked and/or were trained abroad.

Vietnam has also adopted various policies for support industry development. The Ministry of Industry and Trade has launched a support industry portal – for foreign investors.

Economists say that connecting foreign businesses with domestic companies is an important move for attracting FDI. Bringing into full play the strengths and potential of leading corporations and economic groups is also important, as they are a driving force for economic growth.