Attracting FDI from ASEAN countries
Prospects for FDI inflows into Vietnam from ASEAN countries after the AEC takes effect depend on the absorptive capacity of the Vietnamese economy. The absorptive capacity is determined by the annual FDI disbursement rate. 2010 was the first year that disbursement of FDI in Vietnam reached an estimated US$10 billion per year. Vietnam also recorded an average increase of nearly 20% in FDI disbursement for the last five years from 2011 to 2015. In 2015, FDI disbursement reached US$14.5 billion. The low rate of FDI disbursement in Vietnam involves several factors, including labour resources, infrastructure, and management capacity which are all considered weaknesses of the economy that can not be resolved in only one or two years. The weak absorptive capacity of the Vietnamese economy compared to the requirements and investment opportunities will also have negative impacts on the country's FDI attraction from ASEAN.
The opportunity is open to Vietnam in attracting FDI from the AEC but there will not be a breakthrough in the coming years due to high competition among member countries, as well as other countries in the region and the world, the lower competitiveness of Vietnam compared to many other countries in the bloc, as well as the modest investment to Vietnam from other ASEAN countries (except Singapore, Malaysia, Thailand). More importantly, there should be a large-scale project in order to maintain the FDI growth rate.
With the formation of the ASEAN Economic Community - one of the three major pillars of the ASEAN Community - the flows of investments from ASEAN countries into Vietnam and vice versa are expected to further flourish. ASEAN has become a common market with over 600 million consumers and an annual GDP of about US$2,500 billion. This is obviously a large market with high potential for international investors to expand their market for consumption, production materials, and labour. In order to reach this market, Vietnam, as an ASEAN member country, will be one of international investors' top choices.
Vietnam has great prospects to attract FDI from ASEAN in the near future since it has not only actively implemented ASEAN's general commitments but has also boosted bilateral co-operation in many areas. Trade and investment relations between Vietnam and ASEAN are developing rapidly.When compared with other countries in the region, Vietnam has advantages including a wealth of natural resources, a young labour force, a large consumer market and a stable political system which have been appreciated by foreign investors.
However, sectors with a high potential for FDI attraction in Vietnam such as seafood, agriculture and forestry, tourism, logistics, and wholesale-retail distribution are also considered strengths of other ASEAN member countries such as Thailand, Malaysia, Indonesia, the Philippines. According to the World Economic Forum (WEF)'s Global Competitiveness Report 2014-2015, Vietnam ranked much lower than Malaysia, Thailand, Indonesia, and the Philippines regarding national competitiveness.
With the formation of the AEC, together with the free flow of goods, services, investment, and capital, there will be a free movement of the skilled labour among ASEAN member countries. Regarding the strength and readiness of Vietnam's labour when the country joins the AEC, there are several factors that hinder and reduce the ability to attract FDI into Vietnam in terms of labour criteria: the labour productivity, technical qualifications, and the Human Development Index (HDI) of Vietnam is quite low compared to other ASEAN countries; and the preparation of knowledge and skills (especially foreign languages) of Vietnamese workers during the integration process is not high. Meanwhile, the skilled workforce of Vietnam is now able to to access other markets in ASEAN easier, which will even further increase the shortage of skilled humun resource in the country.
FDI along with exports are still considered the growth engine of the Vietnamese economy, thus, it is necessary to continue to strengthen and enhance the quality and effeciency of the FDI attraction. The official operation of the AEC requires the due attention and preparation of the Government, business community and every citizen in order to take full advantage of opportunities and overcome challenges. It is essential to speed up the institutional reform and improve the quality of the human resources, as well as the competitiveness of the economy and enterprises.
According to the Foreign Investment Agency under the Ministry of Planning and Investment, currently, eight nations in the bloc - Singapore, Malaysia, Thailand, Brunei, Indonesia, the Philippines, Laos, and Cambodia - are running over 2,700 investment projects worth nearly US$60 billion in Vietnam, accounting for over 14% of foreign projects and over 21% of total registered capital in Vietnam.
(Source: Nhandan Online)
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