FDI Report 2022: Challenges and opportunities to attract green FDI and digital transformation

The FDI Annual Report 2022 report published by the Vietnam Association of Foreign Investment Enterprises (VAFIE) highlights the requirement to attract FDI in the field of green growth and digital transformation. While quick changing in ASEAN and worldwide, Vietnam without quick adaption will be difficult to achieve the goal of ranking third in ASEAN in terms of digital transformation by 2030.

Below is the direct exchange of Prof. Dr. Nguyen Mai, Chairman of the VAFIE about the main content of the report and recommendations to Vietnam.

Following the success of the first FDI Annual Report in 2021, this year, VAFIE continues to publish the FDI Annual Report 2022. As the main editor, please review the main content of the report and the objectives of the report.

Prof. Dr. Nguyen Mai: The FDI annual report 2022 is continued after the success of the first report for 2021 issued in May 2022. The report is based on three sources of data.

The first is the report of the Ministry of Planning and Investment (MPI), the General Statistics Office on the attraction and use of foreign investment (FDI) in 2022.

The second is FDI reports on global and ASEAN to compare FDI attraction of Vietnam with the world, ASEAN.

The third is the actual survey of large FDI enterprises in 12 provinces, cities and industrial zones to assess the strengths and weaknesses of Vietnam’s investment environment.

The Report has 350 pages in both Vietnamese and English. The theme of the 2022 report is FDI associated with green growth and digital transformation.

Since 2014, the Vietnamese Government has realized that it is necessary to upgrade policies to attract FDI, not only in quantity but also in quality. In quality, there are measures to properly evaluate the efficiency of the FDI sector, contributing to economic growth in the direction of circular economy and green growth. In particular, the Government has recently focused on digital transformation strategies, from digital businesses to digital society, digital government and digital economy. Vietnam’s strategy is that it will rank third in ASEAN in terms of digital transformation by 2030.

In 2021-2022, Vietnam has initially achieved the goal, has made a good transition in implementing the circular economy in many industries and technologies; economic zones have gradually shifted to ecological economic zones, forming an ecological urban industrial park, attracting many large corporations in the world such as Samsung, LG, Intel, Toyota…

Recently, Lego has invested 1 billion USD in Binh Duong and set up a zero-waste, emission-free, non-external energy factory, which is completely self-sufficient. According to Lego, this is the 6th Lego factory in the world, but the first factory to be self-sufficient in energy, emissions and waste, contributing to the green economy. Similarly, before that, a Danish enterprise invested to produce high-end jewelry products with a capital of 100 million USD to produce 6,000 products per year, creating no waste.

Vietnam focus on investment in factories with digital technology, such as upstream semiconductor production. Vietnam have attracted USD 5.2 billion from large corporations such as Samsung, Intel, LG in 2022 to transform Vietnam has become a production base for smartphones, tablets, laptops, power chips, etc. Intel’s General Director announced an investment of about 1.5 billion USD in the factory to produce source chips. This is Intel’s third factory outside the US, after ones located in Scotland and Israel. Potential foreign investors appreciate Vietnam’s advantage on investing in renewable energy, logistics port clusters…

VAFIE’s assessment in the report highly appreciated the positive changes of FDI in recent years. With a summary of 30 years of FDI attraction made in 2019, Resolution 50 is issued in 2020 by the Politburo aim to improving the quality and efficiency of FDI attraction in line with the 2021-2030 orientation of sustainable green growth and digital transformation. This is also an important goal of the 2022 FDI Annual Report.

With the orientation of green FDI and digital transformation, what specific recommendations does the report make for Vietnam in the near future?

Prof. Dr. Nguyen Mai: The report addresses both opportunities and challenges of Vietnam in attracting FDI that contributing for green growth and the digital economy.

Previously, we considered China to be the largest market in the world and it was very difficult for Vietnam to compete with China in terms of technology because China was much superior to Vietnam in terms of high-quality human resources, market size, income per capita. Meanwhile, China also has an attractive strategy for international investors.

However, the opportunity has come recently to Vietnam. Due to the US-China trade war and China’s conflict with the EU and some G20 countries lead to the Chinese government attach importance to the domestic market to encourage domestic enterprises to develop, reduce incentives for foreign investors.

Two effects from strategic conflicts among major countries and China’s policies with domestic have created the China +1 trend. The US, Japan, and the EU have policies to encourage businesses to withdraw from China and bring back home or neighboring countries, such as Vietnam and Indonesia. Thus, we reduce a burden and if Vietnam finds good opportunities, China will take advantage of Vietnam’s strengths in good relations with the US, EU, and OECD (especially Vietnam has the advantage with 15 FTAs).

Because international investment and trade are important, China is willing to invest in Vietnam, reducing the trade deficit and Chinese enterprises benefit from the origin of goods from Vietnam as well as benefiting from Vietnam’s FTAs. At the same time, this move creates opportunities to strengthen internal resources, products originating from Vietnam, is also a requirement in the new generation FTA. If Vietnam take advantage of the opportunity, it is very beneficial for Vietnam while China is at a disadvantage with investment.

However, it should be noted that currently, Vietnam has two major competitors, India and Indonesia. India’s population is about to surpass China’s and the technology is very high. India also has an abundant human resource, training the most engineers in the world, while wages are much lower, about 60-70% compared to Vietnam – these are great advantages of India. Indian Prime Minister Narendra Modi’s policy is to focus on international integration, for example, India undergoes investment promotion with the US and EU 2-3 times every year.

In ASEAN, Vietnam’s competitor is Indonesia. Indonesia has 3 times the population and GDP of Vietnam. The Indonesian president also attaches great importance to foreign investment and Indonesia has good relations, receiving a lot of investment from the EU and the US. On the occasion of businesses leaving China, Indonesia has announced many attractive policies to attract FDI investment.

If Vietnam does not find ways to overcome challenges, it cannot take advantage of opportunities. In addition, there are domestic challenges as we move to attract a new generation of foreign investment, but institutions, policies and laws are incomplete, institutional enforcement is not strict, and incentives are still not suitable for large corporations need… As a result, it is very difficult to attract large, high-tech corporations.

Along with the above challenges is the requirement for high-quality human resources. Recently, despite being evaluated well, it is still difficult in some areas, and the entry policy for foreign experts is also very limited.

Moreover, Vietnam attaches great importance to technology, series of R&D centers has established, including the presence of many large domestic enterprises such as Hoa Phat, Sungroup, and Vingroup, but technology level is not meet the transition to the digital economy.

Finally, there are cumbersome administrative procedures, many types of sub-licenses, harassment of the state apparatus, which reduces investment confidence in Vietnam. Vietnam’s infrastructure has developed quite modernly, but there are no highways, high-speed railways, undeveloped waterways, seaports have not yet become a logistics system.

Especially digital services, open data, big data, policies for all people and businesses to participate in fostering and using digital services… are still weak. The above are basically the issues that the report has raised and suggest synchronous solutions, so that Vietnam can quickly turn challenges into opportunities in attracting new generation foreign investment


More from this stream