More foreign direct investment capital is expected to flow into Vietnam but larger projects also bring bigger challenges to the country, economists have said.
The Ministry of Planning and Investment’s General Statistics Office (GSO) recently reported that Vietnam welcomed more than $5 billion in committed foreign direct investment (FDI) in the first three months of 2008, up 31 per cent on-year.
The GSO showed that less than a third of FDI commitments were disbursed but reflected positive investor outlook. “The outlook for FDI inflows looks promising given Vietnam’s still competitive labour costs, large potential domestic markets, robust growth, geographical proximity to China, and political and social stability,” said Daniel Hui, an HSBC economist.
Ayumi Konishi, ADB Vietnam’s country director, said the country’s on going structural reforms, the potential of the large market and its commitment to improving the business environment were other key factors attracting investment to Vietnam.
“Given the country’s medium to long-term economic strong growth prospects, I do strongly believe that Vietnam is a good FDI destination,” said Konishi.
According to the United Nations Conference on Trade and Development’s World Investment Report 2007, Vietnam ranked above India, Indonesia, the Philippines, Korea and Taiwan and came in at only 10 places behind China.
Vietnam is expected to maintain its 2007 momentum and is on target for around $20 billion in commitments for this year, said Hui.
Economists however said that larger projects are placing a huge burden on the country’s scarce resources.
“These projects have created huge supply bottlenecks for skilled labour and scarce raw materials such as cement and steel,” an economist said, adding that larger FDI projects such as the $670 million Samsung mobile-phone plant and the $1 billion Intel plant would demand more workers.
Daniel Hui warned that actual FDI inflows failed to keep up with reported commitments and the improvement of FDI absorption.
“Reasons include insufficient infrastructure, regulatory uncertainty and bottlenecks,” he said, adding that the resulting massive inflows into Vietnam have hurt exports through the dong’s appreciation.
Ayumi said it was important for Vietnam to accelerate its reform efforts as well as infrastructure and human resource development, simplify administrative procedures for greater transparency, accountability and efficiency.