International Investment: Foreign Trade University Ho Chi Minh Campus

FOREIGN TRADE UNIVERSITY
HO CHI MINH CAMPUS

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INTERNATIONAL INVESTMENT
Major: External Economics
FDI TRENDS AND ECONOMIC IMPACTS – THE

CASE OF VIETNAM
Name Student ID
Nguyen Phuc Lam Kieu 1911155041
Bui Thi Thuy Lien 1911155043
Huynh Khanh Linh 1911155044
Nguyen Thi Anh Linh 1911155045
Tran Minh Luan 1911155046
Pham Thi Quynh Mai 1911155047
Class: K58CLC5
Lecturer: Pham Thi Mai Khanh
Ho Chi Minh City, April 2021

TABLE OF CONTENT
Contents
TABLE OF CONTENT ............................................................................................... i
TABLE OF FIGURES ................................................................................................ ii
TABLE OF TABLES ................................................................................................ iii
ABSTRACT............................................................................................................... iv
INTRODUCTION ...................................................................................................... v
OVERVIEW ............................................................................................................... 1
1. FDI .................................................................................................................. 1
2. How FDI affects the economic growth ........................................................... 2
FDI TRENDS AND IMPACTS ON VIETNAM ECONOMY .................................. 7
1. 2000-2007........................................................................................................ 7
2. 2008-2014...................................................................................................... 16
3. 2015-2021...................................................................................................... 21
CONCLUSION ......................................................................................................... 27
1. Implications ................................................................................................... 27
2. Limitation of the research ............................................................................. 27
3. Future research .............................................................................................. 27
REFERENCES ......................................................................................................... 28
i
TABLE OF FIGURES
Figure 1. FDI and net flow in Vietnam....................................................................... 7
Figure 2. FDI over years ............................................................................................. 8
Figure 3. Detailed FDI in Vietnam ........................................................................... 10
Figure 4. FDI inflows to Lao from 1986-2015 ......................................................... 15
Figure 5. FDI trends from 2006-2018....................................................................... 16
ii
TABLE OF TABLES
Table 1. FDI from 2000 - 2007 ................................................................................... 8
Table 2. FDI in industry and construction sector ..................................................... 10
Table 3. FDI in service sector ................................................................................... 11
Table 4. FDI in agriculture and forestry sector ......................................................... 12
Table 5. Sector distribution of FDI from 1995-2007 ................................................ 13
Table 6. Provincial distribution of FDI from 1988-2006 ........................................ 14
Table 7. Source countries of FDI from 1988-2006................................................... 14
Table 8. FDI inflows to Vietnam and project registration, 2011-2020 .................... 22
Table 9. Sectoral distribution of FDI projects, accumulated as of March 2021 ....... 23
Table 10. Provincial distribution of FDI projects, accumulated as of March 2021 . 24
Table 11. Source countries of FDI, accumulated as of March 2021 ........................ 25
iii
ABSTRACT
Foreign Direct Investment (FDI) has seen a substantial growth during the recent
period around the world. Vietnam in particular has proven to be successful in attracting
FDI inflows, which plays an important part in the economic development of the country
since Doi Moi. This paper examines the trends of FDI inflows of Vietnam over a ten-year
period through secondary data from various reliable sources such as World Bank and
researches. From there, we analyse how FDI impacted the Vietnam economy in each phase
of the researched period, accompanied with realistics comparisons and examples of inflows
from countries with similar characteristics.
Key words: Foreign Direct Investment, Vietnam, trends, impact
iv
INTRODUCTION
Since the economic reforms in 1986, Vietnam has gradually marked itself as one of
the natural destinations for foreign investment from many parts of the world. FDI activity,
specifically, has been remarkably active, making the country one of the fastest growing
economies in the world. It has contributed greatly to the notable increase of GDP, and
living standard, and decrease in poverty rate of Vietnam. Reported by the Ministry of
Planning and Investment of Vietnam, by 2007 the country had attracted 63.5 billion USD
worth of FDI with more than 7000 projects. In the recent time, Vietnam has once again
proven itself to be a hotbed for FDI, especially for its successful endeavor to fight against
the Covid-19 pandemic. Because of that, this paper aims to trace the FDI inflows
movement throughout the years in Vietnam and highlight the impacts on the economy of
the country as compared to the statistics of other relevant countries.
Our research is divided into three parts. The first part provides the general knowledge
of FDI and its impacts on the economy, in overall. The second part looks deeper into the
case of FDI inflows in Vietnam, which is divided into three sections corresponding with
three phases of the research period. This paper is mostly based on secondary data from
international organizations such as World Bank and previous studies on the subject.
v
OVERVIEW
1. FDI
1.1 Definition
Definitions of FDI tend to vary across countries and organizations:
 The International Monetary Fund’s Balance of Payments Manual defines FDI

as ‘an investment that is made to acquire a lasting interest in an enterprise
operating in an economy other than that of the investor, the investor’s purpose
being to have an effective voice in the management of the enterprise’.
 The United Nations 1999 World Investment Report (UNCTAD, 1999) defines
FDI as ‘an investment involving a long- term relationship and reflecting a
1asting interest and control of a resident entity in one economy (foreign direct
investor or parent enterprise) in an enterprise resident in an economy other
than that of the foreign direct investor (FDI enterprise, affiliate enterprise or
foreign affiliate)’.
The common feature of these definitions lies in terms of ‘control’ and ‘lasting
interest’, which represents the most important feature that distinguishes FDI from other
forms of international investment - the element of control over management policy and
decisions.
1.2 Components of FDI

The components of FDI are equity capital, reinvested earnings and other capital
( mainly intra - company loans).
1.3 Modes of Entry

1.3.1 Greenfield
Greenfield investment occurs when the investing firm establishes new production,
distribution or other facilities in the host country.
1
1.3.2 Merger & Acquisition (M&A)
When an investing firm merges with or acquires an existing local firm in the host
country. In a cross-border merger, the assets and operations of two firms belonging to two
different countries are combined to establish a new legal entity.
1.3.3 Joint venture

FDI can also take the form of joint ventures, either with a host country firm or a
government institution, as well as with another company that is foreign to the host country.
One side normally provides the technical expertise and its ability to raise finance, while
the other side provides valuable input through its local knowledge of the bureaucracy as
well as of local laws and regulations.
2. How FDI affects the economic growth

2.1 The role of FDI in development
FDI and international production by TNCs can play an important role in the
development process by supplementing and complementing the efforts of national firms
and other economic agents. FDI comprises a bundle of tangible and intangible assets that
are at the same time resources for development or can bring development benefits. Key
assets and resources include capital technology, skills and management techniques, market
access and clean environmental technologies.
2.2 Increasing financial resources and investment

2.2.1 Impact on financial resources for development
As a source of finance, FDI has some advantages over other sources of foreign finance
to developing countries. It is more stable than other types of private flows ( bank lending
and portfolio flows ), because it is typically based on a longer-term view of the market, the
growth potential and the structural characteristics of recipient countries.
2.2.2 Impact on investment

TNCS may crowd in domestic investment when they introduce new goods and
services to the host economy that may offer new investment opportunities for domestic
2
firms, create upstream or downstream linkages with domestic producers or even increase
the efficiency of financial intermediation.
FDl may crowd out domestic investment by entering activities already populated by
local firms in which there is little room for further expansion, in which domestic firms are
unable to compete with foreign affiliates, or by using their size and " bankability " to gain
privileged access to local capital markets.
2.3 Enhancing technological capabilities

2.3.1 Technology transfer
The technologies that TNCs transfer to their foreign affiliates are generally more
modern and productive than those available in host countries, especially developing
and transition economies. The transfer can enable a host country to expand its
productive base and use a larger range of technologies.
2.3.2 Technology diffusion

The diffusion of technology and skills from foreign affiliates to a host economy
may occur through four channels:
 Competition with local firms stimulating the latter to improve efficiency and
technological capabilities and raise productivity.
 Cooperation between foreign affiliates and local suppliers, customers and
institutions with which they have linkages, leading to information exchange and
technical collaboration that enhance the technological capabilities of the linked local
agents.
 Labour mobility, particularly of highly trained personnel, from foreign affiliates to
domestic firms including supplier firms set up by former TNC employees, often
with the support of their former employers.
 Proximity between foreign and local firms, leading to personal contact, reverse
engineering, imitation and the formation of industrial clusters facilitating
technological upgrading in host countries.
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2.3.3 Technology generation
To the extent that they locate their R&D activities in host countries, FDI has the
potential to increase technology generation and strengthen innovatory capacities in host
countries. More developing countries and transition economies are now attracting R&D by
TNCs, including some highly advanced R&D activities thanks to the growing availability
of educated and highly trained human resources in a number of developing countries.
2.4 Boosting export competitiveness and trade

FDI can be an effective means of providing the missing resources, such as the skills,
training and technology, capital goods and intermediate inputs needed to exploit host
countries' existing comparative advantages. In developing countries, these advantages may
be natural resources and low wage unskilled labour.
 Exploiting static comparative advantages
FDI can be an effective means of providing the missing resources, such as the skills,
training and technology, capital goods and intermediate inputs needed to exploit host
countries' existing comparative advantages. In developing countries, these advantages may
be natural resources and low wage unskilled labour.
 Creating dynamic comparative advantages .
In host countries with adequate education and capabilities. TNCs can help create
dynamic comparative advantages by means of new skills and advanced technologies
introduced through their foreign affiliates' production activities. In countries with more
advanced industrial and technology bases, TNCs can feed into innovation by setting up
R&D centres and interacting with local research.
 Providing access to international markets .
FDI can provide a major benefit in this aspect, especially in markets in which
established brand names and large distribution networks are important assets. Where trade
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is internal to TNCs, as in some high technology products, joining TNC networks is often a
necessary condition for increasing exports.
 Increasing local firms’ links to international markets .
When they first enter a host country, TNCs may tend to use overseas suppliers with
whom they have strong linkages, however, there are advantages to having suppliers nearby
and TNCs invest in developing local suppliers when the cost of building their capacity to
the necessary technical and quality levels is modest. Over time, linkages with local firms
increase, creating opportunities for local supplier firms to expand sales not only to export
oriented foreign affiliates in host countries but to venture directly into the international
market.
2.5 Generating employment and strengthen skills

2.5.1 Employment generation
TNCs differ from other firms in that they distribute their employees in different
locations. The large TNCs can generate substantial volumes of employment in host
countries. Additionally, FDI increases host country employment directly when it involves
setting up new foreign affiliates or expanding existing affiliates. It can increase
employment indirectly by stimulating additional employment in suppliers and distributors.
In the medium term, employment can also increase through multiplier effects from the new
income generated by FDI or through the higher demand stimulated by improved efficiency
and restructuring of competing firms.
2.5.2 Impact on quality of employment

 Wages
Foreign affiliates generally pay higher wages than domestic firms in similar activities.
The difference is more marked in industries that demand higher levels of skill, technology
and marketing and in export - oriented activities that need to ensure consistent quality and
timely delivery.
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 Job security
Foreign affiliates tend to offer greater job security because of their size, competitive
strength and need for a stable workforce.
 Other conditions of work
Working conditions in foreign affiliates are often better than those in ·local firms .
In particular , large and visible TNCS tend to comply with local and international labour
standards and even with labour standards in their home countries.
2.5.3 Enhancing skills

TNCs tend to upgrade skills of foreign affiliate employees in host countries by
investing in training. Training may be on the job, or formal training within the firm or in
specialized institutions. Generally, TNCs also induce local suppliers and buyers to train
workers to meet their quality standards and thereby indirectly influence local competitors
or unrelated firms to emulate their training practices.
6
FDI TRENDS AND IMPACTS ON VIETNAM ECONOMY
1. 2000-2007
In the whole period 2000 - 2007, a couple of years after Doi Moi Policy was
implemented and not long before the global financial crisis 2008, Vietnam witnessed two
main FDI trends (as below), which are slightly flat in the first two-thirds of the period (from
2000 - 2005) and skyrocketing in the remaining time (2005 - 2007). This trend clearly
showed the positive effects of Doi Moi policy on national economic growth when
international trade was first facilitated.
Figure 1. FDI and net flow in Vietnam

(World Bank, 2019)
7
1.1 FDI size and growth
1.1.1 From 2000-2005
From 2000 to 2005, the background of Vietnamese economy is that many countries
especially China started to invest strongly in their economy to attract foreign investments,
threatening the competitiveness of FDI of Vietnam.
Figure 2. FDI over years

(General Statistics Office, 2020)
Table 1. FDI from 2000 - 2007

8
Regarding capital inflows, in 2000, Vietnam had an amount of registered capital of
2,763 billion USD, rising to 6,840 billion USD in 2005 with only slight fluctuation in the
year 2001 - 2002 which is not remarkable. As for implemented capital, Vietnam showed a
flatter trend compared to registered one. Specifically, the figure for implemented capital
fluctuated between 2,399 billion USD in 2000 and 3,301 billion USD in 2005. While
registered capital seemed to increase rapidly at the end of the period, the numbers of
projects went reverse. In the first half period of 2000 - 2002, the number of projects rapidly
grew from around 350 to around 700 projects, followed by a moderate growth from 700 to
around 850 projects in the remaining years. Although the numbers of projects were stable
along the period, most of the projects were small and medium scale ones.
In general, in the 2000 - 2005 period, total registered capital contributed about 22,806
billion USD, which was about 1 billion less than that in the previous period (1996-1999)
and total implemented capital contributed about 15,843 billion USD which was about 4
billion greater than that in the previous years.
It can be seen that although the market in Vietnam was lack of experience to attract
much investment from foreigners at that time, FDI capital inflows appeared stable along
the way from 2000 to 2005 thanks to the stability of macroeconomic conditions and
national politics in Vietnam, but the trend still performed a little poorer than that in 1996 -
2000 period in which Doi Moi policy was just implemented nationally.
1.1.2 From 2006-2007

For economic context, there is an event that plays as a milestone for the economy in
Vietnam at this time, which is that Vietnam joined the World Trade Organization in 2007,
making the picture of FDI trends brighter than ever.
As for capital flows, Vietnam witnessed the higher number of registered capital than
ever before, with over 10,000 billion USD in 2006 (the first two-digit number for the figure
of registered capital flow), increased by twice greater in 2007. Similarly, figures for
9
implemented capital were 4,1 billion USD and 8,034 billion USD in 2006 and 2007
relatively.
Figure 3. Detailed FDI in Vietnam

The number of projects rose along the years and peaked in 2007 at nearly 1500
projects, with 500 projects more than that in 2006 thanks to the facilitation of being a WTO
member.
1.2 Other type of FDI

1.2.1 Distribution by sector and industry:
1.2.1.1 Industry and construction sector:
Table 2. FDI in industry and construction sector
10
In this time, the Government encouraged production of new materials, high-tech
products, information technology, mechanical engineering, precision mechanical
equipment, production of electronic products and components... These projects contributed
high added value so that Vietnam had a comparative advantage in attracting foreign
investment.
As shown by the table, light industry and heavy industry performed the most
outstandingly in the three categories: number of projects and investment capital,
implemented capital respectively. Investment capital and implemented capital of heavy
industry were 23,976,819,332 USD and 7,049,365,865 USD respectively. As for light
industry, its number of projects accounted for 2,542, followed by 2,404 projects of heavy
industry.
It can be concluded that investment structure has changed positively in the direction
of increasing the proportion of investment in hi-tech, oil refining and information
technology sectors with the presence of famous multinational corporations in the world:
Intel, Panasonic, Canon, Robotech, etc.
1.2.1.2 Service sector
Table 3. FDI in service sector
11
Thanks to the commitments for trade in the WTO, Vietnam attracted foreign
investment to national services, boosting the FDI and national growth.
It is clearly shown that culture - medicals - education; real estate and tourism appeared
to be the top strongest components. Specifically, culture - medicals - education brought the
highest number of projects (271 projects). There were over 9,000 million USD of capital
invested in real estate, accounting for nearly 42% of total foreign investment in the service
sector and over 2,000 million USD implemented in tourism, accounting for 24%.
It can be claimed that some service industries (telecommunications, finance, banking,

insurance, air transportation, ocean shipping, tourism, real estate) have grown rapidly,
attracting many workers and increasing the export index of Vietnam.
1.2.1.3 Agriculture and forestry sector

Investment projects in the Agriculture, Forestry and Fishery sector have been focused
since the introduction of the Foreign Investment Law 1987. However, due to many reasons,
including high investment risks in this field, the results of attracting foreign investment
into the Agriculture - Forestry and Fisheries sector in this period were not as expected.
Table 4. FDI in agriculture and forestry sector

By the end of 2007, there was a total registered capital of more than 4.4 billion USD,
about 2.02 billion USD of implementation. Agriculture and Forestry received great capital
of registration and implementation, which were around 4 billion USD and 2 billion USD
respectively, accounting for nearly 90% of the total.
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Table 5. Sector distribution of FDI from 1995-2007
To conclude, by the end of 2007, the industry and construction sector had the largest
proportion with 5,745 valid projects, total registered capital of more than 50 billion USD,
accounting for 66.8% of the number of projects, 61% of the total registered capital and
68.5% implemented capital.
In 2007, although the registered investment capital continued to focus on the

industrial sector (50.6%), there was a strong restructuring of investment in the service
sector, accounting for 47.7% of the total registered capital, an increase of 16.5% compared
to 2006 (31.19%) with many projects on building seaports, trading real estate, building
entertainment and entertainment areas.
13
1.2.2 Provincial distribution of FDI:
Table 6. Provincial distribution of FDI from 1988-2006

Of all the areas in Vietnam, by the year 2006, South-East had the largest number of
projects which is 5126, accounting for 62% of the total. Similarly, South-East continued to
own the highest amount of registered capital of over 40,000 million USD, accounting for
54.1%. With the greatest contribution of Ho Chi Minh city, South-East appeared to be the
most attractive area of Vietnam, followed by the Red River Delta.
1.2.3 Countries of origin:
Table 7. Source countries of FDI from 1988-2006

14
Regarding the FDI by source of investors, by the year 2006, China appeared to be the
one that invested the most projects (1743) while the highest registered capital came from
the EU and Singapore, accounting for 14% and 12.8% of the total.Impacts of FDI trends
in Vietnam during 2000-2007.
1.3 Impact of FDI trends on Vietnam during 2000-2007

In the period of 2000 - 2007, the inflow of foreign investment into Vietnam increased
significantly with the appearance of many large-scale projects invested mainly in the
industrial sector and services, making the heavy industry and services of the economy
gradually improved.
1.4 Comparison FDI trends between Laos and Vietnam in 2000-2007

According to IFM survey, in the same period 2000-2007, the real GDP of Vietnam
and Laos bear trivial differences, showing the so-called same progress of national
development at the time. FDI size and growth of the two nations are to be analyzed for
comparison as below.
Figure 4. FDI inflows to Lao from 1986-2015

According to UNCTAD, from 2000 to 2007, FDI inflows decreased at the beginning,
reaching the bottom of 0 million USD in 2002 and then slightly rose by 2005, followed by
15
a rapid growth to the peak at nearly 400 million USD in 2007, while Vietnam’s FDI inflows
mostly rose in the period only with a little fluctuation along the way. It can come down to
the effect of Doi Moi policy that helped Vietnam appear with a brighter picture of FDI in
the period examined, compared to its neighboring country.
2. 2008-2014
2.1 FDI trends during 2008-2014
Generally, Vietnam witnessed a sharp decrease in foreign direct investment from
2008 to 2014, along with that, there was a marked fluctuation during this period.
Figure 5. FDI trends from 2006-2018

Specifically, the figure in 2008, which was 9.663%, reduced more than a half to
3.941% in the last year of the surveyed period (2014). In particular, thanks to the
participation of Vietnam in WTO, the totally newly registered capital in 2008 was
significantly high compared to the previous years, this figure peaked at US$60.22 billion
with a total of 1,171 investment projects.
Of these projects, there were 311 ones adding US$3,74 billion to the registered
capital, which multiplied by 222% compared to the last year 2007. Regarding the
investment sectors, there were assumptions that the real estate sector attracted FDI most,
16
but the reality showed that the construction sector was dominant in totally newly registered
capital, with a total of 537 projects, making up 53.7% of investment projects and 55.7% of
totally registered capital.
Regarding investment location, Ninh Thuan Province attracted FDI the most among
43 provinces invested by foreign companies, followed by Ba Ria- Vung Tau, Ho Chi Minh
City and Ha Tinh Province. Specifically, thanks to the joint venture between two
corporations - Lion (Malaysia) and Vinashin (Vietnam), Ninh Thuan attracted a total of
US$ 9.3 billion in registered capital. Regarding investment counterparts, there were 44
foreign countries registered in Vietnam. Of these partners, Malaysia was the leading
investor, followed by Taiwan, Japan and Brunei, with US$ 14,9 billion in registered capital,
accounting for 4.2% in terms of investment projects and 25,5% in terms of registered
capital. 2008 also welcomed the participation of many big foreign corporations such as
Good Choi (The US), Berjaya (Malaysia) v.v…
However, the FDI figure no longer remained that high in 2009 and it fell to US$20
billion. This is the first time it dropped in the past five years due to the negative effects of
the global crisis. In particular, there were totally 215 projects, increasing US$ 5.13 billion
in registered capital, equaling 98.3% compared to the previous year. Regarding the
investment sectors, accommodation and food services were the most attractive to investors,
followed by real-estate activities and manufacturing and processing. To be specific, in the
accommodation and food services sectors, there were 32 new projects with total investment
capital of almost US$ 4.8 billion. Also, there were 8 projects with expanded investment
capital by US$ 3.8 billion. Regarding investment location, Ba Ria - Vung Tau province
took the first position in attracting foreign direct investment, followed by Quang Nam
province, Binh Duong province and Phu Yen province, with total newly registered capital
and capital gain of US$ 6.73 billion. Regarding investment counterparts, the US was the
leading investor, followed by Cayman Islands and Samoa, with total registered capital of
US$ 9.8 billion, accounting for 45.6% of total capital invested in Vietnam. From 2010 to
2012, there was a slight decrease in the total registered capital, with figures of US$ 18.59
17
billion, US$ 14.696 billion and US$ 13.013 billion respectively in 2010, 2011 and 2012.
Regarding the investment sector, the real-estate sector was the leading one in attracting
foreign direct investment in 2010 with a total of 27 new projects and 6 projects with
expanded investment capital, resulting in the total newly-registered investment capital and
additional registered capital reaching US$ 6.84 billion, composed of 36.8% total registered
capital in Vietnam.
In terms of the other two consecutive years (2011 and 2012), manufacturing and
processing were dominant sectors with 435 and 498 new projects in 2011 and 2012. 435
and 498 new projects correspondingly contributed to US$ 7.123 billion and US$ 9.1 billion
in the total registered investment capital. Regarding investment location, Quang Nam
Province, Ho Chi Minh City and Binh Duong Province were the most three attracted spots
for investors in 2010, 2011 and 2012. Of the projects in Quang Nam in 2010, contributing
to US$ 4.2 billion in the newly registered capital and additional registered capital, the
project invested by Singaporean investors called “South Hoian resort” attracted US$ 4
billion to the total capital. In terms of Ho Chi Minh City and Binh Duong Province in 2011
and 2012, the total newly registered capital and additional registered capital were US$ 3
billion and US$ 2.53 billion. Regarding investment counterparts, Singaporean, Hongkong
and Japanese took turn to be the leading investors in these three years. In particular, the
total of newly registered capital and additional registered capital were respectively
US$ 4.43 billion, US$ 3.09 billion and US$ 5.13 billion. The situation was better-off in
2013 when the newly registered capital and additional registered capital reached
US$ 21.628, increasing 54.5%% compared to those of the same period in 2012. Regarding
the investment sectors, manufacturing and processing were most attractive to foreign
investors with a total of 605 new projects, contributing US$ 16.636 billion to the newly
registered capital and additional registered capital, followed by production, electricity, gas,
steam and air conditioning supply and real estate activities. Regarding investment location,
the foreign investors invested in 53 provinces all around the country. Of these provinces,
Thai Nguyen province was the most attractive spot to the investors, with a total newly
18
registered capital and additional capital of US$ 3.4 billion, accounting for 15.7% of
registered capital. Regarding investment counterparts, Japan took the first position in
registration of new capital and additional capital, accounting for 26.6% of total registered
capital in Vietnam, followed by Singapore and Korea.
2014 witnessed a slight decrease in total registered capital. There were 1843 new
projects granted with investment certificates (a year-on-year increase of 14%). Regarding
investment sectors, processing and manufacturing led with total investment capital of
almost US$ 15.5 billion, accounting for 70.7% of total registered investment capital.
Regarding investment location, Thai Nguyen province continued to lead the list with a
large project worth US$ 3.35 billion, accounting for 15.3% of total registered investment
capital. Regarding investment counterparts, South Korea led the list with total investment
capital of almost US$ 7.7 billion, accounting for 35.1% of total investment capital in
Vietnam.
Generally, over the period of 2008-2014, 2008 witnessed the highest total registered
capital (US$60.22 billion) and 2012 witnessed the lowest total registered capital
(US$ 13.013 billion). Real estate sector, processing and manufacturing took turn to rank
first in the investment sectors. Moreover, Binh Duong province, Thai Nguyen province,
Ho Chi Minh City and Ba Ria Vung Tau province were the attractive spots to investors
during this period. Lastly, ASEAN member countries, Japan, South Korea and Taiwan
were the outstanding foreign investing countries in this surveyed timeframe.
2.2 Impacts of FDI trends in Vietnam during 2008-2014

This FDI trend had a profound impact on GDP growth and state budget revenue (state
budget). FDI capital plays a vital role in promoting Vietnam's economic growth. The
contribution of the FDI sector in the country's GDP increased to 16.9% in 2008 compared
to the previous years (ThS. Phạm Thiên Hoàng - Viện Nghiên cứu Quản lý Kinh tế Trung
ương (Bộ Kế hoạch và Đầu tư), 2019). The proportion of state budget revenue from the
FDI sector also increased significantly, this number reached 23.7 billion in the period 2011-
2014 (ThS. Phạm Thiên Hoàng - Viện Nghiên cứu Quản lý Kinh tế Trung ương (Bộ Kế
19
hoạch và Đầu tư), 2019), accounting for nearly 14% of total state budget revenue (ThS.
Phạm Thiên Hoàng - Viện Nghiên cứu Quản lý Kinh tế Trung ương (Bộ Kế hoạch và Đầu
tư), 2019). Also, the proportion of the contribution to exports of this sector has increased
sharply of the total turnover over 60% in 2012 of the total turnover (ThS. Phạm Thiên
Hoàng - Viện Nghiên cứu Quản lý Kinh tế Trung ương (Bộ Kế hoạch và Đầu tư), 2019).
This FDI trend also contributed to labor productivity growth: In theory, FDI inflows are
interrelated with labor productivity (labor productivity) of the host country, but it should
be noted that it will have a positive effect, extremely when domestic enterprises have the
capacity to learn new technologies or to provide inputs for FDI enterprises. Research by
Le Van Hung (2017) measuring and analyzing the contribution of this sector to labor
productivity growth in the period 2006 - 2014 showed that the FDI sector plays an
important role in promoting the growth of labor productivity in Vietnam.
2.3 Comparison FDI trends between Thailand and Vietnam in 2008-2014

During the surveyed period, Vietnam and Thailand had some similar characteristics
featuring in the FDI trends of these two countries. In 2008, Vietnam attracted only slightly
more foreign investment than Thailand nearly US$ 9 billion. After 10 years, both countries'
FDI has increased. In particular, In 2009, both had a slight drop to below $ 8 billion. By
2010, both of the same pace pushed this number up again. Thailand with a jump to nearly
15 billion dollars. At the same time, Vietnam only increased slightly, reaching 8 billion
dollars, far behind Thailand. But a year later, Thailand again encountered a serious crisis,
reducing the number from nearly all 15 billion to ~ 1 billion dollars. A number that is
lowest at the present time. At that time, Thailand had many difficulties in developing the
economy when the FDI inflow to Thailand was very low. However, that did not discourage
them, but also revived their determination. After only 1 year, FDI poured into Thailand
again reached 13 billion dollars. Significantly increased compared to the previous year. It
is very commendable for the spirit and efforts of the Thai government as well as the hard
work of the Thai people. In 2013, Thailand again pushed this number to the top, reaching
the highest level compared to the present time of 16 billion dollars. At the same time,
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Vietnam has also maintained its growth momentum and steadily increased in the following
years. After the spectacular top jumps, Thailand then failed to maintain its form, allowing
the capital poured into the country to decline greatly to a near very low level. Although
Vietnam has grown slightly, in general, the growth rate is also quite good, maintaining its
form and affirming its position compared to Thailand.
3. 2015-2021
3.1 FDI trends during 2015-2021
From 2011 onward, Vietnam experienced a down cycle in FDI as the market
overheated from tremendous capital inflow. However, it appears to stabilize in 2014-2016,
thanks to reforms to the Law on Investment in 2014 along with successful FTA
negotiations. FDI registered capital reached a peak of $35.88 billion in 2017, up 44.4% as
compared to the previous year, which is the highest since 2009. Meanwhile, the
implemented capital also witnessed a significant rise to $19.1 billion in 2017. In the
following 2 years, FDI registered capital remained steady and reached $38 billion in 2019.
Several factors were the reasons for this sharp growth. First and foremost, many billion-
dollar projects were licensed in 2017, most of these come from major traditional investors
such as South Korea and Japan. The capital of many large projects from various MNCs
such as Samsung, Bosch, Panasonic, etc. were increasingly adjusted to invest in research
and development. In addition, due to the ongoing trade tensions between the U.S and
China, Vietnam has been seen as one of the beneficiaries of major companies looking to
move operations, or relocate altogether, from China in order to diversify and protect their
interests, which contributed to the sharp growth in FDI registered capital.
21
Table 8. FDI inflows to Vietnam and project registration, 2011-2020
FDI capital inflows decreased to $28.53 billion in 2020, down 25%, while the number
of newly registered projects also declined approximately 35% as compared to the previous
year. The dramatic fall in FDI growth can be attributed to the negative effect of Covid-19
on global value chains. The interrupted supply chain affects investment activities and trade,
thereby reducing the growth of the world economy in general and many countries and
regions in particular. According to the United Nations Conference on Trade and
Development (UNCTAD), due to Covid-19 crisis, “global FDI flows are forecast to
decrease by up to 40 per cent in 2020, from their 2019 value of $1.54 trillion. This would
bring FDI below $1 trillion for the first time since 2005. FDI is projected to decrease by a
further 5 to 10 per cent in 2021”.
Regarding distribution by sector and industry, until March 2021, the manufacturing
and processing sector accounted for the highest proportion with $225.73 billion, accounting
for 58.5% of total investment capital. Real estate ranked second with investment capital of
over $60.1 billion, accounting for 15.5% of the total registered investment capital. It is
followed by electricity, gas steam and air conditioning supply; accomodation and food
service activities with the total registered capital of nearly $28.74 billion and $12.52
billion. It can be clearly seen that manufacturing and processing continues to account for
22
the major portion of FDI, as Vietnamese government sees supporting the industry as key
to boosting socio-economic development. In addition, Vietnam has benefited due to
companies moving manufacturing to Vietnam as costs in China started to increase, and the
US-China trade war has accelerated the process. Besides, the real estate market continues
to attract foreign and domestic investors in many years. Many companies and investors still
have a strong interest in Vietnam’s industrial real estate market despite the pandemic-
induced slowdown. Before Covid-19, increased tourism and large infrastructure projects,
such as the Hanoi and Ho Chi Minh metros projects, along with the shortage of affordable
housing are expected to push demand for real estate. Electricity, gas steam and air
conditioning supply also experiences a significant growth in total investment capital, with
a recent major project called Liquefied Natural Gas (LNG) Plant, having total registered
investment capital of $4 billion with the goal of producing electricity from liquefied natural
gas.
Economic Number Registered Percentage of total

sector of capital registered capital
projects (million
USD)
1 Manufacturing, processing 15247 225733 58.5
2 Real estate activities 948 60113 15.5
3 Electricity, gas steam and air 160 28733 8.5
conditioning supply
4 Accommodation and food 890 12516 3.2
service activities
5 Construction 1752 10683 2.7
6 Wholesale and retail trade; 5225 8434 2.2
repair of motor vehicles and
motorcycles
7 Transportation and storage 880 5236 1.4
8 Mining and quarrying 108 4898 1.2
9 Education and training 588 4405 1.1
10 Other 7402 22141 5.8
Table 9. Sectoral distribution of FDI projects, accumulated as of March 2021
23
Regarding the provincial distribution of FDI projects, until March 2021, Ho Chi Minh
led with 9951 projects, accounting for 29.9% of total valid projects and $48.63 billion of
investment capital, accounting for 12.4% of total registered capital. Ha Noi ranked at
second place with $36.3 billion, accounting for 9.2% of total registered capital. The third
and fourth place were Binh Duong and Ba Ria - Vung Tau with $35.83 billion and $32.77
billion of total registered capital respectively. A large share of FDI inflows has been
geographically concentrated around the urban areas of Ha Noi and Ho Chi Minh city.
According to Table 10, four of the top five provinces attracting most of investment capital
are in the southern key economic zone. Binh Duong and Ho Chi Minh City, in Southern
Vietnam, are the main industrial hubs, specializing in textile, leather, footwear, mechanics,
electricity and electronics, and wood processing. Southern Vietnam has also been the main
destination for renewable energy investment projects, in particular solar power plants.
Province Number of Percentage Registered capital Percentage

projects of total (million USD) of total
1 Ho Chi Minh City 9951 29.9 48626 12.4

2 Ha Noi 6450 19.4 36305 9.2
3 Binh Duong 3954 11.9 35828 9.1
4 Ba Ria - Vung Tau 498 1.5 32769 8.3
5 Dong Nai 1753 5.3 31886 8.1
6 Other 10688 32.1 207911 52.9
Table 10. Provincial distribution of FDI projects, accumulated as of March 2021
Home economy Number Share of Registered Share of total

of total capital registered
projects number of (million capital
project USD) (percent)
(percent)
1 South Korea 9019 27.1 71509 18.2
2 Japan 4666 14.0 62512 15.9
3 Singapore 2660 8.0 61263 15.6
4 Taiwan 2802 8.4 33776 8.6
5 Hong Kong 1956 5.9 26243 6.7
24
6 British Virgin 871 2.6 22262 5.7
Islands
7 China 3170 9.5 19540 5.0
8 Malaysia 645 1.9 12938 3.3
9 Thailand 607 1.8 12677 3.2
10 Other 6898 20.7 70604 18.0
Table 11. Source countries of FDI, accumulated as of March 2021
Regarding counterparts, until March 2021, South Korea led with 9019 projects and
total investment of $71.5 billion, accounting for 18.2% of total investment capital in
Vietnam. Large-scale projects recently which Samsung, LG, POSCO, Hyundai, Lotte, etc.
have invested in Vietnam have a major impact on the economy - society, contributing
significantly to promote the development of the electronic industry of Vietnam. Japan
ranked second with 4666 projects and total investment of $62.51 billion, accounting for
nearly 16% of total investment capital. Activities by Japanese companies in Vietnam have
been hitting record highs, especially in mergers and acquisitions. Sumitomo, Honda,
Toyota, Canon, and Panasonic all have a substantial foothold in the country. Singapore
ranked third with registered investment capital of $61.26 billion, accounting for 15.6% of
total investment capital; its investment capital is most concentrated in the processing
industry and real estate activities.
3.2 Impacts of FDI trends in Vietnam during 2015-2021:

FIEs have brought a new investment attraction model with spillover effects to propel
economic growth, thus inspiring the more effective utilisation of domestic resources. FDI
has been an important investment channel, making up a quarter of the total social
investment capital. In the meantime, the share of FDI in Vietnam’s GDP stands at about
20% until 2019 (Nguyen Chi Dung, Minister of Planning and Investment, 2019). Besides,
FIEs have accounted for an ever-increasing proportion of Vietnam’s total export value,
with the ratio reaching 72.3% in 2020. More importantly, FIEs have helped reshape
Vietnam’s export items by reducing the percentage of raw materials and semi-processed
products in total overseas shipments and raising the proportion of finished products with
high added-value. Furthermore, FIEs played an integral part in restructuring the
25
Vietnamese economy towards industrialisation. Until 2018, 58.2% of FDI has been
channelled into the manufacturing and processing sector, and FIEs have generated more
than 50% of the country’s total industrial production value (Nguyen Chi Dung, Minister of
Planning and Investment, 2019).
26
CONCLUSION
1. Implications
This paper gave a thorough research about the indicators of FDI in Vietnam and stated
the effect of FDI on the Vietnamese economy. By analyzing the trends in Vietnam’s FDI,
although FDI regularly fluctuates, the paper has shown a significantly positive growth of
FDI overall and the major impact on Vietnam economy, even during when the COVID-19
pandemic spread worldwide. Some important milestones of the Vietnam economy are that
being a member of WTO in 2007, reforms to the Law on Investment in 2014 along with
successful FTA negotiations, which made the FDI trends in Vietnam become brighter.
Besides, Vietnam is also one the beneficiaries during the trade war between the US and
China. In 2020, Singapore successfully became the biggest investor in Vietnam, surpassing
the 2019 number one - Korea. However, until March 2021, Korea is leading the game with
large scale projects.
2. Limitation of the research

Due to the data we collected from various resources online, the information in this
report somehow does not yield a comprehensive status of the situation at this present.
Rather, the analysis inspired the team to review various statistics from previous years in
order to reach a hypothesis regarding the global situation in general and the situation in
Vietnam in particular. Furthermore, as undergraduate students, we concentrate on
discussing the topic rather than providing long-term orientation or stating certain
government policy to debate.
3. Future research
A recommendation for future research is to find a way to maximize profit Vietnam
can attain from this kind of investment by utilizing effectively the benefits gained. In
addition, in the current situation, another suggestion for future research is finding solutions
to attract more investment in Vietnam. At the same time, analyzing in which ways FDI is
made used by foreign companies and establishing more appropriate policies to protect
domestic companies is a good move.
27
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Đầu tư nước ngoài tại Việt Nam (1988 - 2007). Available at:
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hình thu hút đầu tư trực tiếp nước ngoài 12 tháng đầu năm 2010. Available at:
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30

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FOREIGN TRADE UNIVERSITY

HO CHI MINH CAMPUS

FDI TRENDS AND ECONOMIC IMPACTS – THE

Lecturer: Pham Thi Mai Khanh

Ho Chi Minh City, April 2021

TABLE OF FIGURES ................................................................................................ ii

TABLE OF TABLES ................................................................................................ iii

2. How FDI affects the economic growth ........................................................... 2

FDI TRENDS AND IMPACTS ON VIETNAM ECONOMY .................................. 7

2. Limitation of the research ............................................................................. 27

3. Future research .............................................................................................. 27

Key words: Foreign Direct Investment, Vietnam, trends, impact

 The International Monetary Fund’s Balance of Payments Manual defines FDI

1.2 Components of FDI

1.3 Modes of Entry

1.3.3 Joint venture

2. How FDI affects the economic growth

2.2 Increasing financial resources and investment

2.2.2 Impact on investment

2.3 Enhancing technological capabilities

2.3.2 Technology diffusion

2.4 Boosting export competitiveness and trade

 Exploiting static comparative advantages

 Creating dynamic comparative advantages .

 Providing access to international markets .

 Increasing local firms’ links to international markets .

2.5 Generating employment and strengthen skills

2.5.2 Impact on quality of employment

 Other conditions of work

2.5.3 Enhancing skills

Figure 1. FDI and net flow in Vietnam

Figure 2. FDI over years

Table 1. FDI from 2000 - 2007

1.1.2 From 2006-2007

Figure 3. Detailed FDI in Vietnam

1.2 Other type of FDI

Table 2. FDI in industry and construction sector

1.2.1.2 Service sector

Table 3. FDI in service sector

It can be claimed that some service industries (telecommunications, finance, banking,

1.2.1.3 Agriculture and forestry sector

Table 4. FDI in agriculture and forestry sector

In 2007, although the registered investment capital continued to focus on the

Table 6. Provincial distribution of FDI from 1988-2006

1.2.3 Countries of origin:

Table 7. Source countries of FDI from 1988-2006

1.3 Impact of FDI trends on Vietnam during 2000-2007

1.4 Comparison FDI trends between Laos and Vietnam in 2000-2007

Figure 4. FDI inflows to Lao from 1986-2015

Figure 5. FDI trends from 2006-2018

2.2 Impacts of FDI trends in Vietnam during 2008-2014

2.3 Comparison FDI trends between Thailand and Vietnam in 2008-2014

Economic Number Registered Percentage of total

Province Number of Percentage Registered capital Percentage

1 Ho Chi Minh City 9951 29.9 48626 12.4

Home economy Number Share of Registered Share of total

3.2 Impacts of FDI trends in Vietnam during 2015-2021: