Overseas investments soar as FDI plunges
by Le Hung Vong
The past four months have seen a striking contrast between the influx in foreign direct investment (FDI) and outflow in Vietnamese investment.
While FDI inflow into the country dropped by almost 50 per cent compared with the same period last year, Vietnamese investment abroad equalled 60 per cent of the total outflow in 2010.
According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, in the first four months of the year, FDI inflow reached US$4 billion, down 47.8 per cent against the same period last year. The Government licensed 262 new foreign-invested projects with a total capital of $3.2 billion between January and April, a year-on-year reduction of 54.9 per cent.
FIA figures also revealed that Vietnamese enterprises' overseas investment in the first four months amounted to $1.8 billion, compared with the total overseas investment of $3 billion in 2010.
The overseas investments are mainly in energy, rubber plantation and telecommunications projects.
These include the $800 million Ha Se San 2 Hydropower Plant invested in by Electricity of Viet Nam International JSC (EVNI); and the $31.7 million rubber plantation project licensed to Chu Se-Kampong Thom JSC that will cover 4,000ha. Both investment licenses were granted by the Cambodian government.
By the end of February, local companies had invested in 575 projects in 55 countries and territories with total registered capital of US$23.7 billion. About $4.3 billion of this overseas investment went into 88 projects in the mining sector, followed by the agriculture-forestry sector with $1.87 billion.
In addition to neighbouring countries like Laos, Cambodia and Myanmar, local firms have also invested their money in destinations such as Japan, France, Germany, the US, Britain and African countries.
The outbound investment licensed in the first four months is also much higher than the target of $1.5 to $2 billion set earlier by the Ministry of Planning and Investment for the whole of 2011.
MPI statistics also indicate that overseas investments averaged $66 million a project, much higher than the average $14.6 million for FDI projects in the country.
However, the FIA said, the return on overseas investments has been very poor so far. Although their volume has risen steadily over the last few years, there has been increasing concerns over the efficiency of overseas investments.
Experts say the Government began encouraging local companies to invest overseas during 2007-2008, when the economy had ample capital sources. Now that the country is caught in macro-economic difficulties, it's necessary to reassess the feasibility of overseas investment projects, they add, citing the high trade deficit, unstable balance of payments and falling foreign reserves.
Dr Nguyen Minh Phong of the Ha Noi Institute for Socio-Economic Studies noted that in some cases, local businesses have applied for an overseas investment project with the aim of purchasing properties or resettling themselves abroad.
But an ex-senior FIA official, who declined to be named, said at a time that the local market is experiencing difficulties, local companies should be allowed to invest their capital abroad and transfer profits back home.
To better check the efficiency of overseas investment projects, FIA has recently required Vietnamese investors with projects abroad to submit reports on their business performances.
The move aims in particular to check the efficiency of such projects as well as the transfer of capital abroad by State groups and enterprises.
"To regulate the capital outflow, it is necessary to monitor and analyse overseas investments, instead of depending on short-term data," Phong was quoted by the Dien Dan Doanh Nghiep (Business Forum) newspaper as saying.
Pipping India in rubber
Viet Nam may dislodge India from its fourth position in rubber production as early as next year, reports The Economic Times, an Indian newspaper.
Currently the fifth-largest producer of rubber, Viet Nam's total planted area saw a cumulative increase of 3,78,700ha between 2003 and 2010 while the cumulative growth in total planted area achieved by India during the same period is 2,30,200ha, the paper reported.
There has been no major increase in rubber production in India over the last 4-5 years.
Indian rubber industry insiders have said that Viet Nam "will soon be ahead of India" in production.
"We expect this to happen in 2012," Vinod Simon, president of the All India Rubber Industries Association, was quoted by Economic Times as saying.
India's production decreased from 853,000 tonnes in 2006 to 851,000 tonnes in 2010, while Viet Nam has seen a steady increase from 555,000 tonnes in 2006 to 755,000 tonnes in 2010.
India's projected output for 2011 is 902,000 tonnes while that of Viet Nam is 780,000 tonnes, the paper said.
Thai wage hike a benefit
The Thai government's policy to increase minimum wages to 250 baht ($8) per day will directly hit labour-intensive industries, particularly the garment industry, prompting manufacturers to build plants outside Thailand to maintain their competitiveness.
Viet Nam, Indonesia, Bangladesh and China are among the countries where Thai exporters foresee business opportunities. Some Thai companies have already been running plants in Viet Nam for several years.
Sukij Kongpiyacharn, president of the Thai Garment Manufacturers Association, was quoted by The Nation newspaper as saying that the six largest Thai garment manufacturers – Nice Apparel, Hi-Tech Group, Thong Thai Textile, Nan Yang Textile, Liberty Garment and Hong Seng Knitting – are surveying locations abroad to set up plants.
They will invest an average of $8 million to $10 million in setting up factories at the new sites which will employ at least 25,000 workers, Kongpiyacharn said.
The Liberty Group set up a plant in HCM City a few years ago and employs about 2,000 workers while Nan Yang Textile has established a plant in China.
Many of the manufacturers see Viet Nam as base for their new plants as its government's policies support foreign direct investment. In addition, exports from the country to the US will enjoy tax privileges and low tariffs under the Trans-Pacific Partnership.
Kongpiyacharn, who is also managing director of Hong Seng Knitting, said they are planning to set up a second manufacturing base in Viet Nam's Quang Nam Province with a 50-year land lease. Construction is scheduled to start this year.
Dej Pathanasethpong, president of Thong Thai Textile, who has already surveyed the investment environment and supporting factors in Viet Nam, said labour wages in Bangladesh are lower than in Viet Nam.
Vallop Vitanakorn, chairman of Hi-Tech Group, said Viet Nam was a suitable location for a new plant as the living and working culture was similar to Thailand.
The group plans to set up a factory employing 5,000 workers in the central city of Da Nang, with an investment of $10 million.
"The Vietnamese government is attracting foreign direct investment by offering attractive tax privileges, and it is not far away from Thailand," Vitanakorn said, pointing out that foreign investors enjoy tax exemptions for the first four years of operation and a 50-per-cent tax rate for another nine years. They are subject to normal rates after 15 years.
He warned, however, that if the government's policy on labour wages remained unchanged, it would affect the new wave of investment into Thailand, not only from Japan but also other countries. — VNS