Lê Xuân Sang, deputy director of the Vietnam Institute of Economics

Foreign investment in the world has changed due to the impacts of the COVID-19 pandemic. Việt Nam has become a bright destination for attracting foreign direct investment (FDI) and for the first time, Việt Nam has become one of the top 20 countries in the world in terms of FDI. With many advantages, foreign investors are placing great trust in Việt Nam.

However, competition in attracting FDI among other countries, especially countries with similar development as Việt Nam, is increasingly fierce. Lê Xuân Sang, deputy director of the Vietnam Institute of Economics spoke to Vietnam News Agency about this issue.

In the context of the COVID-19 pandemic and the moving of the global supply chains due to pandemic, there is a tendency on moving FDI capital. How has the FDI capital moved?

In recent years, the FDI trend has changed significantly due to the impact of many important global factors such as the US-China trade war, the COVID-19 pandemic, the energy crisis and the Russia-Ukraine war. 

There has been a slight change in the amount of FDI but most FDI has still come into the sustainable development sectors with a focus on renewable energy and green growth. The second important group is the digital economy. FDI has also changed due to the impact of supply chain disruption.

The FDI flows in sustainable development have been there for a long time, but this investment in this sector is becoming more and more difficult under the impact of climate change as well as the conflict between Russia and Ukraine.

In addition, investment in sustainable development projects also tends to be unfavourable. For example, when wind power projects are completed, the electricity is too weak or solar power projects are affected by insufficient sunshine. The Russia-Ukraine war has also affected the energy sector. Many countries have to change their model from using renewable energy to using coal, which is not good for the environment.

The COVID pandemic has also had a big impact on the digital economy. The US-China trade war and the pandemic have caused supply chain disruptions relating to this sector, especially chips or semiconductors.

Asia Pacific remains the largest FDI attraction. India has overtaken China for the first time as the world's largest FDI destination as China is suffering from the impact of COVID.

China's long-term maintenance of zero COVID strategy makes the disruption of the global supply chain serious, and the social distancing implemented for too long also limits FDI in this country.

What are the opportunities for Việt Nam to receive FDI from this moving trend?

Việt Nam has a large population of more than 92 million people. Việt Nam is also participating in 16 free trade agreements (FTAs) ​​which have members in developed countries. This helps FDI come to Việt Nam and at the same time, Việt Nam can enter further the global market under the positive impact of the new generation FTAs.

In addition, Việt Nam has been attracting FDI with cheap labour and cheap real estate rental.

Another factor to attract FDI is a good political-economic environment and a very favourable geopolitical position in the Asia Pacific region, and close to the large Chinese market. Especially, logistics transportation is not interrupted because it is close to China.

But in the long term, Việt Nam has a disadvantage in that the infrastructure is not good enough like other regional countries. The quality of human resources is also not good enough.

Domestic enterprises and supporting industries are not developed enough to support FDI enterprises. 

Foreign enterprises need to cooperate with domestic enterprises to ensure efficiency and reactiveness in the context of regional and global supply chain disruptions at present.

Many experts believe that the connection between domestic and foreign businesses is still limited and there are few Vietnamese enterprises still participating in the global value chain. What are the solutions to solve this problem?

Foreign-invested enterprises want to associate with domestic enterprises, but the domestic enterprises still have weaknesses in meeting the requirements of FDI enterprises in competitive prices, quality of products and delivery on time.

Việt Nam's supporting industry is still weak. This industry has been developed for a long time but it has not achieved the desired effect.

Việt Nam has not yet made a set of policies to promote the development of cooperation between domestic and foreign enterprises. This depends on Việt Nam's ability in making policies.

Việt Nam is currently competing with other countries in the race to attract capital flows from multinational firms. What does Việt Nam need to do to win this race?

Việt Nam needs to improve the quality of human resources because this is the most important issue today.

Việt Nam also needs to take its geopolitical and geo-economic advantages, and advantage of the new generation FTAs in the race to attract more FDI. It also needs macroeconomic and political stability.

In the long term, it is necessary to develop the supporting industry in the context of having many opportunities but also many challenges at present.

In addition, Việt Nam has almost no specific policies to promote the connection between domestic enterprises and FDI enterprises. It needs to combine each group of small and medium enterprises with FDI enterprises or with large enterprises.

If not, FDI enterprises entering Việt Nam will bring their domestic enterprises to provide support services for them and only associate with a few domestic enterprises.

Việt Nam should attract more FDI by establishing joint ventures. VNS