The spread of the Coronavirus disease (Covid-19) has affected foreign direct investment (FDI) inflows to Vietnam. However, it could also provide Vietnam with a great opportunity to receive FDI inflows from investors seeking to shift their production from China to the Southeast Asian region in order to limit risks, with Vietnam featuring prominently on their radar.

Advantages of FTAs

In a recent report sent to the government, the Ministry of Planning and Investment said activities to explore investment potential in Vietnam by foreign investors would likely be delayed, including seminars, investment forums and business visits. Consumer demand, especially for non-essential goods, would decline sharply, causing a standstill in production due to large inventories. New investors would hesitate to make investment decision at this time, while investors would likely postpone the increase in investment capital in existing projects, the report said.

However, Vietnam still has a great opportunity to attract FDI. Nguyen Bich Lam, director general of the General Statistics Office of Vietnam under the Ministry of Planning and Investment, said Vietnam is in a favorable position to attract more foreign investments, including the relocation plans of foreign investors to evade the US-China trade war and take advantage of the free trade agreements (FTAs) to which Vietnam is a signatory, including the EU-Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Researchers from the Training and Research Institute under the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) pointed out that the Covid-19 epidemic provides an opportunity for other countries, including Vietnam, to accelerate efforts to attract new foreign investment, especially investments in China which may seek other destinations.

Takeo Nakajima, Chief Representative of the Japan External Trade Organization (JETRO) in Hanoi, said some 122 Japanese companies would switch manufacturing locations out of China in the future and 42.3 percent of them might choose Vietnam as their next location.

Two scenarios for FDI in 2020

The General Statistics Office of Vietnam has prepared two scenarios for FDI in 2020 which foresee lower investment than initial expectations but still higher than that of 2019. If the Covid-19 epidemic is brought under control in the first quarter, Vietnam would lure US$38.6 billion of foreign capital in 2020, an increase of 7.3 percent compared to 2019. If the epidemic ends in the second quarter, the country will only attract US$38.2 billion, a year-on-year increase of 6.2 percent.

“This is an opportunity for Vietnam to fine-tune policies to attract investors who are intending to narrow production in neighboring countries and invest in Vietnam,” Lam said, urging investment promotion agencies to work with foreign investors who have plans to invest in the country to discuss preliminary investment procedures, and not wait for the epidemic to be completely controlled.

Earlier, BIDV researchers also forecast that FDI in Vietnam could increase by about five percent this year. However, to maintain the increase, it is necessary to continue improving the investment and business environment, and amending policies and strategies to attract quality foreign investments.

Vietnam is considered an attractive destination for foreign investors thanks to its favorable geographical location, abundant labor force and the benefits provided by major, new-generation FTAs.

Source: Vietnam Economic News

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