Attracting investment shifted out of China will take time

06:00 | 26/07/2020 Economy

(VEN) - Vietnam needs a different approach to boost its integration into the global value chain and take advantage of the early containment of the Covid-19 pandemic in order to draw foreign investors, and specifically those eyeing to shift their investments out of China, experts say.

attracting investment shifted out of china will take time

According to the Ministry of Planning and Investment’s Foreign Investment Agency (FIA), in June, Vietnam attracted US$1.79 billion worth of newly registered foreign direct investment (FDI) capital, up 14.9 percent from May and 3.1 percent from the same time last year. This took the total to US$15.67 billion in the first half of this year, 84.9 percent of the total in the same period last year. Invested FDI capital totaled US$8.65 billion in the first six months, 95.1 percent of the total in the same period of 2019.

The average project value reached US$4.8 million in June, 67.2 percent higher and 2.4 and 2.2 times that of May, March and February 2020, respectively. The increases were attributed to projects that had been under negotiation for a long time before getting a license.

New approach needed to draw FDI

Pham Dinh Thuy, Director of the General Statistics Office of Vietnam’s (GSO) Industrial Statistics Department, said there has been no clear evidence of capital flows shifted to Vietnam due to the dual effects of the US-China trade tensions and the Covid-19 pandemic. Shifting investments from one country to another is not simple, as investors have to consider costs associated with transferring the property, as well as investment incentives in alternative destinations. For manufacturing enterprises, the shift may take as long as 2-5 years, Thuy said.

Nguyen Van Toan, Vice Chairman of the Vietnam Association of Foreign Investment Enterprises, said the opportunity to attract the FDI wave looking to relocate from China is quite clear, but whether the opportunity can be grasped depends largely on Vietnam.

“We also need to be aware that investors will not easily pull out all investment from China because that country has great advantages such as a strong work force, good use of technology and products for all market segments, not just the affordable segment,” Toan said.

Vietnam should approach capital flows in a new way to be able to participate deeply in the value chain. Instead of just focusing on outsourcing as they did before, domestic enterprises need to prepare in terms of technology and human resources to participate in high-tech parts and component manufacturing, he said.

Vietnam is also facing steep competition, as Indonesia, India, and Thailand are also applying preferential tax, land and human resources policies to attract and make investors stay. Economists predicted that investors would shift part of their supply and production chains to avoid taking risks from taxation or the pandemic, said Nguyen Xuan Phu, Chairman of Sunhouse Group. Enterprises now need to identify their market segments and make the most of their potential to choose the most optimal plans. They need to take the initiative in looking for good partners and approaching and controlling production technology, branding and preparing human resources to survive in the post-pandemic period.

Thu Phuong