THEORETICAL BASIS AND INTERNATIONAL EXPERIENCE IN ATTRACTING FDI IN AGRICULTURAL SECTOR

LIST OF TABLES Table 3 1 Number and total FDI capital in agricultural sector 37 Table 3 2 Structure of FDI invested in Vietnam in economic sectors (2020) 39 Table 3 3 Structure of FDI in agriculture b.

LIST OF TABLE

Table 3.1 Number and total FDI capital in agricultural sector 37Table 3.2 Structure of FDI invested in Vietnam in economic sectors (2020) 39Table 3.3 Structure of FDI in agriculture by localities receiving investment 45

LIST OF FIGURE

Figure 3.1 Structure of FDI in agricultural sector by sub-sectors 40 Figure 3.2 Structure of FDI in agricultural sector by investment partners 42 Figure 3.3 Structure of FDI in agricultural sector by form of investment 43

TABLE OF CONTENTS

LIST OF TABLES i

LIST OF FIGURES ii

1 Rationale 1

2 Research subjects 2

3 Research objectives 2

4 Research scope 2

5 Research method 3

6 Research structure 3

CHAPTER 1: LITERATURE REVIEW 5

1.1 Theoretical studies 5

1.1.1 Theory of ownership advantage 5

1.1.2 Theory of Internalization 5

1.1.3 The theory of location advantage 6

1.1.4 Eclectic theory (OLI) 7

1.2 Previous related research 8

CHAPTER 2: THEORETICAL BASIS AND INTERNATIONAL EXPERIENCE IN ATTRACTING FDI IN AGRICULTURAL SECTOR 10

2.1 The concept and characteristics of FDI: 10

2.1.1 The concept of FDI: 10

2.1.2 Characteristics of FDI: 12

2.1.3 Classification of FDI: 13

2.2 Characteristics of investment in the agricultural sector 14

2.3 The role of foreign direct investment in agricultural sector 16

2.3.1 Direct role: 16

2.3.2 Indirect Role: 17

2.4 Factors affecting the attraction of FDI in agricultural sector: 18

2.4.2 Population and labor resources 20

2.4.3 The infrastructure 20

2.4.4 Legal System 21

2.4.5 Agricultural market 21

2.5 Evaluation criteria for attracting FDI into agricultural sector 22

2.6 Experiences of some countries in attracting FDI into agricultural sector 23

2.6.1 Thailand's experience 23

2.6.2 Indonesia’s Experience 25

2.6.3 Malaysia’s Experience 26

CHAPTER 3: THE STATUS OF ATTRACTING FDI IN AGRICULTURAL SECTOR IN VIETNAM 28

3.1 Factors affecting FDI attraction to agricultural sector in Vietnam 28

3.1.1 Natural Condition 28

3.1.2 Population and labor force: 30

3.1.3 The infrastructure 31

3.1.4 Agricultural Market 34

3.1.5 Legal System 35

3.2 Situation of attracting FDI into agricultural sector in Vietnam in the period 2010-2020: 36

3.2.1 Size and proportion of FDI in agricultural sector: 36

3.2.2 Structure of FDI in agricultural sector by sub-sectors 40

3.2.3 Structure of FDI in agricultural sector by investment partners 41

3.2.4 Structure of FDI in agricultural sector by form of investment: 43

3.2.5 Structure of FDI in agriculture by localities receiving investment 44

3.3 Assessment of limitations in attracting FDI into agricultural sector in Vietnam: 45

3.3.1 The proportion of FDI in the agricultural sector is still low and unstable: 45

3.3.2 Operational efficiency of FDI projects in agricultural sector is low 46

3.3.3 Lack of diversity in investment partners: 47 3.4 The causes of limitations in attracting FDI into agricultural sector in Vietnam: 47

3.4.2 The infrastructure system for agricultural sector has not met the requirements

48

3.4.3 Agricultural land is not concentrated 49

3.4.4 The agricultural production is small, scattered, unconnected, and unprofessional 50

3.4.5 There is no clear and appropriate strategy and orientation to attract FDI into agricultural sector 51

3.4.6 The legal system for foreign investors in agricultural sector is not clear and transparent 51

CHAPTER 4: SOLUTIONS TO INCREASE FDI ATTRACTION IN AGRICULTURAL SECTOR IN VIETNAM 53

4.1 Viewpoints and orientations in attracting FDI into agricultural sector: 53

4.2 Opportunities and challenges in attracting FDI into agricultural sector in Vietnam 54

4.2.1.Opportunities: 54

4.2.2 Challenges: 55

4.2 Solutions to attract FDI into agricultural sector in Vietnam 56

4.2.1 Develop a strategy to attract and use FDI 56

4.2.2 Complete the legal system in favor of attracting FDI into agricultural sector:56 4.2.3 Upgrade infrastructure for agricultural development 57

4.2.4 Improve the quality of labor force 59

4.2.5 Promote the development of hi-tech agricultural sector: 60

CONCLUSION 62

1 Rationale

Foreign Direct Investment (FDI) has become a prominent trend of globalization andregionalization It is one of the important tools in accelerating economicdevelopment of many countries in the world FDI has a positive role for both homecountry and host country, especially for host country that are in the process ofindustrialization FDI not only adds capital and expands foreign markets toaccelerate economic growth, but also contributes to improving the level of scienceand technology in the country, creating jobs and incomes for workers

Since Vietnam carried out the renovation of its economic development model,shifting to a market economy, the agricultural sector still plays a particularlyimportant role With the advantages as well as available natural conditions,Vietnam’s agricultural production industry has comparative advantages In recentyears, Vietnam has paid attention to developing modern agricultural sectors, trying

to catch up and even develop on a par with countries with modern and advancedagricultural sectors in the world

Not only accounting for a high proportion (about 13.5%, in 2020) in GDP,Vietnam's agricultural sector is also the main source of income for the populationliving in rural areas Agricultural production in Vietnam not only meets the needs offood for domestic consumption, but also provides a large source of goods forexport Moreover, in difficult times, when industrial production and servicesseriously decline, Vietnam's agricultural sector is also the backbone of the economy

We can see that, despite facing a lot of difficulties caused by the Covid-19epidemic: manufacturing operations as well as supply chains were severelydisrupted, thousands of factories closed or cut production, the tourism industry

"frozen"… but agricultural production was still maintained Thanks to that, it hascontributed to ensuring food security, increasing export turnover, and ensuring thelives of tens of millions of people Citing specific numbers from General StatisticsOffice of Vietnam: rice production reached about 43.52 million tons, an increase of

1.7% compared to 2020; meat production of all kinds reached about 5.67 milliontons, up 5.3%; fishery output reached about 8.6 million tons, up 2.4% Agricultural,forestry and fishery products increased in both quantity and export value In the firstnine months of 2021, the export turnover of agricultural, forestry and fisheryproducts is estimated at 35.5 billion USD, up 17.7% over the same period in 2020.Despite such an important role, over the years, investment capital in general andFDI in particular in the the agricultural sector has been modest, not commensuratewith the he potential of this field in the economy, has not yet created rapiddevelopment in the production of goods with the desired high quality Specifically,

in 2020, FDI in agricultural sector accounts for only 0.97% of total FDI in Vietnam

In order to achieve the goal of further increasing the amount of FDI invested inVietnam, it is necessary to specifically analyze and evaluate the current situation ofattracting FDI in the agricultural sector, and at the same time find directions andsolutions to improve competitiveness and attract FDI in this field

Therefore, the author decided to implement the topic "Attracting FDI into Vietnam's agricultural sector: Reality and solutions”

2 Research subjects

With the topic “Attracting FDI into Vietnam's agricultural sector: Reality and solutions”, the author identifies the specific research subject is the status ofattracting FDI in the agricultural sector of Vietnam

+ Research period: Research on the status of attracting FDI into agricultural sector

in Vietnam in the period 2010 - 2020

5 Research method

With the purpose as well as the object and scope of the study as above, the thesisuses the method of analyzing and synthesizing secondary data collected fromdocuments, reports, previous studies, statistical data of the Ministry of Agriculturalsector and Rural Development, General Statistics Office, etc Using historicalstatistics on FDI, FDI policy and related issues as a basis to analyze and assess Inaddition, the thesis uses comparative statistical methods and meta-analysis to clarifythe points, and at the same time summarizes the experiences of countries around theworld to solve related problems

6 Research structure

This article is divided into 6 chapters:

Chapter 1: Research introduction This chapter presents general

information of the topic such as: rationale, research subjects, research objectives,

research scopes and research methods

Chapter 2: Literature review This chapter presents and evaluates previous

studies related to the research topic

Chapter 3: Theoretical basis and International experience in attracting FDI

in agricultural sector Accordingly, chapter 3 focuses on clarifying some conceptsand issues related to FDI in general and FDI in agricultural sector in particular,including the concept, characteristics, classification of FDI, the role of FDI inagricultural sector, factors affecting the attraction of FDI in agricultural sector andcriteria for assessing the attraction of FDI in agricultural sector and experiences ofsome countries in attracting FDI into agricultural sector

Chapter 4: The reality of attracting FDI into agricultural sector in Vietnam.

Chapter 4 focus on studying the current situation of factors affecting FDIattraction to agricultural sector in Vietnam At the same time, chapter 4 also goesinto depth analysis of the specific situation of attracting FDI into agricultural

sector in Vietnam in the period 2010-2020 in terms of size, structure as well asresults achieved, remaining limitations and reasons for those limitations.

Chapter 6: Solutions to increase FDI attraction in Vietnam's agricultural

sector

CHAPTER 1:LITERATURE REVIEW1.1 Theoretical studies

1.1.1 Theory of ownership advantage

The founder of the theory of ownership advantages is Canadian Marxisteconomist, Stephen Herbert Hymer (1934-1974) This theory [ CITATIONHym76 \l 1033 ] was first mentioned in his PhD thesis entitled "The InternationalOperations of National Firms: A Study of Direct Foreign Investment" presented in

1960, analyze the motivations promoting US companies' investments in othercountries through ownership advantages Through observing the growth andperformance of US companies abroad, he discovered that: foreign companies thatwant to overcome international barriers and compete with local companies musthave their own advantages in intellectual property rights, intangible assets andfinancial capability According to him, based on these advantages, the companycan overcome the difficulties they face such as: geographical distance, lack ofunderstanding about the new environment Markusen also agrees with this point

of view and gives supplementary ideas: knowledge-based assets that can be easilymoved to any place and provide low-cost means of production, helping thecompany to achieve high efficiency in production Therefore, firms owning theseassets will choose foreign direct investment rather than licensing or transferringthem to local firms (J R Markusen, 1995)

The breakthrough of the firm-specific ownership advantage theory is that itnegates the old, traditional theoretical framework on foreign investment,emphasizing the importance of intellectual property rights and technologicaladvantages of multinational companies when making international marketpenetration However, this theory is impossible to explain why enterprises indeveloping countries and/or enterprises without ownership advantages can alsoinvest abroad

1.1.2 Theory of Internalization

The theory of Internalization was introduced by Buckley and Casson in

1976, Internalization means that MNE controls the entire production and businessprocess from input materials to consumption of output products The two authorsargue that, in an imperfect market, the company always faces problems: productquality, cost of enforcing contracts with partners, and product quality control.Internalization is a way for companies to control the quality of their products and

so they prefer FDI to franchising or technology transfer According to the theory,Internal Transaction (IT) is better than Market Transaction (MT) when the market

is imperfect: natural imperfection (distance between countries increasestransportation costs), structural imperfection (trade barriers) such as productstandards, environmental standards, factors related to intellectual property rights,

companies need to pay high transaction costs As a result, companies tend tocreate

their own markets by creating Internal Market, transferring knowledge productswithin the parent-subsidiary company, subsidiary - subsidiary instead ofdelegating

their knowledge to the local manufacturer of host country The benefits ofinternalization are avoiding time lag, avoiding bargaining when buying andselling, and overcoming shortages of buyers and sellers Internalization must havebenefits that outweigh the costs incurred when establishing a network of parentcompanies – subsidiaries

1.1.3 The theory of location advantage

The theory of location advantage was proposed by Dunning in 1973 (J HDunning, 1973) Accordingly, the investor's decision to choose a location is based

on the advantages that location can bring to businesses such as maximizingrevenue, minimizing costs, maximizing profits and minimizing risks Specifically,with the assumption that the company wants to exploit its ownership advantagemaximally, they will choose the location to establish the company with the lowest

processes such as information costs, transaction costs, raw material costs,transportation costs, and wages Therefore, the international production location isdecided based on the comparison of cost factors Besides, with the assumptionthat production costs are independent of location, market factors, barriers andcompetitors will affect revenue maximization, so the international productionlocation will be decided based on revenue In addition to cost and revenue factors,business risks due to the instability of economic, political and social institutions

of the host country are also considered to determine the international productionlocation Locations that have an institutional framework close to the host countryand political stability will be the preferred international production locations.Thus, the theory of location advantage explains the reason for choosing aninvestment location based on the factors of revenue, cost, profit and risk Thistheory points to many factors that contribute to an attractive location such as:geographical location, infrastructure, market size and potential, labor costs, rawmaterials, resource availability, support policies aid However, this theory has alimitation that it does not mention the specific factors of foreign investors(industry characteristics, products, motives, relationships with enterprises in thereceiving country Therefore, it only partially explains the FDI decision

1.1.4 Eclectic theory (OLI)

According to Dunning's eclectic theory, foreign direct investment iseffectively realized when three conditions are satisfied:

- Ownership advantage (O), (as discussed by Hymer): A company's ability

and willingness to participate in FDI depends on owning the type of assets thatthe host country company does not have, thereby allowing the FDI company tohave a competitive advantage over the host country's competitors This type ofasset includes: tangible assets (capital, human resources); intangible assets(inventions, technologies, know-how, brands, reputation, organizational skills,management)

- Location advanatges (L) (as discussed by Dunning): Location advantage

means that the host country must possess conditions that allow cost reduction

(such as abundant resources, cheap labor) or possess a large enough market size,favorable legal, political, and social framework Location advantage implies thatcompanies need to benefit from investing abroad, otherwise they would not do

- The advantage of Internalization (I) (as discussed by Buckley and

Casson): It is better for an organization to produce a product within the enterprisethan outsourcing to a third party Dunning said that signing contracts withcompanies in foreign markets is a more dangerous option than self-production Itcould lead to revealing specific ownership advantages to foreign companies, andthus existing joint ventures could be potential competitors in the future

1.2 Previous related research

- Abdullah Khalid's research [ CITATION Abd17 \l 1033 ] indicates thatforeign direct investment is directly affected by 06 factors, including: (1) Grossnational income; (2) Export; (3) Import; (4) Foreign debt; (5) Military spending;(6) Accumulation of assets The authors used a quantitative research methodthrough data collection of FDI inflows, equity capital, gross national income,export data, import data, military spending, and national debt Outside of Pakistanfrom 1988 to 2012 The results of empirical research show that factors such as:asset accumulation, exports, and gross national income have a positive influence

on attracting FDI into Pakistan

- ResLicai Lv Simei Wen Qiquan Xiong’s research [ CITATION Xio10 \l

1033 ] pointed out the factors affecting FDI in China's agricultural sector include:agricultural market size, agricultural import, agricultural export, agricultural fiscalexpenditure and industrial policy The results shows there is a significant positivecorrelation between agricultural market size and FDI, indicating China’srelatively huge agricultural market is an important determinant in attracting FDI.The agricultural import has a significantly negative correlation with agriculturalFDI, which is consistent with our expectation Industrial policy is not statisticallysignificant either, but the sign of the coefficient is positive This shows that, to acertain extent, joining WTO along with agricultural sector-related industries

agricultural sector The impact of agricultural fiscal expenditure and agriculturalexport on FDI is still uncertain.

- Japan International Cooperation Agency [ CITATION JICA \l 1033 ] hasstudied the movement of FDI inflows in the world and in Southeast Asia Thereport has focused on assessing the competitiveness of Vietnam's investmentenvironment on the basis of reviewing policies for a number of economic sectorsand making recommendations to improve the efficiency of FDI activities - thepolicy on investment promotion

- Author Nguyen Phu Nhuan [CITATION Phu17 \l 1033 ] used aquantitative research method through a survey of 330 foreign direct investors inthe Red River Delta economic region Research results show that factors such asinvestment infrastructure, investment policies, human resources, living andworking environment, competitive input costs, advantages of the investmentindustry, local brands Methods affecting the attraction of foreign directinvestment to the economic region of the Red River Delta

- Research by Do Thi Kim Tien [CITATION Tie21 \l 1033 ] has shown thefactors and measures of factors that affects FDI into agricultural sector in the RedRiver Delta They are designed based on the selective inheritance betweentraditional factors and new factors updated from recent theoretical andexperimental studies, especially studies in the transition economy in accordancewith these research features Since then, there are 7 factors affecting to FDIattractiveness in agricultural sector in the Red River Delta, including: (1)Infrastructure; (2) Investment policy; (3) Regional Linkage; (4) Human resources;(5) Living and working environment; Quality of public services; (7) Local brands

The above scientific works have focused on studying many different anglesand aspects of FDI such as mentioning the factors affecting FDI and FDI inagricultural sector Due to different research scopes and purposes, the aboveworks only focus on certain localities Moreover, according to the documentsfound by the author, the data used in the study is too outdated, not up-to-date anddoes not mean much for the current period

CHAPTER 2: THEORETICAL BASIS AND INTERNATIONAL

EXPERIENCE IN ATTRACTING FDI IN AGRICULTURAL SECTOR 2.1 The concept and characteristics of FDI:

2.1.1 The concept of FDI:

Today, FDI is the main form of international investment that is beinginterested by countries around the world During the past years, FDI plays anincreasingly important role in the economic development of many countries bybeing a part of capital structure In addition to serving the process ofindustrialization and modernization of the country, FDI activities also createsopportunities to receive production techniques, business experiences, inventions,technological know-how, management and administration capabilities, to helpbusiness entity accelerate the development of industries with new techniques andtechnologies, contributing to economic restructuring and rapid growth In addition,FDI also makes an important contribution to creating jobs, promoting exportturnover, contributing to healthy macroeconomic balances of the economy.Therefore, FDI today has become a popular form of investment and has beendefined by international economic organizations as well as national laws There aremany ways to define FDI, depending on the perspective of economists

According to United Nations Conference on Trade and Development (UNCTD),Foreign direct investment (FDI) is defined as an investment reflecting a lastinginterest and control by a foreign direct investor, resident in one economy, in anenterprise resident in another economy This definition already implies that foreigndirect investors have significantly affect the management and administration ofenterprises in other economies Such an investment includes both the initialtransactions between the two entities as well as all subsequent transactions betweenthe two parties and between overseas branch establishments FDI can be carried out

by individuals as well as by entities

The IMF’s Balance of Payments Manual, fifth edition (BPM5) defines FDI as a

economy (the direct investor) obtaining a lasting interest in an enterprise resident

in another economy (the direct investment enterprise) This concept emphasizes

three factors: the investor must have a foreign element, the longevity of aninvestment activity, and the investment motive is to gain direct control over themanagement activities of the enterprise This is what distinguishes FDI fromindirect investment in the capital market in the modern economy

According to World Bank (WB) “Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor”.

Foreign investors can be individuals or businesses and investments can be whollyowned by foreigners or joint venture between foreign investors and local investmentpartners

The 2005 Investment Law of Vietnam does not have a specific definition of FDI,

but according to Clause 12, Article 3 defines "Foreign investment means foreign investors bringing into Vietnam capital in cash and other lawful assets in order to carry out investment activities"

Thus, although it is interpreted in different ways, the nature of FDI activities fromall points of view has the same consensus that:

First, the nature of FDI activity is the establishment of capital ownership of onecountry's firm in another country with the aim of seeking long-term profits Whencarrying out foreign investment activities, investors not only move their financialresources outside national borders in the long term, but also management skills,production technology, brand, to the country receiving the investment

Second, FDI activities are related to the combination of ownership and managementrights of invested capital Specifically, foreign investors must have a significantdegree of influence over the operations of foreign-invested enterprises through theownership of a certain number of shares, or other factors in their direct relationshipssuch as the parent company's representative in the subsidiary's board of directors,participation in voting, decision-making, personnel exchange, etc are all considered

FDI activities Thus, in essence, FDI is the market expansion of multinationalcompanies (MNCs).

2.1.2 Characteristics of FDI:

According to the textbook of Investment Economics of the NationalEconomics University by Assoc Dr Nguyen Ngoc Mai is the editor, FDI hassome characteristics as follows:

- FDI is mainly private investment with the primary purpose of seeking profit: While forms of indirect investment obtain stable financial returns, the

revenue of FDI enterprises completely depends on the business results of theenterprises that are invested, so the income that FDI enterprises receive lessstable On the positive side, investors have complete autonomy in their businessactivities, full control of financial decisions, and are responsible for profits andlosses with their investments This can be considered as a driving force forinvestors to focus on making appropriate decisions to improve businessperformance That is also the reason why FDI projects often achieve higherbusiness efficiency than other forms of investment

- Foreign investors must contribute a minimum percentage of investment capital: The right to control or participate in the operation of an investment

enterprise is determined based on the minimum capital contribution ratioregulated in the laws of each country Laws of different countries often providedifferent provisions on this issue Some countries only allow foreign investors toestablish 100% foreign-owned enterprises in certain fields and only participate injoint ventures with a maximum shareholding of 49% The ratio of each party'scontribution in the charter capital or legal capital will determine the rights andobligations of the parties, and risks and profits are also divided according to thisratio If foreign investors invest 100% of their capital, they have the full right tomanage and run the company In the case of a joint venture, the foreign investorhas the right to participate in the operation according to the extent of his capitalcontribution However, according to the IMF (2004), there are still cases where

foreign investors have a greater influence than domestic investors with equal orgreater capital

- FDI has a direct and long-term impact on the economic structure and development level of the host country: FDI brings to the host country new

technologies, contributing to the creation of new fields, new profession Thedevelopment of the FDI sector in certain industries and fields directly changes theeconomic structure The development of the FDI in certain industries and fieldsdirectly changes the economic structure Besides, FDI also has a long-term impact

on the level of development of the host country On the one hand, when FDIincreases the supply of scarce goods, increases the import of spare parts,production equipment and advanced technology, FDI contributes to increasingexport potential, competitiveness, improving the balance of payments, increasebudget revenue for the host country On the other hand, if FDI stimulates thebubble economy, stimulates high-end consumption beyond economic capacity,etc., FDI will exhaust resources for economic growth, increase trade deficit, andcause loss of economic growth balance of payments, increase inflation, in thelong run

- FDI is often accompanied with technology transfer to the host country:

When performing foreign investment activities, besides cash capital and tangibleassets such as machinery, equipment, real estate, investors also bring advancedtechniques, , inventions, experience and management skills, to the host country.This is one of the key points that the host countries aim to when calling for FDIattraction, especially in developing countries with limited scientific - technicallevel and management capacity This is also the biggest advantage of FDIcompared to other capital flows

2.1.3 Classification of FDI:

2.1.3.1 Investment Purposes:

In the International investment textbook edited by Assoc Prof Dr Vu ChiLoc, in terms of investment purposes, FDI is divided into 3 forms:

- Horizontal FDI: This is a form of FDI in which a company makes direct

foreign investment in a manufacturing industry in which it is able to compete in acertain type of product With this advantage, they want to expand and conquerforeign markets FDI activities are conducted to produce the same or similarproducts as the investor has produced in the home country

- Vertical FDI: This is a form of investment with the aim of exploiting

natural resources and cheap inputs such as labor and land in the host country.Investors often pay attention to exploiting the competitive advantages of inputsbetween stages in a production process, so the products are usually completedthrough assembly in the host country This product is then imported to the homecountry or exported to another country This is a fairly common FDI activity indeveloping countries

- Conglomerate FDI: Enterprises that invest and receive investments operate

in different industries and fields

2.1.3.2 Legal form:

- 100% foreign-owned enterprise: An enterprise wholly owned by a foreign

investor, established in the host country Foreign investors invest, manage andtake responsibility for their operations and business results

- Joint venture enterprise: is an enterprise established by parties in both

home country and host country, in which the parties jointly contribute capital,jointly operate the business, and jointly share risks and profits in proportion totheir capital contribution on the basis of a joint venture contract or agreementsigned between the government of the host country and the government of thehome country

- Business cooperation contract: is a document signed between two or more

parties to conduct business investment in Vietnam, which stipulates theresponsibility for each party without establishing a new legal entity This form isoften applied to some special economic sectors such as telecommunications, oiland gas, or only applied when foreign investors penetrate into a new market

that they do not know well Business cooperation contracts can be implemented inmany specific forms such as: BOT, BTO, BT

2.2 Characteristics of investment in the agricultural sector

(1) Investment in agricultural sector is heavily influenced by natural conditions:

Soil has a strong influence on the results obtained, so we have to study verycarefully about the conditions, the quality and the characteristics of the soil andthe topography The climate also affects the investment process, for examplewhen we invest in a certain food crop, such as rice, we cannot grow rice in thecold winter because rice is not suitable for this climate Therefore, investors muststudy very carefully the natural characteristics of each region to be able to havehighly effective investments or take measures to avoid the adverse effects ofnatural disasters effectively

(2) Investment in agricultural sector requires a large amount of capital

When we invest in infrastructure systems (such as irrigation systems) orscience technology, we need a large amount of investment capital For example,

to discover a new plant, the amount of capital and the number of scientists neededfor research is not inferior to that of a new industrial product Or the cost to build

an irrigation system is no less than the construction cost of a factory or a touristhotel Therefore, investors are required to have policies to mobilize sufficientcapital on schedule

(3) Agricultural production has a high risk

Agricultural production depends greatly on factors of the naturalenvironment such as soil quality, climate, water sources, light, and air To be able

to conduct agricultural production, these factors must combine with each other.However, the natural environment often fluctuates and changes unlike forecasts,causing crop failures and losses On the other hand, the activities of othereconomic sectors may cause unfavorable impacts on the living environment ofanimals and plants, thereby negatively affecting the results of agriculturalproduction

Today, the application of science and technology to production has partlylimited the risks of agricultural production However, a higher level of risk thanother industries is still an important factor affecting the efficiency and businessresults of the industry, thereby affecting the attraction of capital to this industry.

(4) The profitability of the agricultural industry is not high

Agricultural products are income inelastic goods Meanwhile, agriculturalproducts are often difficult to keep for a long time Investment capital in landreclamation is quite large, requiring a long amortization cycle Production cycle islong, depends on nature If the season is good, the price tends to decrease due tothe law of supply and demand, if the crop fails, the price will increase but farmers

do not benefit due to low output All these factors determine the low level ofprofit of agribusiness people, which is not attractive to investors

2.3 The role of foreign direct investment in agricultural sector

2.3.1 Direct role:

(1) FDI contributes to the growth of the agricultural sector:

The investment multiplier theory has shown that the growth rate depends onthe amount of new investment capital and the efficiency of using new capitalaccording to the formula:

In which: Y additional output; K: the amount of additional capital; x:coefficient of additional output on invested capital That is, if more FDI is added

to the agricultural sector, assuming the capital efficiency is either the same asbefore, or increased (usually increased) will increase x units of output, boostingthe agricultural sector growth rate, thereby contributing to overall economicgrowth This efficient use of capital assumes that everything else remainsunchanged and that only an increase in capital leads to an increase in output

For countries in the process of industrialization, domestic accumulation is low andagricultural accumulation is lower, FDI is an extremely important new source ofadditional capital to promote faster agricultural growth.

(2) FDI contributes to creating new jobs and higher incomes for agricultural

workers:

FDI projects in agricultural sector will create demand for the labor market inVietnam

rural areas according to the needs of the project In fact, most FDI projects

in agricultural sector are often more effective than domestic investment projects,

so the income of workers working for FDI projects is often higher than thegeneral level and more stable than the average income in the same industry

(3) FDI creates favorable conditions for foreign investors to transfer new technologies into the host country

FDI enterprises, wanting to compete with domestic enterprises, must: one isimport their know-how into the host country, thereby creating new products andtraining local workers with skills to use that technology; The second is to bringtechnology to a higher level than domestic enterprises to have higher businessefficiency For developing countries like Vietnam, when human resources andscientific and technological potentials are not yet capable of self-investing inresearch and development of new technologies or technology transfer fromabroad, FDI is a effective way to raise the level of technology in general andagricultural production technology in particular

(4) FDI projects create opportunities to export agricultural products

Foreign investors often have a market in their home country or anothercountry for the product of the project they want to develop in the host country.Therefore, if the production cost of agricultural products of FDI projects in thehost country is lower than in other countries and the products are suitable for theneeds of foreign people, then these agricultural products have a good chance inexport to serve other countries Some foreign investors also use FDI projects to

invest in agricultural sector to supply raw materials to enterprises in their own orother countries As a result, FDI capital creates more and better opportunities forthe agricultural sector to export agricultural products abroad

- Facilitating the development of agricultural sector-related industries such asfertilizer production, high-tech agricultural machinery and equipment, animal feed,especially the development of the agricultural product processing industry

- Transforming labor structure and rural economy through indirect impacts onthe development of the service sector in rural areas such as banking, insurance,transportation, construction, commerce, etc

(2) FDI in agricultural sector creates competitive pressure forcing other agricultural production organizations to innovate

The appearance of projects using FDI capital in agricultural sector creates newcompetitors, forcing other agricultural production organizations, especiallydomestic agricultural enterprises, to compete and prevail, to innovate technology,innovating corporate governance towards modernity to increase productivity,increase product quality, increase competitiveness, support the development ofnational agricultural product brands in the world market As a result, the agriculturalsector has more opportunities to export their products from the growth of thenational brand On the other hand, the export activities of FDI enterprises also affectdomestic enterprises such as promoting information exchange between enterprisesand the market, making them more aware of the possibility of exporting agricultural

in the global distribution system The export of agricultural products of domesticenterprises is also partly enhanced by this externality.

2.4 Factors affecting the attraction of FDI in agricultural sector:

Up to now, there have been many theories to study and explain the factorsaffecting FDI flows such as Agarwal (1980), Parry (1985), Itaki (1991), Dunning(1977, 1993) Among them, the most famous and well known is Dunning's OLImodel This theory synthesizes and inherits many advantages from other theoriesabout FDI, and is considered the most complete explanation of FDI

According to Dunning (1993), FDI inflows depend on three basic factors: (1)Ownership advantage (O); (2) Location advantage (L) (3) the advantage ofInternalization (I) In which, the advantage of ownership and the advantage ofinternalization are factors decided by the foreign investor side, including:experience in multinational business operations, advantage in holding a a product or

a manufacturing process, international business strategy, the ability of FDIenterprises to control the production and consumption of products Locationadvantage is a factor that depends on the host country, including the host country'sresource factors in terms of labor, market size and structure, market growth, andlevel of development development, cultural environment, political law, institutions.From the perspective of the host country, location advantage (L) is asubjective factor that determines the attraction and use of FDI In other words, this

is a factor that the host country can adjust and orient to achieve efficiency inattracting and using FDI in its country Depending on the purpose, locationadvantage can be viewed from different angles:

- Based on the motivation behind investment activities, factors from the hostcountry that affect FDI attraction and use include: economic factors (market, profits,costs); resources (human resources, resources, geographical location); infrastructure(technology, engineering, traffic, health, society); and policy institutions

- Based on the host country's interoperability, factors are classified into twogroups: (1) policy factors (investment incentives, enforcement requirements,incentives and financial support); (2) non-policy factors (resources, politicalstability, economy, culture, infrastructure, market characteristics, wage costs)

Starting from the above theoretical background, many different factors havebeen proposed in empirical studies to explain FDI inflows Most of the studies have

a consensus on the factors affecting FDI including: (1) Market factors; (2)Resources; (3) Infrastructure; (4) Institutions and policies In agricultural sector, theabove factors are expressed in the following forms:

2.4.1 Natural condition:

Agricultural sector is the economic sector that bears the most risk because it isgreatly affected by natural and seasonal factors; In a year where the rain isfavorable, the agricultural products will be bountiful and vice versa The plants andanimals themselves develop according to certain biological laws (growth,development and death), are very sensitive to external influences, Any change inweather conditions and climate directly affects the growth of plants and animals.Due to this feature, natural factors such as climate, humidity, soil, etc have a greatimpact on the ability of agricultural sector to attract FDI Taking advantage offavorable natural conditions can not only reduce input costs, thereby reducingproduct costs, but also limit risks such as natural disasters, storms and floods, etc.(one of the first factors considered by investors when deciding to invest inagricultural sector)

2.4.2 Population and labor resources

Agricultural sector is a labor-intensive economic sector, requiring a relativelyabundant labor source In developing countries, where the level of scientific andtechnical development is not high, labor and land resources are the main factorspromoting the development of agricultural sector In addition, the population andlabor force also act as markets for agricultural products

2.4.3 The infrastructure

Infrastructure serving economic sectors in general such as transportationsystem, post and telecommunications, electronics, and infrastructure servingagricultural production in particular such as irrigation system, dike system is thebasis for the development of agricultural production In particular, irrigation

in service of agricultural production, domestic water supply, industry, aquacultureand power generation; water drainage for urban and rural residential areas;contribute to the improvement of living environment The fact has shown thatdeveloped countries with good infrastructure systems such as the US and Canadahave more favorable conditions in attracting FDI in general and FDI in agriculturalsector in particular

2.4.4 Legal System

Any investor who invests in a foreign country needs to consider the laws ofthe host country The legal environment is an indispensable part of FDI activities Asynchronous, complete and effective legal system is one of the factors creating afavorable business environment, orientation and support for foreign investors Legalfactors affecting the attraction of FDI in general and the attraction of FDI inagricultural sector in particular include:

- A healthy competitive environment, private property rights are guaranteed bylaw;

- Procedures for licensing and implementing investment projects The shorterthe time to carry out these procedures, the more attractive to FDI will be

- Legal regulations on profit sharing, right to repatriate profits for specificforms of foreign capital mobilization;

- Regulations on tax, price, land lease term, These are factors that directlyaffect product prices and profit margins

2.4.5 Agricultural market

Product output is a factor that determines the success or failure of aninvestment project This is especially important for agricultural sector, whenproduction is often seasonal and agricultural products such as rice, corn, potatoes,etc require relatively high preservation costs and can only be preserved for a shortperiod of time Therefore, the market for agricultural products cannot only beconfined to the domestic market, but also must be expanded to foreign countries forexport Market factors affecting the attraction of FDI into agricultural sectorinclude: population, population distribution, consumption habits, average income,etc

2.5 Evaluation criteria for attracting FDI into agricultural sector

- Size of registered capital: Registered capital size is the total amount of capital

contributed in cash or lawful assets, retained profits and other forms of capitalcommitted by a foreign investor to the host country to conduct direct investmentactivities (World Bank, 2016) Registered capital includes the initial registeredcapital of foreign investors under new licenses (for projects implemented for thefirst time or independent of existing projects that have been granted investmentcertificates in the current period.); and additional registered capital (for investmentprojects aimed at expanding scale, improving capacity, production and businesscapacity, renewing technology, improving product quality, reducing environmentalpollution of existing investment projects that have been granted investmentcertificates in previous years)

- Scale of implemented capital: The scale of implemented capital is the actual

investment capital spent by foreign investors for production and business activities

in the host country, including construction costs, factories, procurement machineryand equipment The scale of implemented capital shows the effectiveness ofinvestment promotion activities, the state management mechanism, as well as theenforcement effect of legal documents Theoretically, implemented FDI is usuallysmaller than the registered FDI of the project When considering the gap betweenthe size of registered capital and implemented capital, it is possible to assess theperformance of investment activities in that year The gap between is expressedthrough the disbursement rate This is the percentage of implemented FDI to totalregistered FDI over time, calculated by the formula:

Disbursement rate = (Implemented capital size / Registered capital size) x 100%The large disbursement ratio shows the consistency between the commitmentand implementation of investment activities On the contrary, a small ratio impliesproblems arising in the capital disbursement process such as administrativeprocedures, investors' reluctance to embark on investment activities, fluctuatingregional and global conditions…

- FDI structure: This is the criterion showing the balance or imbalance in

to different criteria, including: investment form, economic sub-sector, economicregion, investment partner This group of criteria allows to assess the change inthe movement patterns of capital flows in the host country, thereby havingappropriate solutions to promote FDI attraction.

2.6 Experiences of some countries in attracting FDI into agricultural sector

2.6.1 Thailand's experience

Thailand is a country with a tradition of exporting agricultural productionwith 80% of the population in rural areas In the last two decades, Thai agriculturalsector has grown strongly, occupying a prominent position in the world market forexporting tropical agricultural products

The Thai government attaches great importance to attracting FDI into theeconomy Although Thailand's FDI attraction environment is adversely affected bypolitical instability, the Thai Government has added favorable conditions in terms ofconcentrating FDI attraction incentives in important sectors such as processingagricultural products with high added value, projects applying high technology andprojects associated with ecological environment protection For many years, theGovernment of Thailand has persisted in administrative reform and simpleimplementation Simplifying procedures related to foreign investment activities, sothat Thailand is still considered an attractive destination for FDI

In particular, Thailand focuses on attracting investment from Asian countries.Among the countries and territories investing in Thailand, Japan has the largestamount of investment capital with about 7,000 Japanese enterprises currentlyoperating In recent years, Korean and Chinese enterprises have increasinglyaccounted for a larger proportion of the total FDI capital into Thailand The amount

of FDI from Singaporean investors is also quite large, accounting for about 80-90%

of the total investment capital of ASEAN countries in Thailand

In 2014, Thailand launched a new strategy to attract FDI, in which priorityareas were: agricultural sector, processing and distribution of agricultural products,mining, light industry, machine manufacturing and transportation equipment,electrical and electronic equipment, chemicals, plastic and paper production,

services and infrastructure… The agricultural sector occupies an important position

in the Thai economy Since the financial crisis in 1997-1998, Thailand's agriculturalindustry has shifted strongly to export, the goal is to turn Thailand into the world'sleading exporter of agricultural products Currently, Thailand is the third largest riceexporter in the world

Regarding tax incentives, the Thai Government offers preferential policies oncorporate income tax by territory with three different preferential areas Investmentprojects in area 1 are exempted or reduced from corporate income tax for 3 years;zone 2 is 3 years and can last 5 years; region 3 is 8 years (ASEAN InvestmentGuide Book 2009, p.249) In addition, the Government has gradually changed fromsimple tax incentives to package tax incentives including tax, labor, licensingprocedures in the fastest time, labor supply and infrastructure for investors andmost importantly simplifies administrative procedures At the same time, theGovernment offers incentives on import tax on machinery and equipment forproduction: FDI projects in region 1 and region 2 will be entitled to a 50%reduction in import tax if these types of machinery and equipment subject to a taxrate greater than 10%; Area 3 100% off

In addition, Thailand does not restrict the borrowing of capital for FDIprojects from credit institutions, including commercial banks, industrial financegroups, finance, credit, securities companies, etc … The Thai government does notallow foreign investors and companies to own land However, for companies whoseforeign ownership is less than or equal to 50%, it is still possible to own land asstipulated in chapter 27 of the Investment Promotion Law 2011 and Notice No.2/2546 of the Ministry of Investment of Thailand (BOI)

Agricultural product insurance policy applies to all participants inagricultural production, including foreign investors The insurance coverageapplies to food crops, oil crops, garden crops, etc The level of compensation ininsurance is quite high, from 60% to 90% of the average output Agriculturalproducers who have a loan from the Bank for Agricultural sector and Agricultural

Cooperatives do not have to pay insurance fees In case of non-borrowing, theThai government will support 2/3 of it.

Besides tax incentives, there are other service incentives Thailand reducedthe price of rent for housing, office, telecommunications, transportation, etc.Regarding legal procedures, the investment process is simple, with specificinstructions to facilitate investors Thailand also soon passed laws on theprotection of intellectual property rights, trademarks and copyrights such asTrademark Act B.E.2534, Patent Act B.E In addition, Thailand is also a party tothe Paris Convention (August 2, 2008), the TRIPS Agreement on intellectualproperty related to commercial activities

2.6.2 Indonesia’s Experience

After the crisis in 1997 - 1998, Indonesia desperately needed capital torecover its economy At that period, Indonesia's public debt was high, foreignborrowing capacity was low, and domestic capital was exhausted To get rid ofdifficulties, the Indonesian government is trying to find solutions to attract FDI.Indonesia reduces corporate income tax each year equivalent to 5% of thetotal value of investment capital for a period of 6 years For example, a companywith a total investment of 1 billion USD will be reduced by 50 million USD/yearwhen calculating taxable income Import tax on goods and raw materials forproduction may be reduced to 5% if these goods are subject to a tax rate greaterthan 5% In addition, FDI projects are not restricted in accessing capital fromcredit institutions

In Indonesia, for land used for agricultural sector such as farming, livestockand aquaculture, investors have the right to use it for 35 years and can beextended for another 25 years if used for the right purposes In order to improvethe international investment environment more favorable, the Government ofIndonesia has signed a bilateral agreement on investment promotion andprotection with 55 countries around the world, and is also a member of MIGA -Multilateral Investment Guarantee Agency, in order to protect foreign investorsfrom political risks In addition, Indonesia also passed laws on protection of

intellectual property rights such as Copyright Law No 6/1997, Law onTrademarks and Trademarks No 15/2001, Law on Patent No 14/2001.

2.6.3 Malaysia’s Experience

Malaysia implements a one-stop-shop policy for investment activitiesthroughout the territory The agency authorized to approve and licenseinvestment is the Malaysian Investment Development Authority MIDA acts as aninvestment coordination center to help investors carry out necessary procedures.This unification has reduced overlapping and cumbersome administrativeprocedures, limited bureaucracy and corruption, and facilitated the attraction ofFDI in general and FDI in agricultural sector in particular

In addition, Malaysia applies incentives such as 10% VAT reduction forexport products, 5% reduction in the price of domestic input materials for exportproduction, advertising and market research costs With the goal of creating jobsand encouraging investment expansion of FDI enterprises, Malaysia hasintroduced conditions to enjoy incentives such as regularly employing 500 ormore employees or disbursed capital of RM25 million above In order toencourage businesses to invest in human resource development, Malaysia hasgranted incentives to allow businesses to operate in the field of vocational trainingfor workers or build training schools

Particularly for the agricultural sector, Malaysia also has special preferentialpolicies such as: exemption of corporate income tax for FDI enterprises in theagricultural sector from 3 to 5 years, for afforestation projects that are exemptfrom tax income for 10 years; allow loss to be carried forward to the followingyear and deducted from expenses for 5 years, reduce corporate income tax by50% for 5 years after the tax exemption period

Malaysia has signed the Paris Convention, the Beme Convention, the TRIPSAgreement on trade-related intellectual property; Malaysia is a member of theWorld Intellectual Property Organization (WIPO) Malaysia also built a legalsystem on intellectual property rights protection such as: Law on inventions 1983,

In addition to policies to encourage investment, Malaysia also has certainrestrictions for foreign investors such as not licensing or only granting investmentlicenses when conditions permit for projects to develop raw materials and invest incertain areas Malaysia almost completely closed sugar refining projects, restrictingpalm oil refining, noodle processing, sauces, and spices to protect traditionalproducts.

CHAPTER 3: THE STATUS OF ATTRACTING FDI IN AGRICULTURAL

SECTOR IN VIETNAM 3.1 Factors affecting FDI attraction to agricultural sector in Vietnam

3.1.1 Natural Condition

- Geographical location: Vietnam's geographical location is quite attractive

to foreign investors With the characteristic of being a country located on theIndochinese peninsula, located in Southeast Asia, along the Pacific coast,Vietnam's location is very convenient for shipping goods by sea into Asia Onland, Vietnam shares a 4,550 km long border with China to the north, and Laosand Cambodia to the west Located in the central position of Southeast Asia, inthe dynamic economic region of the world, Vietnam has the potential to link withcountries with high industry such as Japan, Singapore, Thailand, and markets aslarge as China, India With that favorable position, Vietnam can become a focalpoint in maritime exchanges and transshipment, also very convenient in marineand land traffic with other countries It can be seen that Vietnam's geographicallocation is an advantage in attracting FDI compared to other countries in theregion

- Land: Agricultural land in Vietnam accounts for a very large proportion of

the total natural land area of the country With such a land fund, it will ensurefood sources for domestic consumption and export According to Article 10 of theLand Law dated November 29, 2013, agricultural land in Vietnam is divided intofour main categories:

+ Annual agricultural land

+ Cultivated land used for livestock

+ Water surface for aquaculture

+ Land for perennial crops

In recent years, although industrial zones (more than 150 zones) havesignificantly reduced agricultural land area, Vietnam still has a lot of land, watersurface to cooperate with foreign investors With a coastline of more than 3,200

Vietnam has long-term potential for agro-forestry-fishery development.Moreover, Vietnam is endowed with a tropical climate, with favorable conditionsfor cultivation and animal husbandry Foreign investors coming to Vietnam canfind many investment opportunities in Vietnam's agro-forestry-fishery industryHowever, the area of agricultural land per capita in the world is 0.52 ha,0.36 ha in the region and only 0.25 ha in Vietnam (Wikipedia,2019) According todata from the General Department of Land Management, Ministry of NaturalResources and Environment, on average, each year agricultural land decreases bynearly 100,000 hectares Moreover, population growth in rural areas has notdecreased as much as expected, causing the average arable land per capita todecrease sharply In addition, the use of land is still revealing limitations, directlyaffecting the quality of soil and agricultural products, the main reason is thatfarmers increasingly abuse the use of chemical fertilizers, pesticides plantprotection during production.

- Climate: Vietnam has a humid tropical monsoon climate, rich sources of

heat and humidity, creating a favorable living environment for organisms andtrees to grow Organisms The tropical climate allows Vietnam to produce manytropical specialties with high economic value, typically products such as coffee,rubber, pepper, cashew export to temperate countries In addition, the very clearclimate differentiation from North to South has created 3 different climate regions

in Vietnam, which are favorable conditions for the exchange of agriculturalproducts between regions, making all regions of Vietnam are very rich anddiverse by agricultural products In the North of Vietnam, there are four distinctseasons, so agricultural production is seasonal In the South, there are 2 seasons(rainy season and dry season), so agricultural production is very convenient.However, the tropical climate also has erratic and extreme changes, many naturaldisasters This has limited the agricultural development of Vietnam

In general, Vietnam's natural conditions are favorable for agriculturaldevelopment in all aspects, including: cultivation, animal husbandry, forestry,fishery, etc