(TIỂU LUẬN) based on theoretical and practical framework, please analyze and assess the impacts of FDI on vietnam economic growth in 2010 2019

LIST OF ABBREVIATIONSFDI Foreign Direct Investment GDP Gross Domestic Product Agreement for Trans-Pacific Partnership FTA Free Trade Agreement GSO General Statistics Office LIST OF FIGUR

UNIVSERSITY OF ECONOMIC AND BUSINESS

FACULTY OF INTERNATIONAL BUSINESS AND ECONOMICS

Lecturer: Assoc.Prof, Ph.D Nguyen Thi Kim Anh

Name: Pham Quynh Anh Student code: 17050553 Class: QH-2017-E KTQT CLC 1

Ha Noi, June 2020

TABLE OF CONTENTS

LIST OF ABBREVIATIONS 4

LIST OF FIGURES 4

PART 1: INTRODUCTION 5

PART 2: CONTENT 6

Chapter 1: Theoretical and practical framework of FDI in Vietnam 6

1.1 The role of FDI in the country's socio-economic development 6

1.2 Recent situation of FDI registration in Vietnam 8

1.2.1 New registered capital 8

1.2.2 Adjusted capital 8

1.2.3 Contribute capital, buy shares 8

1.2.4 By investment field 9

1.2.5 According to investment partners 10

1.2.6 By investment area 10

1.2.7 Cumulative foreign investment situation till December 2019 11

Chapter 2: Impact of FDI on Vietnam's economic growth period 2010-2019 13

2.1 Situation of FDI attraction in Vietnam 2010-2019 13

2.1.1 Overview 13

2.1.2 Implemented FDI 13

2.1.3 Export and import situation 14

2.2 Impact of the FDI sector on Vietnam's socio-economic development 15

2.2.1 Providing and supplementing important capital sources for development investment 15

2.2.2 Contribute to GDP growth and state budget revenues 16

2.2.3 Increase export share 17

2.2.4 Contribute to labor productivity growth 18

2.2.5 Create technology spillover effects 20

Chapter 3: Solutions to increase FDI attraction into Vietnam 21

3.1 Promote stable and sustainable economic growth 21

3.2 Maintain a stable political environment 21

3.3 Strengthen inspection and supervision of the process of licensing and managing foreign investment projects. 21

3.4 Improve infrastructure, increase planning towards modernization. 21

3.5 Invest in education development, improve the qualifications of workers 21

3.6 Priority will be given to attracting some industries and hi-tech products, creating great added value 21

3.7 Proactively selecting green FDI projects 22

3.8 Attracting FDI must be appropriate 22

PART 3: CONCLUSION 23

REFERENCES 24

LIST OF ABBREVIATIONS

FDI Foreign Direct Investment

GDP Gross Domestic Product

Agreement for Trans-Pacific Partnership

FTA Free Trade Agreement

GSO General Statistics Office

LIST OF FIGURES

Figure 1: FDI by cumulative sectors 2019

Figure 2: Total FDI realized in the period 2010-2019 (million USD)

Figure 3: Proportion of capital investment in Vietnam by economic sector 2014-2018 (%)Figure 4: Growth rate of investment capital in Vietnam 2014-2018 (%)

Figure 5: Contribution of FDI sector to Vietnam's GDP by economic sector 2010-2017 (%)

Figure 6: Contribution of FDI sector to Vietnam's export turnover 2010-2018 (%)

Figure 7: Labor productivity by economic sector (million VND)

PART 1: INTRODUCTION

In many developing countries, economic growth is still largely based on capital while theaverage income is low, so it is not possible to save much to accumulate capital andtherefore the capital is very limited One of the capital solutions is to rely on foreigninvestment In addition to adding necessary capital, foreign direct investment also createsmore jobs, skills training for workers, improving professional qualifications, management

or technology transfer

Foreign direct investment (FDI) has been identified as one of the important driving forcespromoting economic growth and social development in our country After more than 30years of implementing FDI attraction policies, Vietnam has achieved very importantachievements

For Vietnam, attracting FDI and developing FDI enterprises have been making animportant contribution in receiving modern technology, advanced managementexperience and creating favorable conditions for businesses to participate in the globalvalue chains and global distribution networks; at the same time, create a premise forbusinesses to expand the market to the world

At the same time, attracting FDI contributes to increasing production and productconsumption, making production more developed; That is, make the economy grow more

in the short term, medium term and long term as well as can create breakthroughdevelopment for the economy

The foreign direct investment (FDI) sector has increasingly affirmed its important role inVietnam's socio-economic development According to statistics, FDI enterprises nowcontribute about 23.5% of total social investment (nearly 20% of GDP), accounting forover 70% of export turnover And to understand the impact of direct investment foreigndirect investment (FDI) to Vietnam's economy in recent years, positive and negativeimpacts on the development of the country This article will analyze and assess theimpact of FDI on Vietnam's economic growth in the period 2010-2019 The paperconsists of 3 chapters: chapter 1 is about the theoretical framework and practice of FDI inVietnam, chapter 2 is about the situation and impact of FDI on Vietnam's economicgrowth in the period 2010-2019 and chapter 3 gives suggestions on solutions to enhanceFDI attraction into Vietnam

PART 2: CONTENT

Chapter 1: Theoretical and practical framework of FDI in Vietnam

1.1 The role of FDI in the country's socio-economic development

Along with the renovation process and opening the economy, the Law on ForeignInvestment was passed and enacted by the National Assembly on December 29, 1987,marking a turning point for the formalization of foreign capital inflows Vietnam Fromthat right policy, over the past 30 years, the FDI sector has increasingly shown itsimportant role and significantly contributed to the economic development economic -social of the country

The attraction and use of foreign investment contribute to the impact of promoting therestructuring and restructuring the economy, renewing the growth model, improving thenational competitiveness, industries, products and services; promoting institutionalreforms, economic policies, business and investment environment, developing a fullymodernized and integrated market economy, strengthening external relations, cooperationand international integration

Vietnam is internationally evaluated as one of the most successful FDI attractingcountries in the region and in the world, becoming a reliable and effective investmentlocation in the eyes of foreign investors The 2017 report of the United Nations Trade andDevelopment Organization assessed that Vietnam was among the Top 12 most successfulcountries in attracting FDI

According to official statistics of the Ministry of Planning and Investment, as of August

2018, Vietnam has had more than 26,500 FDI projects, with a total registered capital ofmore than 334 billion USD, with implemented capital of 184 billion USD Foreigninvestment has contributed nearly 20% of GDP and is an important additional source ofcapital for development investment with a proportion of about 23.7% of the total socialinvestment capital

58% of total foreign investment is focused on processing and manufacturing, creatingover 50% of the country's industrial production value Export turnover of foreign-invested sector, accounting for an increasing share in exports, reached 72.6% in 2017 and71.4% in the first 9 months of 2018 Revenue to the region's budget Foreign investmenthas steadily increased over the years and reached more than 8 billion USD in 2017,accounting for 17.1% of the total state budget revenue

Foreign investment is an important driving force for Vietnam's economic growth becausethe region's contribution has increased from 9.3% in 1995 to 19.6% in 2017 (accountingfor 23.7% of the total social investment capital, accounting for 72% of the country's totalexport turnover, over 50% of industrial production value, over 17% of total state budgetrevenue).

Over the past decade, many foreign investment projects have transferred advancedtechnologies and management experience in a number of branches and fields; certainspillover effects on the domestic enterprise sector, thereby contributing to improving thetechnological level and governance of the economy Many big projects have broughtabout a breakthrough, contributing to the budget revenue for many localities

For example, according to the report of the City People's Committee In Ho Chi MinhCity, in 1992, FDI enterprises only contributed more than VND 15 billion to the statebudget (accounting for 0.6% of total budget revenue), in 2016, the revenue from FDIenterprises reached VND 48,700 billion, accounting for 16.3% of the City's total budget.The foreign investment sector has also made significant contributions to the development

of high-quality services in Vietnam such as finance - banking, insurance, auditing,shipping, logistics, education and training, health, tourism At the same time, this is also

a factor contributing to transforming development space, forming new urban areas,industrial parks, export processing zones, economic zones

Foreign investment also facilitates Vietnam to expand international markets, increaseexports, gradually participate in production networks and global value chains Thanks tothis orientation, exports of foreign investment sector have increased rapidly, contributing

to balancing the trade balance, reducing exchange rate pressure and improving theinternational payment balance

The foreign investment sector also has many contributions in creating jobs, contributing

to labor restructuring and improving the quality of human resources Foreign directemployment in the foreign-invested sector increased from 330,000 in 1995 to about 3.6million in 2017, and indirect jobs were created for around 5 to 6 million workers

FDI enterprises are also the pioneering units in training, improving the qualifications andindustrial manners of workers, technicians and managers Many of the jobs previouslyheld by foreign experts have now been replaced by Vietnamese workers Many foreign-invested enterprises have paid attention to social responsibility to the community,participating in hunger eradication, poverty reduction and other volunteer activities

1.2 Recent situation of FDI registration in Vietnam

According to data from the Foreign Investment Agency (Ministry of Planning andInvestment), as of December 20, 2019, foreign direct investment (FDI) into Vietnamincluded newly and additionally registered capital and foreign investors' share purchasecapital reached US $ 38 billion, up 7.2% compared to the same period in 2018 This isalso the highest figure in the last 10 years

1.2.1 New registered capital

As of December 20, 2019, the whole country had 3,883 new projects granted the IRC, anincrease of 27.5% of the projects compared to the same period in 2018 The total newlyregistered capital of US $ 16.75 billion, equaling 93.2 % compared to the same period in

2018 The average registered capital of the new project decreased from US $ 5.9 million

in 2018 to US $ 4.3 million in 2019 Although the newly registered investment capital in

2019 decreased But the pace of decline has been smaller than in previous months Ifexcluding large projects of over US $ 1 billion newly licensed in the same period in 2018,the total newly registered investment capital in 2019 will increase by 32.5% over thesame period (in 2019, the investment project with the scale of The largest investmentcapital is USD 420 million.In 2018, there was a Smart City project in Hai Boi commune,Dong Anh, Hanoi with a total registered capital of 4.14 billion USD and a factory project.Polypropylene, an underground storage of liquefied petroleum with a total registeredcapital of 1.2 billion USD)

1.2.2 Adjusted capital

There were 1,381 projects registered to adjust investment capital, up 18.1% over the sameperiod in 2018 Total adjusted registered capital was 5.8 billion USD, equaling 76.4%compared to the same period in 2018 In in 2019, the scale of adjustment to expandcapital of small projects (an average of USD 4.2 million / adjustment, smaller than theaverage of 2018 is USD 6.5 million / adjustment) and there is no large capital increaseprojects like in the same period of 2018 (Laguna - Singapore Co., Ltd has adjusted theproject to increase its capital by 1.12 billion USD)

1.2.3 Contribute capital, buy shares

Also in 2019, the whole country had 9,842 times of capital contribution and share purchase

of foreign investors with a total value of contributed capital of US $ 15.47 billion, up 56.4%over the same period in 2018 and accounting for 40.7% of the total registered capital sign

Investment in the form of capital contribution to share purchase has tended to increasesharply in recent years and accounts for an increasingly large proportion of the totalforeign investment Specifically, 2017 investment in the form of capital contribution,share purchase accounted for 17.2% of the total registered capital, in 2018 accounted for27.9%, in 2019 accounted for 40.7% of the total registered capital Foreign investorscontribute capital to domestic enterprises mainly in the field of processing andmanufacturing industries with 45.8% of the total value and real estate business with17.8% of the total price treatment.

1.2.4 By investment field

In 2019, foreign investors invested in 19 sectors, of which investment focused onmanufacturing and processing industry with a total capital of 24.56 billion USD,accounting for 64 , 6% of the total registered investment capital This is also a field thataccounts for a large proportion of the registered capital in terms of registration of newinvestment projects, expansion investment projects, capital contribution and sharepurchase

Real estate business ranked second with total investment capital of 3.88 billion USD,accounting for 10.2% of total registered investment capital Next is the field of wholesaleand retail, professional activities of science and technology,

Increasing FDI tends to focus on a few key sectors, associated with the roadmap of tariff reduction and opening of attractive investment sectors under FTA commitments

Statistics show that FDI in Services, especially real estate business, tends to increase rapidly and is the second largest sector in terms of FDI attraction, only after processing and manufacturing industries Generally, over the past 30 years, investment in the real estate business only accounted for 2.8% of the total number of projects, but accounted for16.8% of the total registered capital; the average investment capital is up to 74.4 million USD / project, more than 5 times the average capital scale of each project in the

processing and manufacturing industry

Although the Vietnamese population is mainly concentrated in rural areas (about 67%),the labor force working in this region accounts for about 46% of the total social andagricultural labor contributing about 17% of Vietnam's GDP (GSO, 2016) but FDIinflows into this sector only account for 1.7% of total projects and 1% of total FDI intoVietnam It can be affirmed that with low investment, FDI does not play a role inVietnam's agricultural and rural development

1.2.5 According to investment partners

In 2019, there were 125 countries and territories investing in Vietnam South Korea leadswith a total investment of 7.92 billion USD, accounting for 20.8% of total investmentcapital into Vietnam; Hong Kong ranked second with total investment capital of US $7.87 billion (of which US $ 3.85 billion of shares bought in Vietnam Beverage Co., Ltd

in Hanoi, accounting for 48.9% of Hong Kong's total investment capital) ); Singaporeranked third with a total registered investment capital of 4.5 billion USD, accounting for11.8% of total investment capital Next is Japan, China, In particular, investment fromChina, Hong Kong tends to increase over the same period due to the impact of the US-China trade war Specifically: investment from China increased by nearly 1.65 times,from Hong Kong increased by 2.4 times over the same period in 2018

Foreign investors investing in Vietnam for over 30 years mainly concentrated in 15countries and territories These major investors account for 89.4% of the registeredcapital and 86.2% of the total number of projects The scale of investment for the projects

is largely above average In this group, the projects of Chinese investors have the smallestscale, about 6.2 million USD / project, equal to 44% of the average project size AlthoughKorea ranks first in terms of total registered capital, the average project size is 9.1 millionUSD / project It is worth noting that among the 15 countries and territories considered asthe "main", there are three locations considered tax havens: British Virgin Islands,Cayman Islands and the Netherlands, with many projects large scale Registered capitalfrom this "triad" group, although only accounts for 4.4% of the total number of projects,the total registered capital accounts for 10.3% The project size in this group is 32.4million USD / project, more than double the average project size

1.2.6 By investment area

Foreign investors have invested in 62 provinces and cities, of which Hanoi is the localityattracting the most foreign investment capital with a total registered capital of US $ 8.45billion, accounting for 22.2% of total capital invest Investment capital in Hanoi ismainly based on the method of capital contribution, share purchase with 6.47 billionUSD, accounting for 76.6% of total registered investment capital of Hanoi

TP Ho Chi Minh City ranked second with a total registered capital of nearly 8.3 billionUSD, accounting for 21.8% of total investment capital Like Hanoi, Ho Chi Minh City'sinvestment in the form of capital contribution, share purchase accounted for a largeproportion, accounting for 67.5% of the total registered investment capital of the City and

accounting for 58.1% of the total number of turns contribute capital, buy shares of thewhole country.

Next are Binh Duong, Dong Nai, Bac Ninh,

In 2019, the number of delegations working for investment opportunities increasedsharply, increasing by about 30% compared to the same period last year The partners aremainly from Japan, Korea, China, Hong Kong, Singapore MPI has held many policydialogues, talks with businesses of Japan, Korea, Singapore, China, Hong Kong,Thailand, Taiwan, Germany, Netherlands, India, in 2019

1.2.7 Cumulative foreign investment situation till December 2019

Accumulated to December 20, 2019, the whole country has 30,827 valid projects with atotal registered capital of 362.58 billion USD The accumulated realized capital of foreigndirect investment projects was estimated at 211.78 billion USD, equaling 58.4% of thetotal valid registered capital

- By field: Foreign investors have invested in 19/21 branches in the national economic sub-system, of which the processing and manufacturing industries account for the highestproportion of 214.2 billion USD, accounting for 59.1% of total investment capital,

followed by real estate business with 58.4 billion USD (accounting for 16.1% of total investment capital); electricity production and distribution with 23.65 billion USD

(accounting for 6.5% of total investment capital) Figure 1: FDI by cumulative sectors

2019 (%)

Source: Ministry of Planning and Investment

- By investment partners: In December 2019, Honduras, Iceland and Lithuania were 3partners who had new investment projects in Vietnam, bringing the total number ofcountries and territories having valid investment projects in Vietnam up to 135 Amongthem is Korea with a total registered capital of 67.71 billion USD (accounting for 18.7%

of total investment capital) Japan ranked second with 59.3 billion USD (capturing 16.4%

of total investment capital), followed by Singapore and Taiwan, Hong Kong

- By location: foreign investment has been present in all 63 provinces and citiesnationwide, of which Ho Chi Minh City is still the leading province in attracting foreigninvestment with US $ 47.34 billion (accounting for 13.1% of total investment capital);followed by Binh Duong with 34.4 billion USD (accounting for 9.5% of total investmentcapital); Hanoi with 34.1 billion USD (accounting for 9.4% of total investment capital)

Conclude:

The number of registered projects and the value of FDI capital into Vietnam over the pasttime has grown very well, however, the current FDI attraction is still not methodical.Vietnam has not been really proactive, selectively attracting FDI projects with hightechnology content and strictly controlled pollution levels Many FDI projects are crudemanufacturing, high processing capacity, large emission levels, low added value, andlack of basic industries such as supporting industries and high technologies The capacity

of preventing, controlling and protecting the environment of some FDI enterprises is stillinadequate

The spread of FDI inflows to economic sectors is not commensurate with expectations.The level of localization in Vietnam is still low when the ratio of imported inputs toproduct value is largely above the threshold of 50%