Effect of oda and fdi on vietnam s economy during and after covid 19

1. Brief overview of ODA (Official Development Assistance) and FDI (Foreign Direct Investment) Ever since ODA and FDI was created in their respective date, they have been the most crucial way to direct the flow of capital and investment from developed countries to developing countries. • ODA The term Official Development Assistance – or ODA – was first adopted in 1969 by OECD Development Assitance Committee (DAC). Up to today, the member of DAC compromised from major economics powers in the world such as EC, United State, United Kingdom, Japan, Germany, and many more. The aim of DAC is to create a way to aid of the developing countries effort to develop economic and social aspect but in a concessional in character. At first, they proposed that DAC members transfer 1% of the donor countries’ income to developing countries, and they has a flaw which is governments had no means of programming or even predicting the private element of capital flows, which in many years are more than half the total. So after many negotiations and changes, they finally agree to the “0.7% target”, where “Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7% of its gross national product at market prices”. ODA has many positive impact. It would provide funds an capital to low – income countries where international finance would generally stay away. They also provide a concessional loans for such countries since normal loans may put some stress on their economy. • FDI

FOREIGN TRADE UNIVERSITY

FACULTY OF BANKING AND FINANCE

-*** -EFFECT OF ODA AND FDI ON VIETNAM'S ECONOMY DURING AND AFTER COVID 19

Class: TCHE414 Group:

Lecturer: Assoc Prof Ph.D Mai Thu Hiền

Hanoi – 6/ 2023

TABLE OF CONTENTS

I Introduction 1

1 Brief overview of ODA (Official Development Assistance) and FDI (Foreign Direct Investment) 1

2 Introduction to Vietnam's industry and economy 2

3 Impact of COVID-19 on Vietnam's industry and economy 2

II Effect of ODA on Vietnam’s economy during COVID-19 3

1 Explanation of ODA and its significance for developing countries 3

1.1 Definition of ODA 3

1.2 ODA’s significance for developing countries 3

2 ODA contributions to Vietnam during the pandemic 4

3 Impact of ODA on Vietnam’s economy 5

III Effect of FDI on Vietnam’s economy during COVID-19 5

1 Explanation of FDI and its importance for Vietnam’s economy 5

2 The role of FDI in Vietnam’s economy 6

3 FDI inflow during pandemic 8

4 Recommendation of some policies to attract FDI after COVID 19 Pandemic 9

IV Effect of ODA and FDI on Vietnam's economy after COVID-19 9

1 Predictions for how ODA and FDI will impact Vietnam's industry and economy after the pandemic 10

2 Potential challenges and opportunities for ODA and FDI in Vietnam's post- COVID-19 recovery 11

3 Potential opportunities 12

V Challenges and considerations 13

VI Conclusion 13

References 15

 ODA

The term Official Development Assistance – or ODA – was first adopted in 1969

by OECD Development Assitance Committee (DAC) Up to today, the member of DACcompromised from major economics powers in the world such as EC, United State,United Kingdom, Japan, Germany, and many more The aim of DAC is to create a way toaid of the developing countries effort to develop economic and social aspect but in aconcessional in character At first, they proposed that DAC members transfer 1% of thedonor countries’ income to developing countries, and they has a flaw which isgovernments had no means of programming or even predicting the private element ofcapital flows, which in many years are more than half the total So after manynegotiations and changes, they finally agree to the “0.7% target”, where “Eacheconomically advanced country will progressively increase its official developmentassistance to the developing countries and will exert its best efforts to reach a minimumnet amount of 0.7% of its gross national product at market prices” ODA has manypositive impact It would provide funds an capital to low – income countries whereinternational finance would generally stay away They also provide a concessional loansfor such countries since normal loans may put some stress on their economy

 FDI

Foreign direct investment (FDI) is an ownership stake in a foreign company orproject made by an investor, company, or government from another country Generally,the term is used to describe a business decision to acquire a substantial stake in a foreignbusiness or to buy it outright to expand operations to a new region This term, whileseems somewhat similar to general capital movement between countries and ForeignPortfolio Investment (PFI), is different from those two Stephen Hymer, a Canadianeconomist, in his thesis, has clarified the definition and set the cornerstone for FDI WhileForeign portfolio investment (FPI) is the addition of international assets to the portfolio of

a company, an institutional investor such as a pension fund, or an individual investor It is

a form of portfolio diversification, achieved by purchasing the stocks or bonds of aforeign company Foreign direct investment (FDI) instead requires a substantial and directinvestment in, or the outright acquisition of, a company based in another country, and notjust their securities Commonly, FDI are categorized as horizontal, vertical, orconglomerate With a horizontal FDI, a company establishes the same type of businessoperation in a foreign country as it operates in its home country In a vertical FDI, a business

acquires a complementary business in another country In a conglomerate FDI, a companyinvests in a foreign business that is unrelated to its core business Because the investingcompany has no prior experience in the foreign company’s area of expertise, this often takesthe form of a joint venture FDI has its own advantages and disadvantages FDI can fosterand maintain economic growth, in both the recipient country and the country making theinvestment On one hand, developing countries have encouraged FDI as a means offinancing the construction of new infrastructure and the creation of jobs for their localworkers On the other hand, multinational companies benefit from FDI as a means ofexpanding their footprints into international markets A disadvantage of FDI, however, isthat it involves the regulation and oversight of multiple governments, leading to a higherlevel of political risk.

2 Introduction to Vietnam's industry and economy

The Second Indochina War ended in 1976 Viet Nam unified the North and theSouth 30 years of war and turmoil has devastated the economy During that 30 years,Vietnam economies and industry can be said to be non – exsistent to a degree Theymostly focused on war economies and aid from the Communist bloc, namely USSR andChina Stepped out of the war with devastations throughout country and with many aims

to ultimately moving to the socialist stage, Vietnam choose an isolationist and self sustainapproach This include promote heavy industry, reformation of non – socialist economysector, centralized economy, and trading between members of the blocs, mainly Chinaand USSR But with the Cambodian War and Sino – Vietnamese war in 1979, Vietnam’seconomy still suffer a lot of setbacks and such isolationist style approach had provedthemselves ineffective when managing the economy In 1986, General Secretary NguyenVan Linh propose Doi Moi policy to fix the economic crisis in the country and to preparefor and ecomical independent as the dissolution of USSR rising in the horizon The mainaim of the policy is to moving from centralize and collective economy to a socialist-orientedmarket economy regulated by government The policy proved to be effective and sinceVietnam opened its economy for foreign trade, it introduced waves of ODA and FDI intoVietnam as part of some countries policy such as Japan From 1990 to 2023, theVietnam’s ODA and FDI inflow has been increased significantly with the main sourcecome from Japan and Korea Many big enterprises like Samsung, Apple, Mitsubishi, …have set up industrial sectors, creating thousand of jobs, follow up with the development

of infastructure and service sectors

3 Impact of COVID-19 on Vietnam's industry and economy

Since the start of the COVID-19, Vietnam has follow an isolationist style policylike their neighbour China In summary, they would make a total lockdown if there is anythreat of the pandemic This has a significant impact on Vietnam economy as theirindustry focus on exporting manufactured goods and their raw material inputs wouldcome from China Also, during and after covid, they amount of orders from the West and

US decrease significantly due to the lockdown This would pose many problems for the

economy First,

the supply scarcity affected the productivity and the ability to meet up with the orders.China has been following a zero-COVID policy and has locked down its major economiccenters such as Shanghai The disruption has snarled supply chains, with goods stuck atports, airports, and trade hubs Disruption in logistics has also affected several cities such

as Shenzhen, Guangzhou, Dongguan, and Foshan affecting their economies Some sectorsfaced supply shortages The worst sufferers were the electronics, wood, textiles, andfootwear industries Businesses in the industry had to slow down export deliveriesbecause their Chinese partners lacked empty containers for transporting raw materials andaccessories Second, due to the lockdown, foreign order decrease significantly Chinafollowing Zero – Covid policy lead to a decrease in agriculture product orders decrease.International companies also decrease their order due to finanical difficulties And inresult of orders decreased, domestic company started massive layoff Since the supplyscarcity incured, enterprises had to deal dealing with employment and personal problems

As the materials decrease, they have to stretch the worker’s shift thinner to maintain thecost and keep the production line running constantly Worker, who fortunate enough,couldn’t earn overtime And for those who unfortunate enough, they lost their jobs.Massive layoff happened follow with massive movement from urban and industrial areas

to countryside due to the cost of living This put heavy strain on the infastructure andsocio – economics of Vietnam After Covid, Vietnam slowly kickstart their economy andindustry through various means but such problems still exist to some degree

II Effect of ODA on Vietnam’s economy during COVID-19

1 Explanation of ODA and its significance for developing countries

1.1 Definition of ODA

According to the Organization for Economic Cooperation and Development(OECD), Official Development Assistance (ODA) is defined as government aid thatpromotes and specifically targets the economic development and welfare of developingcountries

ODA was adopted by the Development Assistance Committee (DAC) andconsidered as the “gold standard” of foreign aid in 1969 and it remains the main source offinancing for development aid ODA data is collected, verified, and made publicly available

by the OECD

ODA is different from Foreign Direct Investment when ODA focuses on providingfinancial assistance and support for the development of recipient countries, whereas FDIinvolves long-term investments by individuals or entities with the intention of gaining profitand establishing a lasting presence in foreign markets

1.2 ODA’s significance for developing countries

Neglected sectors are supported

Public and private investors are not necessarily interested in projects towardsessentials goals such as biodiversity protection, water, high-quality education, andhealthcare improvement.

Through public aid such as grants, loans or other forms of support, ODAencourages the change in the most vulnerable by compensating the lack of funding theabove sectors Also, banks, foundations, and companies might come into play for supportand increase amounts devoted to development

Africa focusing

In 2021, the DAC members provided significant assistance to three countries Indiareceived $3.4 billion, while Afghanistan also received $3.4 billion, and Bangladeshreceived $3 billion Approximately 30% of ODA was allocated to African countries

Around 45% of ODA is directed towards the least developed countries (LDCs) toidentify the most vulnerable nations worldwide As of 2023, there were 46 countriesincluded in this category

Several LDCs feature prominently among the top ten countries receiving grants fromthe AFD in 2021 These countries include Senegal, Mali, Burkina Faso, Niger, Chad,Sudan, and Haiti Additionally, Côte d'Ivoire is included due to significant debt reductionand development initiatives, along with Lebanon and the Palestinian Territories

2 ODA contributions to Vietnam during the pandemic

ODA has played a significant role in supporting Vietnam during the COVID-19pandemic and emerged as a vital strategy to stimulate growth amidst the challenges posed

by the pandemic

The most outstanding aid was 10.8 billion JPY worth (75 million USD) worth ofODA from the Japan International Cooperation Agency (JICA) in Vietnam, exclusive offunding for the private sector between April 2021 and March 2022

Health sector support

JICA has helped strengthen Vietnam’s capacity in fighting the COVID-19pandemic and responding to communicable diseases by donating 850 million JPY worth

of medical supplies, including ECMO machines; and transferring technology andproviding key equipment to a new Biosafety Level-3 Laboratory (BSL-3) of Ho Chi MinhCity’s Pasteur Institute, worth more than 200 million JPY in total

Economic stimulus packages

5-million-USD non-refundable aid has also been granted to Vietnam by JICA This

is crucial for a developing country like Vietnam, as it helps to alleviate the burden of debtand allows the country to allocate its resources more effectively towards developmentinitiatives

By providing non-refundable aid, JICA enables Vietnam to invest in criticalprojects that can foster long-term growth and improve the lives of its citizens.

Infrastructure development

The Japanese agency has also provided ODA for HCM City to implement the secondphase of a water environment improvement project in the city The project aims toimprove local environment through wastewater treatment capacity building and floodingdamage control

It has signed a loan agreement of up to 25 million USD with a private Vietnamesecompany for an onshore wind power project in Quang Tri, Shimizu Akira said, adding allthe 51 carriages to be used on HCM City’s Metro Line No.1 are manufactured by Japan

3 Impact of ODA on Vietnam’s economy

Enhanced healthcare system and pandemic response

ODA has been instrumental in strengthening Vietnam's healthcare system and enhancingits capacity to respond to the pandemic Assistance from international partners has helpedVietnam procure medical equipment, supplies, and vaccines It has also supported thetraining of healthcare professionals, the establishment of testing and treatment facilities,and the implementation of public health campaigns to raise awareness about COVID-19

Boosting economic recovery and stability

ODA programs often target poverty reduction and social welfare initiatives inVietnam Funds are utilized to improve access to basic services such as healthcare,education, clean water, and sanitation ODA helps in building schools, hospitals, andhealthcare facilities, and providing training and capacity building to enhance servicedelivery

ODA often includes programs aimed at stimulating private sector growth andentrepreneurship Financial support, technical assistance, and capacity building areprovided to small and medium-sized enterprises (SMEs) and entrepreneurs Thisassistance helps create jobs, fosters innovation, and diversifies the economy, therebypromoting economic stability

Strengthening infrastructure for future growth

With the strong cooperation with Vietnamese counterparts, JICA’s projects havemade great achievements such as more than 3,000 kilometer of roads, 250 bridges, fiveinternational ports and 10 power plants with the total capacity of 4,500 MW This hascontributed to the sustainable growth in Vietnam as well as strengthened the connectivityand development in the whole ASEAN

III Effect of FDI on Vietnam’s economy during COVID-19

1 Explanation of FDI and its importance for Vietnam’s economy

 FDI is a type of long-term investment made by a person or organization from onenation to another through establishing factories and commercial buildings Tosecure long-term interests and seize control of this property is the goal.

 In essence, foreign direct investment (FDI) is the meeting of the needs of twoparties: the investor and the country receiving the investment Specifically, in it:

 Investors have set rights and responsibilities to the investment location

 Define ownership and management rights for capital invested

- Included with the right to transfer state technology and methods in order tocollaborate with the host nation

- Concerned with the growth of international businesses and organizations Constantly linked to the expansion of global financial markets and commerce

 In Vietnam, the term “FDI enterprises'' is understood as an enterprise with foreigndirect investment capital However, this form of company' identification in legaldocuments is not exactly apparent

2 The role of FDI in Vietnam’s economy

Since Doi Moi, luring foreign direct investment (FDI) has been regarded as one ofVietnam's brightest points or most notable accomplishments The Vietnamese economy isnow more competitive, there are more jobs available, and the state budget is making moremoney thanks to FDI.Despite certain limitations, FDI has made a very positive contribution,acting as the pillars for the success of the economic reform policy

Impact on economic growth and restructuring

Increasing investment capital for expansion is the most evident and significantcontribution Up until the end of 2021, the entire nation will have 34,527 active projectswith a combined registered capital of little under 408.1 billion USD It is anticipated that251.6 billion USD, or 61.7% of the total legal registered investment capital, has beenrealized across all foreign investment projects In comparison to the global average, theFDI sector's contribution to Vietnam's GDP is 9.5 percentage points greater (20.13%versus

10.6%), coming in at 15.15 percent in 2010 and rising to 18.07 percent in 2015 and 20.1percent in 2021.

The FDI sector has a positive impact on economic restructuring towardsmodernization Specifically:

In the field of Construction: The FDI sector, which represents for around 55% of

total industrial production value, helped to establish a number of important economicsectors, including telecommunications, oil and gas extraction, and electricity vehicles,motorbikes, information technology, steel, cement, agro-food processing, leather &footwear, textiles, chemicals, electronics, etc In high-tech industries like mining, FDIbusinesses represent a significant percentage of the market Exploiting oil and gas, theelectronic sector, telecommunications, office supplies, and computers…

In the field of Agriculture - Forestry - Fishery: The output growth rate of the

FDI sector is always greater than that of the domestic economic sector in the area ofagriculture, forestry, and fisheries, which has helped to boost agricultural productionthrough product diversification and restructuring of the agricultural sector high value ofexported agricultural products, the adoption of numerous cutting-edge technologies, andthe development of plant breeds and varieties that meet worldwide standards; yet, theimpact of FDI is minimal due to the sector's limited share in this region

In the filed of Services: With current payment mechanisms like credit and debit

cards, FDI has a significant impact on raising the caliber of banking and auditing services.Some major towns and coastal regions have undergone changes as a result of FDI intourism, hotels, and offices for rent Golf courses, bowling alleys, and amusement parksare just a few of the attractions that draw foreign tourists and investment

Transfer technology, promote production improvement and innovation

Numerous analyses have found that FDI has helped to foster innovation andtechnology transfer, progressively increasing domestic manufacturing capacity Manyinnovative and cutting-edge technology, particularly in the areas of petroleum,electronics, telecommunications, cars, and motorcycles, have been imported into ournation Particularly, some sectors of the economy have adopted modern technologies.such as post and telecommunications, oil and gas, building, roads, bridges, textiles andfootwear, and construction…

The acquisition of cutting-edge managerial expertise and the training of a highlyskilled workforce skilled in utilising contemporary technologies go hand in hand with thetransfer of technology Additionally, technology transfer helps build domestictechnological competence and jobs for employees

Create jobs and improve workers' incomes

The FDI industry makes a significant and unmistakable contribution to jobgeneration The General Statistics Office's survey findings show that the foreign-investedcompany sector attracted 5.1 million employees, or about 10% of the country's total laborforce (over 54 million workers), and 20% of all pay employment (25.3 million persons).Aside from directly employing people, the FDI sector indirectly employs many millions

of people through supporting sectors and other businesses that are part of the supply chainfor commodities used by FDI operations

Even though fewer employment are being produced than in the case of small andmedium-sized businesses, the "quality" of the workforce in the FDI sector is noticeablyhigher thanks to the internal training system within the business or affiliations withoutside training institutes Many employees and officials in the FDI sector have been andcontinue to be the "nuclei" for developing Vietnam's highly skilled and qualified laborforce

Additionally, compared to the state sector or non-state sector, the average wage ofworkers in FDI businesses is higher According to data from the General Statistics Office,the average monthly wage for employees in the FDI industry is 8.2 million VND, while it

is 9.2 million VND for male employees and 9.2 million VND for female employees Themonthly wage for women is 7.6 million VND The average salary for employees in thestate sector is 7.7 million VND per month, while that of employees in the non-state sector

is 6.4 million VND per month

3 FDI inflow during pandemic

The total newly registered capital, adjusted capital, and contributed capital to buyshares by foreign investors reached 31.15 billion USD as of December 20, 2021, up 9.2%from the previous year, according to the Foreign Investment Agency the same time in 2020

In particular, 1,738 new projects received investment registration certificates (down31.1%); these projects' total registered capital increased by 4.1% to over 15.2 billionUSD; 985 additional projects (down 13.6%); their combined additional registered capitalincreased by 40.5% to over 9 billion USD Additionally, there were 3,797 times (down38.2%) and almost 6.9 billion USD (down 7.7%) worth of capital contributions and sharepurchases by foreign investors Despite an increase in overall FDI within the same timeperiod, there were significantly fewer registered projects in 2021 The Foreign InvestmentAgency claims that one of the factors in Vietnam's recent elimination of small-scale projectswith minimal added value is the country's selective investment attraction policy

Out of the 21 national economic sectors, 18 have seen foreign investment at thispoint In terms of the number of new projects, manufacturing, wholesale and retail,professional activities, science and technology are the industries that attract the mostprojects, accounting for 33.1%, 27 respectively .8% and 16% of total projects Withinvestments totaling over 18.1 billion USD, or 58.2% of the total registered investment

capital, the processing and manufacturing sector takes the lead in this.It ranks second with