Foreign Direct Investment in Vietnam
There is no dout that foreign direct investment (FDI) plays a very significant role in economic growth, according to experiences of new industrial countries in Asia. Over a decade of opening for FDI, we could realize that the more FDI inflows pour into our country the more we benefit. In fact, FDI has contributed a great proportion to fulfill targets on socio-economic development plan and has been one of the most important external sources of Vietnam on the process of industrializing and modernizing the country.
Statistics shows that there was a sharp rise in FDI commitments in the period of 1998-1995. The number of investment projects go up at average 50 percent each year untill the end of 1995. In 1996, we suffered a slight setback compared with the previous year, just up 29 percent. Next, the trend in 1997 is for a decline in both the number and volume of FDI commitments and finally, it became a steady decrease in FDI inflows into Vietnam in recent years. What are the causes?
This essay will examine the issue above with the purposes:
1. To have an overview on FDI in Vietnam in the period of 1988 to 1997.
2. To identify the causes of decline in FDI in recent years (since 1997 till now).
3. To deriving useful lessons from the past and put forward some measures to induce FDI in future: creating a better investment environment.
In the scope of utilizing relevant literatures and various available statistical sources printed in the newspapers/magazines/web-pages to analyze the situation of FDI in Vietnam, fingures may differ a little bit from some other sources.
A. OVERVIEW ON FOREIGN DIRECT INVESTMENT INFLOWS IN VIETNAM FROM 1988 TO 1996
In 1998, Vietnam government has officially issued the 1st Law on Foreign Investment, paved the way to absorb capital and modern technology from all over the world. In the late of 80s and the early of 90s (1988--1993), Vietnam still be hampered by United States's embargo policy on its weak economy. Though, foreign investors were very eager to invest in Vietnamese market promising numerous business opportunities because Vietnam has many advantages such as being a new market with big population and cheap price of labor; having rich natural resources, particularly oils, favorable geographical location and huge agricultural potential.
Statistics shows that FDI commitments coming to Vietnam increased notably from 1988 to 1996, hitted the top in 1996 with US$ 8633 million and decreased sharply since 1997. Most of these commitments were made during 1995-1996. Several large construction projects were approved during this period of time, and this pushed up average project size to US$ 20.5 million, compared to US$ 13.3 million during 1988-1994. We can also realize that proportion of disbursements in comparison with commitments is low in the early of 90s.
(See chart below)
B. THE CAUSES OF DECLINE IN FDI IN VIETNAM IN...