Vietnam named first time among world’s top 20 host economies for FDI

Vietnam for the first time was named 19th among the world’s top 20 host economies for foreign direct investment (FDI) in 2020 with an inflow of $16 billion, an improvement of five places against last year’s ranking, according to the UN Conference on Trade and Development (UNCTAD).

Production at Rhythm Precision Vietnam at Noi Bai Industrial Park. Photo: Pham Hung

The result remained encouraging at a time when the global FDI flows fell by 35% to $1 trillion amid the Covid-19 pandemic, the lowest level since 2005 and almost 20% lower than the 2009 trough after the global financial crisis.

FDI in Southeast Asia, considered an engine of global FDI growth for the past decade, contracted by 25% to $136 billion. Vietnam remained among the three largest recipients in the region with a decline of only 2%, while the remaining two of Singapore and Indonesia suffered drops of up to 21% and 22%, respectively.

According to the UNCTAD, a slight decline in FDI to Vietnam was due to significant investment contractions in manufacturing and real estate activities (the two largest recipients last year) but was cushioned by a rise in investment in electricity projects, including a $5 billion gas-fired power plant proposed by ExxonMobil (US) and a $2.2 billion coal-fired power plant developed by Thai MNEs in the Quang Tri Economic Zone.

Singapore and Japan topped the list of countries and territories having investment projects in Vietnam, in which the ASEAN country contributed $5.64 billion in 2020, or 37% of the total, and the latter with $2.44 billion, a surge of 67% year-on-year.

As FDI inflows to Vietnam stayed positive in 2020, the UNCTAD pointed out several measures adopted by the country to promote investment, including the permission for certain disputes between foreign investors and the State to be taken to international arbitration.

Meanwhile, the government has expanded the list of business lines eligible for investment incentives, along with the publishing of a detailed list of conditions are applied for businesses to be considered as high-tech enterprises eligible for tax incentives.

“Vietnam for the first time introduced a negative list on market access, affording foreign investors with national treatment (NT) except in the sectors included in that list. The country also raised the cap on foreign ownership in domestic airlines,” it added.

On the global scale, the US continued to be the world’s largest FDI recipient, followed by China and Hong Kong (China).

Looking ahead, UNCTAD expected global FDI flows to bottom out in 2021 and later recover some lost ground, with an increase of about 10-15%.

“This would still leave FDI some 25% below the 2019 level,” it added but said current forecasts show a further increase in 2022 which, at the upper bound of projections, would bring FDI back to the 2019 level.

“Prospects are highly uncertain and will depend on, among other factors, the pace of economic recovery and the possibility of pandemic relapses, the potential impact on FDI of recovery spending packages, and policy pressures,” it concluded.