Promoting FDI disbursement

ABO/NDO – Despite a slight decrease in the foreign direct investment (FDI) into Vietnam in 2018 (equivalent to 98.8% of FDI in 2017), FDI disbursement increased by 9.1%, reachingUS$19.1 billion, the highest disbursement rate in the 30 years of FDI attraction. This is also the sixth consecutive year in which FDI disbursement in the following year has broken the previous year's record, shortening the gap between registered capital and implemented capital. The total disbursed FDI capital in the past five years was 1.5 times higher than the previous 25-year period.

The total disbursed FDI capital in the past five years was 1.5 times higher than the previous 25-year period. (illustrative image)

FDI disbursement set a new record in the context of declining registered capital for the first time since 2015, demonstrating the changes in FDI attraction from quantity to quality, towards more selective projects and strategic investors with long-term investment strategy in Vietnam. Notably, many foreign investors commenced their projects immediately after receiving an investment certificate.

For example, an investor from the Republic of Korean began construction of a series of six factories in the field of supporting industries and industrial services at the Dung Quat Economic Zone in Quang Ngai province on August 22, 2018, after less than three weeks of receiving an investment certificate.These are good signs concerning the investment and business environment in Vietnam.

 

FDI is an important additional source of capital for development investment in Vietnam, contributing to changing the national economy, fueling growth, and creating jobs and incomes for workers.

 

Although it is a bright spot of FDI attraction in the region and the world, Vietnam needs to solve the problem of promoting disbursement of committed FDI. Because the quality and efficiency of FDI inflows are not reflected in the total registered capital but the disbursement, which means the real cash flow into Vietnam. This is also a factor to properly evaluate the effectiveness of foreign investment activities, while showing the confidence of investors in the Vietnamese business environment.

 

However, the average disbursement rate of Vietnam only reaches approximately 40% of the total registered capital. The slow disbursement is due to both objective and subjective reasons, including inadequacies from the internal economy, and the weak capacity of localities and administrative procedures, among others.

 

To continue to improve the quality of FDI inflows, Vietnam is developing a strategy to attract FDI in the new period. Accordingly, the country will deploy solutions to attracting-tech projects, leading global investors who hold source technology with modern management capacity and strengthening the links between FDI enterprises and domestic enterprises, among others.

 

From the experience of 30 years of FDI attraction, economic experts recommend that Vietnam should supplement its regulations on the supervision of the implementation of FDI projects in order to shorten the gap between registered capital and disbursed capital. The country can draw specific criteria and requirements on the capacity, experience, and financial capacity of investors to ensure transparency and attract effective projects. Meanwhile, there should be detailed regulations on the duration of capital contribution of FDI projects so that investors will disburse capital according to their registration and others.