OVERVIEW OF FDI IN-FLOW INTO VIETNAM (1988 – 2006)

 However, the number of registered FDI has soared up since 1992, reaching a peak in 1996 with the total registered capital as high as USD 8.6 billion. This robust increase was backed by a number of reasons. Foreign investors were attracted by the potentiality of a transitional economy with a great market remaining untapped. They were also attracted by a series of other positive factors such as the abundant labour force, cheap labour cost and high literacy rate.

In addition to such internal factors, there were external ones contributing to the increase of FDI inflow. The first was the capital flow into the emerging markets in the 1980s and early 1990s, of which the South East Asia was a key FDI recipient. In 1990, South East Asian countries attracted 36% the total FDI invested in developing countries. The second was the foreign capital flow into the transitional economies of former socialist sector where new business opportunities and great profit were expected. Thirdly, such regional countries with stronger economies as Malaysia, Singapore, Thailand, etc have begun to export capital. Being a transitional economy in the South East Asia, Viet Nam has been benefited from these factors [1].

From 1991-1996, FDI played an important part in financing Vietnam’s current account deficit and contributed significantly to the nation’s balance of international payment.

From 1997-1999, Viet Nam experienced a downfall of registered FDI source, particularly 49% in 1997, 16% in 1998 and 59% in 1999, partly due to the Asian financial crisis. The five major investors into Vietnam were all from Asia and they themselves had to face difficulties in their own countries. To maintain the business operations in their local country, these investors had to postpone or cancel overseas expansion plans. The crisis also made investors lower their expansion criteria into Asian market and led to the devaluation of the currencies of South East Asian countries. Vietnam, therefore, became less attractive to export-oriented projects. Moreover, foreign investors also realized the exaggeration in the market demand projections as well as the barriers to business which then turned apparent.

From 2000-2002: The value of registered FDI increased again with 25.8% in 2000, with 22.6% in 2001, but that was still less than two thirds of 1996. Such an increase resulted from the South Con Son pipeline project (2000) with total investment capital of USD 2.43 billion, and Phu My BOT project (2001) with total investment capital of USD 0.8 billion. In 2002, the value of registered FDI fell to about USD 1.4 billion, as low as 54.5% of 2001.

There were many reasons leading to the reduction of FDI with the first being the downfall of the global economy after the break-up of the high-tech bubble in the USA together with the prolonged crisis in Japan which seriously affected Asian countries.

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[1] Nick J. Freeman: (Foreign Direct Investment in Vietnam: An Overview), presented at DFID conference about globalization and poverty situation in Viet Nam, September, 2002.