FDI sector plays crucial role in Vietnam’s economic growth

HANOI ­(Viet Nam News/ANN) - Vietnam’s economy grew at 6.71 per cent in the second quarter of 2019, down from 6.79 per cent in the first quarter.

The finding was presented in a macroeconomic report released on Thursday by the Institute for Economic and Policy Studies (VEPR).

VEPR predicted growth would accelerate in the third quarter and then reach 7.17 per cent the last quarter to hit the Government’s target of 6.6 to 6.8 per cent for the full year.

According to the report, in six first months of the year, social investment reached VND822.9 trillion (US$35.4 billion), up 10.3 per cent compared to the same period in 2018.

VEPR Director Nguyen Duc Thanh said that despite the expectation that the US-China trade war would stimulate the flow of capital into the country, the inflow had not really happened.

The 9.7 per cent rise in FDI, compared to 8.5 per cent in the same period last year, still lagged behind the investment poured into the non-state sector.

However, the FDI sector still played a crucial role in economic growth through exports.

More than 1,700 new FDI projects were licensed in the first half of 2019 with total registered capital of about $7.4 billion, down 37.2 per cent from last year.

The manufacturing and processing sector attracted 73.4 per cent of the newly registered capital.

China was still Vietnam’s biggest investor with the newly registered capital of more than $1.6 billion, followed by South Korea, Japan and Hong Kong.

“However, without a serious selection, FDI enterprises from China may bring potential risks of outdated technologies, negative environmental impacts and working conditions," said Thanh. "This will adversely affect Vietnam’s institutional reforms as it signs new-generation FTAs."

To meet the requirements and take advantage of the EVFTA (EU – Vietnam Free Trade Agreement), which was signed in late June, the report urged the Government to reassess incentives for FDI enterprises – including taxes and land rent reductions – to give them equal standing with domestic firms and ensure the quality of FDI.

Vietnam is expected to face both challenges and opportunities after joining EVFTA, which requires the country to improve labour conditions, environmental standards and intellectual property rights.

In the second quarter, some 38,000 companies were established, creating more than 330,000 new jobs.

The exchange rate of VND to USD in commercial banks fluctuated widely during the quarter and increased significantly in May.

According to finance expert Can Van Luc, the exchange is becoming more stable thanks to flexible mechanisms from the State Bank of Việt Nam and strengthened foreign exchange resources. The exchange rate is only expected to fluctuate within a band of 1.5 to 2 per cent from now until the end of the year.

Inflation rose to 2.65 per cent, the lowest level in the last three years. However, it is predicted to increase in the near future following increases in food prices, education-related expenses and fluctuating energy prices.