Which Sectors is FDI Channelled into?

According to statistics of the Foreign Investment Agency, Ministry of Planning and Investment, the investment attraction in 2016 had a bright side. Specifically, the total registered FDI capital of the new projects, additional funded projects in 2016 reached more than US$24.3 billion, up 7.1 percent compared to 2015. In particular, disbursed FDI in 2016 was estimated at US$15.8 billion, increasing by 9 percent compared to last year, the highest FDI disbursement ever. The result will be a crucial step for FDI inflows to continue to come to Vietnam.

Direct FDI inflows into agriculture

Agriculture has long been regarded as the mainstay industry helping the whole economy whenever the country faces economic instability. But sadly, the attraction of foreign investment in this sector is not high. Thus, to improve the situation, the Ministry of Agriculture and Rural Development (MARD) has drafted a decree on attracting FDI inflows with the motto “attracting FDI in agriculture is a strategic task of Vietnam’s agriculture in 2017”.

The FDI flow into the sector is still only dripping. Specifically, in the first 11 months of 2016, the sector attracted nearly 550 FDI projects, with a total investment of nearly US$4 billion, accounting for 2.4 percent of the projects and 1.2 percent of the total investment in all sectors. The average size of capital of FDI projects in agriculture is at about US$6.7 million/project. Statistics indicate that the share of FDI in the agricultural sector is still rising slightly, by 0.6 percent in 2012, 0.8 percent in 2013, 0.5 percent in 2014, 1 percent in 2015 and 1.2 percent in 2016. However, overall, the total FDI in agriculture accounted for a very small proportion of total investment capital compared with the potential of the Vietnam’s agriculture sector.

However, according to many economic experts, agriculture remains one of the sectors with great potential and advantages for attracting FDI into Vietnam. According to Mr Tran Kim Long, Director of Department of International Cooperation (MARD), there is a reality that the distribution of capital flows into the agricultural sector is not even, still mainly focused on areas such as processing wood and wood products, livestock and feed processing. Meanwhile, FDI inflows into the fields of processing of agricultural products and fisheries are very limited. Accordingly, the agriculture has proposed several measures to improve the quality of FDI, but for various reasons, the results have yet to meet expectations, Mr Long said.

The agricultural sector of Vietnam has been determined to have strategies to further attract FDI, targeting US$5 billion in 2020 and US$8 billion in 2030. The priority agricultural areas include production and development of plant varieties and animal breeds; auxiliary materials manufacturing to create high added value, production of animal feed, environmental treatment technology, breeding facilities manufacturing; processing of agricultural, forestry and fisheries to produce products with scientific and technological content and high added value; create mechanisms for FDI enterprises to produce veterinary drugs and biological pesticides.

FDI continues to flow into real estate

According to the calculations of experts, FDI poured into Vietnam’s real estate sector accounted for only about 5 percent in 2016. The real estate sector ranked No. 2 in the list of FDI attraction with more than US$1 billion. According to the Foreign Investment Agency, foreign investors who are interested in Vietnamese real estate market include those from Korea and Japan, followed by Singapore and Taiwan. It is noteworthy that the current foreign investors are also very quick to seize the market, not only in investing in small-scale projects but also in industrial parks. Typical are Becamex IDC with the 4,600 ha industrial park in Binh Duong province, 750-ha Vietnam – Singapore Industrial Park in Nghe An. This is considered a strategic direction of FDI inflows into Vietnam.

While investment in condos and the affordable housing segment seem saturated and less competitive, investors pour capital into industrial real estate. Report of Vietnam Savills said during the first 6 months of 2016, the country had 6 new industrial parks, providing additional leasable area of 700 hectares. Generally, the country has 218 industrial parks in operation with a total area of nearly 60,000 ha, offering 41,000 hectares of land for lease. But according to all major programmes of the Government, land for industrial parks and export processing zones will increase to 65,000 hectares in 2017 and 80,000 hectares in 2020. In 2017, it is expected to build new and renovate 113 industrial parks and expand 27 old industrial parks. The new area will be focused on building in Binh Phuoc, Tay Ninh and Dong Nai.

Tran Ngoc Quang, Secretary General of Vietnam Real Estate Association, forecast a positive sign in the segment of industrial real estate. The current demand for accommodation for workers in industrial parks is very urgent when there are more than 300 industrial parks which employ more than 3 million workers. However, we should not be overhasty. Vietnamese real estate market should have a roadmap. In particular, with the characteristics of the industrial real estate investment, the government and investors need to solve two fundamental tasks which are improving the quality of planning and ensuring consistency in the construction, Mr Quang said.

Anh Phuong