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FDI bites into trade deficit
A rise in foreign direct investment inflows is set to eat into Vietnam’s sizeable trade deficit.
The Ministry of Planning and Investment’s Foreign Investment Agency (FIA) data indicated that disbursed foreign direct investment (FDI) capital in the country during the year’s first four months hit $3.6 billion, a 6 per cent rise year-on-year.
The FIA reports emphasised that FDI disbursements had exceeded $1 billion during the past two consecutive months. “This is a very promising sign for the country, coupled with a distinct regain of the country’s principle FDI contributions in industrial and manufacturing sectors,” said the FIA report.
Between January and April, the country’s newly registered and expanded FDI capital reached $5.92 billion, including $5.59 billion from 263 new FDI projects with a 58.5 per cent increase in value.
Among those, American AES and Vietnamese coal and mining conglomerate Vinacomin’s $2.1 billion, 1,200 megawatt coal-fired power plant in the northern Quang Ninh province and Japan’s Kobelco Vietnam’s $1 billion iron nuggets-making facility in the central Nghe An province are the largest FDI projects for the last four months.
The steel mill licenced in March and the power plant licenced in April helped bring the industrial and manufacturing sectors back the top list of Vietnam’s FDI contributors, followed by property, which had dominated the FDI list since early 2009.
“We are expecting that more FDI will come in from foreign-invested power projects by the end of the year, some of which are now under negotiations and expected to be licenced soon,” said an FIA official.
Prakriti Sofat, vice president of Barclays Capital said Vietnam’s low manufacturing costs and sizeable population remained attractive factors for foreign investors coming to the country.
Sofat suggested that Vietnam could take full advantage of its stable political environment to win over foreign investors in the process of deciding where to invest.
“Clearly, Thailand has been seen a lot of political upheavals so Vietnam has in some sense been gaining some of Thailand’s shares in FDI. For 2010, we expect Vietnam’s FDI disbursements of $11 billion and remittances inflows to be $7 billion, which should more than cover the annual trade deficit,” said Sofat, who forecast Vietnam’s trade deficit at around $11 billion for this year.
Standard Chartered Bank’s quarterly report on Vietnam’s economy is also upbeat on Vietnam’s FDI potential. “The trade deficit reached $3.5 billion in the first quarter of 2010, broadly in line with our full-year forecast of up to $15 billion. More importantly, disbursed FDI rose by 13.6 per cent year on year to $2.5 billion in the first quarter, which will further alleviate concerns about the balance of payments,” said the Standard Chartered report.
At the end of April this year, Vietnam had 11,523 FDI projects worth $185 billion in registered capital, more than half of which came from industrial and manufacturing sectors.
At the time of the FIA’s April reports, South Korea was the biggest foreign investor in Vietnam with 2,495 projects worth $21.9 billion, followed by Taiwan with 2,087 projects ($21.6 billion) and Japan with 1,211 projects ($19.3 billion).
In the first four months of the year, foreign-invested enterprises’ (FIEs) export values including crude oil rose 31.9 per cent on year to $11.25 billion, against $20.1 billion of Vietnam’s total exports. FIEs’ import values increased by 55.6 per cent to $10.24 billion.
vietnamnet, VIR
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