Back to TOC
C. INVESTMENT (LEGAL ENVIRONMENT) AND ODA FLOWS

Investment in 2002 amounted to USD 12.2 billion representing 34% of GDP and a 13.2 per cent growth over 2001. During 2002 the MPI has approved 700 new licenses of Foreign Direct Investment amounting to USD 1.4bn and 300 old projects have increased their capital of 918 million USD. The total FDI approved for the last year is therefore USD 2.3 billion, which represents a slight decrease with regard to the USD 2.5 billion of year 2001.The FDI disbursed has slipped by almost 50 per cent. The factor that explains the overall growth is the surge in domestic investment.

Industrial and construction sectors absorbed 64.5 per cent of FDI disbursement, with another 29.5 per cent going to the service sector. Despite the importance and potential of the agriculture, fishery and aquaculture sectors in Vietnam, FDI disbursement in these areas was only 6 percent.

Investment by sector 2002


Figure C.1 – Investment by sector 2002 Source: MPI

Among the reasons for the FDI reduction are the slow-down of the Japanese and US economies and the difficult economic situation in regional countries which are major investors in Vietnam. However, the enormous growth in FDI in neighbouring country China and the competitive challenge China poses to ASEAN countries should push Vietnam into improving its investor environment.

In the ranking for the accumulative investment by country in Vietnam from 1988 to 2002, three EU countries are among the top ten: France (6th position), Netherlands (8th) and U.K. (10th).

Asian countries are the main investors in Vietnam. The US occupies the 4th position with 32 projects and 139 million USD. United Kingdom is the only EU country among the top ten investors in Vietnam in the year 2002.

Investment by country 2002

Country Amount (million USD) %
South Korea 247.8 18.5%
Taiwan 247.8 18.5%
Hong Kong 142.8 10.7%
United States 139.0 10.4%
Japan 90.0 6.8%
Malaysia 70.3 5.3%
British Virgin Islands 63.4 4.7%
China 59.8 4.5%
United Kingdom 50.0 3.8%
Thailand 40.5 3.0%

Table C.1 – Investment by Country 2002 Source: MPI

During 2002, Vietnam has promulgated the following FDI-related legal regulations.

With respect to investment:

- Decision 260/2002/QD-BKH, dated May 10th 2002, issued a list of sectors (agriculture, forestry and fishery; industries and processing; tourism, hotels and restaurants; transportation, warehousing and communication; scientific and technological activities; health care; education) in which foreign investors can purchase shares (up to 30 per cent of the chartered capital) of non-state-owned enterprises in accordance

with the Law on Promotion of Domestic Investment.

- Decree 59, dated June 4th 2002, simplifies the licensing process in some areas, such as decisions on approval of domestic technology transfer contracts and contracts for foreign technology transfer to Vietnam in respect of investment projects not funded by state-owned capital, advertising cosmetics directly affecting the health of human beings and advertising medicine.

With respect to foreign currency issue:

- Decision 61/2002/QD-Ttg, dated May 15 2002, lowered the percentage of foreign currency revenue from currency transaction, which is compulsory for enterprises to sell to banks (immediately upon transfer) from 40% to 30%.

With respect to labour laws:

- Amendments and additions to several articles of the Labour Code, dated April 2nd 2002: Foreign invested enterprises are allowed to freely recruit employees directly and collective labour agreements become effective either from the date agreed on by the parties as stated in the agreement or from the date of signing and are no longer required to be registered at the provincial labour office.

- The decrease of FDI flow into the country could make it impossible to reach the government’s target of achieving USD 12-13 billion of FDI during 2001-2005. The above mentioned legal changes are positive, but more may be needed in order to lure FDI back.

OFFICIAL DEVELOPMENT ASSISTANCE (ODA)

According to the Ministry of Planning and Investment (MPI) in 2002 ODA disbursements were USD 1.6 billion, bringing the cumulative disbursements since 1993 to USD 16.3 billion. Commitments were USD2.460 million, a 4.4% increase since 2001.

Infrastructure was the main recipient sector in 2001, absorbing USD 568 million (42%). During the same period, the transport sub-sector received 22% of the total, followed by the energy sector with USD 165 million. Japan and the World Bank provided 80%-90% of the funds in these sectors. Rural development received about USD 220 million and human resources development USD183 million. Overall, the sectorial distribution is expected to be similar in 2002.

In 2002, disbursements have accounted for approximately 64% of total ODA commitments, while only 55% of the cumulative commitments since 1993 have been disbursed. The recent increase in the disbursement rate could be due either to a more efficient management of funds or, more probably, to the introduction of general quick disbursing assistance, which reached 19% of total ODA in 2001 (USD 258 million). The World Bank’s PRSC has committed USD 260 million for 2001 and 2002, while the IMF’s PRGF has disbursed in 2001 USD105 million from the USD368 million committed from 2001 to 2004.


Figure C.2 – ODA – Commitment and disbursement Source: MPI

Japan was the most prominent donor in 2002 with USD 738 million (31.3%) committed, followed by the World Bank (29.7%), and the EU (17.5%); among EU countries, France was the main donour with 22.0% of EU commitments, followed by Denmark with 16%, and Germany with 12.1%.

 

Back to TOC