Incesstantly rapid increase in foreign capital
In 2004, Vietnam attracted a remarkable amount of foreign capital from foreign direct investment (FDI), exports, official development assistance (ODA), remittances of overseas Vietnamese and from foreign currencies - charged services. Last year, there were increasingly fierce competition among countries in South East Asia, developing and developed nations in different regions for investment capital ,competition for access to major import markets such as the United States, Europe, China and Japan and expand export into other markets. Countries also tried to increase their competitive edge, liberalize their markets through joining international organizations like World Trade Organization, signing bilateral and regional agreements with major partners. In that context, Vietnam's achievements in foreign capital attraction were significant beyond the national scope as they were closely watched by the community of foreign investors, donors y, international banks and major economic organizations. Her success in economic reform and stabilization of the people's livelihood constitutes a premise for consolidated trust of investors and donors countries so that they would increase inflows of investment and aid for Vietnam by investor and donor community as they did for Brazil, Mexico, Hong Kong, Poland and China.
Foreign investment. In the past years, while there has been significant change in the trend of global investment flows with China being the recipient of the majority of foreign investment inflows to the region, Southeast Asian nations were also destination for foreign investors to diversify of their capital assets. Vietnam succeeded in maintaining a stable political environment, building a legal corridor conducive to foreign investment, including preferential treatments in terms of taxes, land, service costs, corporate profit transfer, joint-venture establishment and trading in security markets' at the same time opening some sectors for foreign investors and increasing the ratio of foreign capital in joint ventures. These helped bolster the activeness of investors and their profits in the past year.
Foreign investment recorded a relatively high growth rate in 2004 (with 2.9 billion of 2003). In 2004, about 700 foreign-invested projects were licensed with the registered capital of over USD 2 billion, plus another USD 2 billion from expanded projects in Vietnam.
In early 2005, according to the Insight into Business Environment Survey - conducted by the MPI targeting foreign and domestic investors, the businessmen community appreciated the prospects for 2005 business as compared to the previous year and 80% of the surveyed planned to expand business in the next three years. The reasons for the hesitation of the rest 20% were poor performance in law enforcement and disadvantages in taxation.
Responding to expectations of foreign investors, necessary reforms have been put in place to create a level playing field for investors from Japan, US, Europe, Singapore, Taiwan and ROK's for domestic enterprises, now it is the time for them to test their competitiveness and survival capability to exist in the business field in terms of investment capital, technology, corporate governance and socio-economic efficiency. In 2004, the foreign-invested sector grew by 20% as compared to the year earlier with the total income of about USD 18 billion. 200 new foreign-owned enterprises created about 70,000 jobs.
To improve business and investment environment, on 14 Jan 2005 the Government released the Resolution numbered 01/2005/NQ-CP , which introduced clusters of major solutions including the enforcement of Land Law, the promulgation of an unified Enterprise Law, a common Investment Law, and market opening with a view to attracting an estimated sum of USD 4.2 billion to 4.billion of FDI.
According to the Resolution, foreign investment attraction should not only mean establishing an investment environment conducive to foreign investors but also aims to give the economy an impetus to raise its competitiveness and ensure the combination of business productivity with social benefits.
Vietnam's increasingly expanded trade relations have contributed to raising export value of the entire economy. More remarkably, returns from exportation are being spent on further investment in the economy.
In the past three years, importers of Vietnam were mainly from North-East Asia, EU, ASEAN and the US. Entering the year 2004, markets for exports were diversified remarkably. Exports to China recorded a 60% growth rate with a value of over USD 2 billion, to United Arab Emirates and Iraq with a growth rate of 40%. African countries have become the second largest imported market for Vietnamese rice after Asia.
Therefore, export turnover increased rapidly. In 2004, export value was estimated at USD 26 billion, grew by about 29% as compared to 2003, with 17 items whose export value individually exceeded USD 100 million ;six export items valued over USD 1 billion, including oil, textile and garments, footwear, seafood, wooden products, electrical and electronic products. Apart from light-industrial and agricultural products, Vietnam now has two new items of high export value, namely electronic products and computer components. To achieve such a high export value, Vietnam annually imports a large volume of products, mainly machinery and inputs for production from developed countries. For instance, while textile and footwear export revenue in 2004 reached USD 7 billion, imported inputs in these fields peaked at about USD 5 billion. Imported electronic spare-parts valued for more than 100% of export turnover in this field (because a proportion of imported spare-parts is used in manufacture for domestic consumption). Greater import expense means less added value of some export items.
Though merchandise export growth remains unsustainable, it has made important contribution to GDP and assumed a pivotal role in the economy. Export value made up for about 40% of GDP in 2001, 50% in 2003 and more than 50% in 2004.
To ensure that export will enjoy a sustainable growth and balanced development and remain stable against pressure in terms of price and quality on export items following the opening of the domestic market to ASEAN countries and later to WTO members (if Vietnam is to join the organization by the end of 2005), and to encourage and increase export performance of foreign enterprises, SOEs and private enterprises, the State needs to focus on providing the most favorable infrastructure conditions to business activities while all enterprises including SOEs are required to take proactive steps in compliance with the laws of the market economy, legislation of the host countries and common regulations of the regional and international economies.
Official development assistance.
Vietnam is still in a group of recipient countries of foreign aid. In 2004, the donors commitments for Vietnam mounted to USD 3.4 billion as compared to USD 2.7 billion in 2003. According to Organization for Economic Cooperation and Development, Vietnam is one of the 10 world largest ODA recipients. Infrastructure construction is the leading area in absorbing ODA, which claimed 6 out of 10 largest ODA projects.
However, loans made up of the majority of the total ODA, up to 67%. And the amount of disbursements in the past 11 years was just half of the commitments. Some of Vietnam's first debts were due in 2004.The proportion of the total government debts out of GDP rose to 39%, debt services accounted for 9.9% of export revenue and 6% of the total budget revenue. Though ODA is a valuable source of capital, we should be mindful of its adverse effect to ensure proper investment and avoid wastefulness.
Achievements in spending ODA on PR&HE and sustainable development in Vietnam in 2004 show that it is using ODA effectively. Rural and infrastructure development projects on a year on year basis help improve local living standards, production capacity and contribute to promoting development and competitiveness of the economy.
Remittances and foreign currency-charged services.
Beside FDI, export earnings and ODA, remittances constitute a no less important resource. Overseas Vietnamese constitute an integral part of the nation. Resources from the Vietnamese nationals community remain enormous, vividly illustrated by the amount of remittances sent home every year and the number of enterprises financed by overseas Vietnamese nationals. From 1991 to 2004, remittances grew by 10% annually. The amount of remittances reached only USD 31 million in 1991, USD 300 million in 1995, over USD 1 billion in 1999, USD 2.6 billion in 2003 and totaled USD 3 billion in 2004. By 2020, it is estimated that remittances can reach USD 5 billion. Small and medium-sized enterprises owned by overseas Vietnamese nationals are found in various fields. Numerous workshops with the participation of overseas Vietnamese businessmen, and meetings of Associations of Overseas Vietnamese have contributed to intensifying the linkage of overseas Vietnamese nationals with the mother land. Those Vietnamese nationals making great contribution to the nation are being offered numerous preferential treatments and encouraged to expand their business in Vietnam. This consistent policy of the State is being realized at both central and local levels.
Together with the capital source from remittances, those from services such as tourism and transportation also saw a rapid increase and they directly flowed to the services providers. These enterprises, in turn, make their contribution to the state budget through tax payments..
In sum in 2004, foreign capital contributed an amount of USD 37 billion to the State budget. Budget expenditures met the requirements of socio-economic tasks as planned.
Attracting external resources including capital, technology, governance skills, foreign currencies and aid has become a part of the strategy on the implementation of socio-economic development tasks aimed at ensuring that by 2010 Vietnam will have become a modern and industrialized country and maintaining a peaceful, secure and stable environment for the country. To this end, Vietnam is striving to be a link in the world economic chain. However, while somewhat relying on foreign capital, technology and markets for its development, Vietnam needs to stand on her feet, counting on domestic resources and building adequate internal strength./.
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