Vietnam at risk of drawing low-quality foreign investment

Foreign investors are now becoming conservative, and so countries with low levels of skilled labor, technological and financial capacity and infrastructure quality like Vietnam could attract projects that involve simple processing and assembling and low added value, it said in a report released on October 25.

In the report, which is about European investment in Vietnam amid the implementation of the EU-Vietnam Free Trade Agreement and the EU-Vietnam Investment Protection Agreement, VEPR said Vietnam has a great opportunity to attract FDI from the EU because of the “China + 1” strategy adopted by foreign companies and the quick signing of the trade deal.

However, it warned that the global economic recession and geopolitical instability could make investors, including European, apprehensive.

With investors becoming cautious about investing abroad, competition among countries to attracting FDI would become fiercer, the VEPR said.

In recent years the number and value of projects by European investors in Vietnam have increased, but they still account for a small proportion, ranging from 2-5%, of the EU’s total outward investment, it said.

Besides, the report pointed out most of their projects in Vietnam are small and not in fields the EU generally invests in other Southeast Asian countries.

The digital transformation process too could reduce the EU’s investment in Vietnam, it said.

Foreign investors used to prefer Vietnam to tap its cheap labor and natural resources, but now, amid the technological revolution, they are focusing on knowledge and technology, two areas in which Vietnam is weak, it said, pointing to the country’s shortcomings in terms of skilled labor, technological and financial capacity and infrastructure quality.

These threaten to make Vietnam a destination for low-quality FDI projects, making it fall into the simple processing and assembly cycle and place it in a disadvantageous position in the global supply chain, VEPR concluded.