Embracing EVFTA, EVIPA to attract more EU investors

EU investment in Vietnam is still modest

Addressing the workshop "FDI flows from the EU to Vietnam in the context of EVFTA and EVIPA", Dr. Nguyen Thi Thanh Mai from Hanoi National University said, as of August 2022, 25 EU countries invested US$27.59 billion in Vietnam in 2,378 projects.

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However, Mr. Nguyen Chien Thang, Director of the Institute for European Studies, said the scale of EU investment projects is still small. The quality of the EU’s FDI projects in Vietnam is still low. In terms of capital, the EU’s FDI into Vietnam accounts for less than 6.41% of the total capital attracted by Vietnam.

In terms of projects, it only accounts for about 6.69%. This is a very small percentage compared to the potential of cooperation between Vietnam and the EU. In particular, according to statistics from Eurostat and the General Statistics Office, the proportion of investment in Vietnam only ranges from 2-5% of the total FDI capital allocated by the EU in the world.

The EU’s FDI projects in Vietnam focus mainly on the manufacturing and processing industry. EU enterprises have invested in 18 out of 21 industries in the national economic sub-sector system in Vietnam. Three main industries include the processing and manufacturing industry; electricity production and distribution and real estate business. Recently, EU businesses tend to be interested in service industries such as logistics, post and telecommunications, finance, offices for rent, retail, clean energy, supporting industries, food processing, and high-tech agriculture.

Ms. Hoang Thi Hong Van, Head of the External Relations Department (EuroCham Vietnam), said too high logistics cost is also a main obstacle. Labor and infrastructure are also among many issues that need to be improved.

Dr. Nguyen Thi Vu Ha from the University of Economics under Hanoi National University expressed her concern that Vietnam might potentially become a destination for low-quality FDI projects.

“Vietnam may be deeply trapped in the processing and assembly trap and in a disadvantageous position in the global supply chain due to its low level of technology and low quality of labor. At the same time, the lack of strict environmental regulations effects project's capacity to manage and monitor environmental impacts," said Ms. Ha.

More competition to attract FDI

The implementation of the EVFTA and EVIPA is of great significance to attract FDI flows from the EU to Vietnam as the former is currently Vietnam’s potential and big economic partner. EVFTA is a new-generation FTA with commitments beyond tariff elimination. EVFTA is expected to bring opportunities for Vietnam to attract high-quality FDI through institutional, policy and investment environmental reforms.

The EVFTA is expected to promote the next wave of FTAs into Vietnam and also help improve the quality of FDI projects. This is consistent with Vietnam's orientation in Resolution 50-NQ/TW of the Government on attracting high-quality FDI.

However, the implementation of the EVFTA and EVIPA also brings Vietnam many challenges in attracting investment from EU businesses, especially in the new context of the world economy in general and the EU economy having many current volatilities.

In particular, the advantages that EVFTA brings are only short-term, especially when the main competitors in ASEAN are competing with Vietnam in attracting FDI from the EU, such as Thailand, Indonesia, and Malaysia; while the EU is aiming for a common FTA with the whole ASEAN region. In addition, the implementation of this agreement also leads to pressures and costs related to institutional and policy reforms, or even reduces FDI flows to Vietnam, especially in the context of declining global FDI flows.

In the report “FDI flows from the EU to Vietnam in the context of EVFTA and EVIPA," the Hanoi National University research team proposed a solution package to enhance the efficiency of attracting this capital in the coming time, including strengthening research, propaganda and dissemination on EVFTA and EVIPA; improving institutional reforms; improving the quality of the business and investment environment; improving the types of consulting services and facilitate investment; focusing on training human resources; and improving the quality of infrastructure.