Patterns and solutions for fdi capital investment in Ha Noi: principal theory of practice

155 HNUE JOURNAL OF SCIENCE DOI: 10.18173/2354-1067.2019-0076 Social Sciences, 2019, Volume 64, Issue 11, pp. 155-164 This paper is available online at PATTERNS AND SOLUTIONS FOR FDI CAPITAL INVESTMENT IN HANOI: PRINCIPAL THEORY OF PRACTICE Ngo Thuy Quynh National Academy of Public Administration Abstract. FDI attraction in Hanoi has achieved some results but has not created a breakthrough factor for the economy in the long run. Specially, Hanoi has potentials and advantages in compared with many other localities but has not attracted large FDI projects using high technology. Thus, effective FDI is still limited, no attraction, spreading to the whole economy of the city. The questions of what to do and how to attract FDI capital are raised in order to achieve better results, and higher efficiency to create a big change for the city. This article provides an assessment of the situation and suggests ideas that contribute to the clarification of such issues. Keywords: FDI capital, efficiency, ASEAN economic community, competition, strategic investors. 1. Introduction Although Hanoi has made much progress than many localities in the country, it has shown many inadequacies. Accordingly, the contribution to the national GDP is about 10%, the contribution to state budget revenue of the new country is barely 18%. It is not worthy of one of the big economic ships Ho Chi Minh City and Hanoi (while Ho Chi Minh City contributes about 26-27% of GDP and national budget revenues). There could be many causes of this situation, but the attraction of FDI has not been successful and not effective. It is supposed that discussing the development of Hanoi must have new ideas and strategies. Facing this situation, the article would like to present some ideas on FDI attraction in Hanoi to increase its role as a leading country in the Vietnamese economy and increase the GRDP per capital city. 2. Content 2.1. FDI attraction in Hanoi Attracting FDI capital of the whole country in general and in Hanoi in particular is still inadequate and needs to discuss. State management offices and heads of state offices Received July 17, 2019. Revised September 5, 2019. Accepted October 2, 2019. Contact Ngo Thuy Quynh, e-mail address: ngothuyquynhapd@gmail.com Ngo Thuy Quynh 156 in Hanoi and Vietnam are responsible for this. For a systematic analysis of the author of the paper, some of the important points are described below: 2.1.1. FDI attraction in Vietnam The United States considers to be the world's leading technology, however, its rank in terms of registered FDI in Vietnam is only seventh. Korea, Japan are the leading countries that hold the source technology always in the first and second place in investing FDI in Vietnam. FDI capital from ASEAN countries accounted for 26% of total FDI into Vietnam. The fact that ASEAN countries usually have only medium or advanced technology; so with such rate the technology of FDI projects in Vietnam seems to be not high [9]. Although there are no official surveys, according to some economic experts, only about 20% of foreign invested enterprises has got advanced technology whereas the remains have medium and low technology. Nevertheless, FDI enterprises have created about 70% of the value of Vietnam's exports. This proves that FDI enterprises are still able to compete internationally. One of the most worrying things is how FDI enterprises may damage the economy of Vietnam through transfer pricing and by environmental pollution without any agency to analyze and evaluate. Table 1. FDI attraction from countries entering Vietnam Accumulated until December 31, 2017 (valid project) Country and territory Number of projects Registered capital up to 2017 Project % of Total Tr USD % of Total In the whole country 24803 100 234.121 100 1. Korea 6549 26,4 57861 24,7 2. Japan 3607 14,5 49307 21,1 3. Singapore 1973 8,0 42540 18,2 4. Taiwan 2534 10,2 30867 13,2 5. Hong Kong 1284 5,2 17934 7,7 6. People's Republic of China 1817 7,3 12023 5,1 7. United States 861 3,5 9894 4,2 8. Thailand 489 2,0 9289 3,9 9. England 318 1,3 3465 1,9 10. Cay-men Island 293 1,2 1759 0,8 Source: Statistical Yearbook 2013, GSO Since 1988, when Vietnam started attracting FDI, Vietnam attracted an average of US $12.6 billion registered capital per year, but its capital was only US $5.7 billion per year. Compared with the amount of the remittances Vietnam received annually from Vietnamese living abroad, the figure was US $5.7 billion a year. Thus, the effective use of remittances was an extremely important issue for Vietnam. Patterns and solutions for FDI Capital investment in Hanoi: principal theory of practice 157 By 2017, the Asean region had 3400 FDI projects in force with a total registered capital of $53.87 billion. On average of US $19.5 million/ project. Singapore led with 1,973 projects with total investment capital of US $42.5 billion, accounting for 78,9% of total registered capital. Malaysia ranked the second with 572 projects with total investment capital of US $12.2 billion, accounting for 23,8% of total investment. Thailand ranked the third with 488 projects with a total registered capital of US $9.3 billion, accounting for 17,2% of total FDI inflows into Vietnam. FDI capital in ASEAN is concentrated mostly in the field of real estate business (accounting for 30% of registered capital), followed by manufacturing (24,2% of registered capital), services, food, accommodation (12,8%) and telecommunications services (11,4%). Other fields account for only 1% of the total registered capital. Table 2. Top FDI capital attracted in 10 localities Number of projects in force until 2017 Registered capital until 2017 Total number of projects Average per capita of project, Tr. USD Billion USD % of the country 1. Ho Chi Minh 7333 6,0 43879 13,7 2. Binh Duong 3305 9,2 30339 9,5 3. Hanoi 4500 6,1 27638 6,6 4. Dong Nai 1472 18,5 27349 8,5 5. Ba Ria - Vung Tau 363 73,9 26838 8,4 6. Hai Phong 606 25,11 15209 4,7 7. Thanh Hoa 102 135,4 13819 4,3 8. Ha Tinh 62 187,3 11613 3,6 9. Quang Nam 84 59,6 5816 1,8 10. Phu Yen 57 140,9 4969 1,6 Source: Statistical Yearbook 2017, GSO FDI in Vietnam from ASEAN countries accounted for approximately 22% of total capital from all countries in the world (Singapore alone accounted for 12,7%). FDI from Northeast Asia accounts for 48%; followed by European countries accounted for about 22,2% and from the United States and Canada accounted for about 6,6%. Projects coming from ASEAN countries are mainly producing consumer goods and focus on trade and services. 2.1.2. FDI attraction in Hanoi Hanoi ranked third of the top 10 FDI attracting countries. The average capital of each project is about $ 6 million and an average of $ 7-8 million per hectare (while in Ho Chi Minh City, an average of $ 6 million per project and an average of about 12-13 USD / 1 ha). In case of Hanoi in particular and the Red River Delta in general, the land is narrow. Thus, the land saving and efficient use of land are strategic issues. Ngo Thuy Quynh 158 Table 3. Foreign direct investment (FDI) is valid Accumulated until 2017 of Hanoi Country and territory Number of projects Registered capital Accumulated capital Project % of total Project % of total Million dollars % of total Whole city 4250 100 27640 100 19046 100 Inside: - Agriculture and fisheries 20 0,5 113 0,4 62 0,3 - Mining 3 0,07 27 0,1 21 0,1 - Manufacturing and processing industry 771 18,1 7729 27,9 5425 28,4 - Build 644 15,1 2080 7,5 1433 7,5 - Retail trade, car repair 755 17,8 1311 4,7 896 4,7 - Transportation, warehousing 116 2,7 376 1,4 267 1,4 - Catering services 208 4,9 1662 6,0 1154 6,1 - Information Communication 463 10,9 2010 7,3 1398 7,3 - Trading real estate 115 2,7 8302 30,0 5624 29,5 - Activities of science and technology 773 18,2 1002 3,6 897 4,7 - Education and training activities 136 3,2 310 1,1 214 1,1 - Activities of art, entertainment, 27 0,6 411 1,5 261 1,4 Source: Statistical Yearbook 2017, GSO According to statistics from Hanoi, in the period 1988-2017, on average, Hanoi attracted about USD 635 million implemented capital (69% of registered capital). Of the total FDI capital attracted, the processing, manufacturing and real estate industries accounted for 58%. Table 4. FDI capital attraction in Hanoi by country and territory (accumulated until 31/12/2017) Country territory Number of projects Registered capital Project % M. USD % Total 4250 100 27640 100 Singapore 320 7,5 5618 20,3 Patterns and solutions for FDI Capital investment in Hanoi: principal theory of practice 159 Japan 959 22,5 5385 19,5 South Korea 1440 33,9 5340 19,3 Malaysia 103 2,4 2031 7,3 Hong Kong 141 3,3 1129 4,1 Taiwan 147 3,4 435 1,6 Thailand 70 1,6 363 1,3 China 351 8,3 409 1,5 America 121 2,8 293 1,1 Indonesia 9 0,2 134 0,5 Source: Statistical Yearbook 2017, GSO By 2017, For example, if visitors came to Hanoi were about 13 million, of which, about 3 million were international visitors, they stayed about 4 days and if each of them spent about 1200 USD, Hanoi also exported on-site approximately $3.5 billion (equal to about 5.3 times the FDI capital per year), indicating an important aspect for Hanoi to pay attention to both attracting FDI and increasing local exports. 2.2. A brief look at the impact of the ASEAN economic community on Hanoi's FDI attraction orientation 2.2.1. There are quite large markets and the economy is growing rapidly ASEAN had a population of about 644 million in 2017 and will have about 700 million people by 2025, about 775 million people by 2050. This is a big market. If the GDP per capita is estimated at $10,000 by 2050 and the expenditure is about 60%, the total purchasing power of people has reached nearly $5 trillion a year. If Vietnam takes 10% of this category, it equals about $500 billion a year (it is about 2.5 times of Vietnam's current GDP; and if GDP growth rate in Vietnam is about 6% per year, it equals to 48% of Vietnam's GDP by 2050). In 1987, ASEAN countries signed the Agreement on Investment Promotion and Protection (IGA). In 1998, the ASEAN countries also signed a Framework Agreement on ASEAN Investment Area (AIA) to enhance FDI in these countries. By 2012, ASEAN countries signed the ASEAN Comprehensive Investment Agreement (ACIA) [2]. By December 31, 2015 the ASEAN countries became the ASEAN Economic Community. Thus, within 30 years, the trend towards liberalization of investment and economy in ASEAN region became reality. That's quite fast pace. Thus, country prepared well for the economic game would gain more benefits and minimize losses in economic exchanges. Vietnam, along with other ASEAN countries, built the Common Economic Community. Hence, it needed to take into account the possibility of cooperation and competitive pressure. If the population drop in Vietnam is 1.23 times faster than that of ASEAN and Vietnam's GDP is 1.33 times faster than that of ASEAN, by 2050 Vietnam will account for about 15% in term of the population and 12,6% in term of GDP. By Ngo Thuy Quynh 160 2050, Vietnam's GDP per person will be about 12,300 USD (equal to 82% of ASEAN average, equivalent to 12,300/14970 USD). Table 5. Forecast of population and GDP of ASEAN and Vietnam by 2050 Year VIET NAM ASEAN Comparing Vietnam with ASEAN, % Population, Million people growth 0.8%/year GDP growth 6% / year; Billion USD Populatio n, Million people growth 0.65%/ year GDP growth 4,5%/ year; Billion USD Population GDP 2017 93,7 205,3 644 2555 14,5 8,0 2025 98,6 343 676 3868 14,5 8,9 2040 110,5 821 734 7485 15,1 10,9 2050 119,6 1470 760 11600 15,7 12,6 Source: Author (The author has consulted Vietnam Report 2035 and Vietnam Socio-Economic Development Strategy for 2011-2020) 2.2.2. Competition among countries will be fiercer Differences in FDI legislation and development will also be a factor in the fierce competition among ASEAN countries in order to attract FDI. At the same time, China and India are also big competitors of ASEAN countries in attracting FDI, including Vietnam. The most developed countries in ASEAN will, of course, shift labor-intensive production to less developed countries, including Vietnam. In the early period, the scale of investment projects was conservative and most of the investment projects focused on industries, serving domestic consumption, commerce, hotels and tourism to exploit Vietnamese market and cheap labor. This situation will last for a number of years. It is important that localities in Vietnam jointly prepare conditions to attract high-tech manufacturing to form their key products. Table 6. Compile competitive pressures between Vietnam and ASEAN countries State Competitive group attracting FDI Competitive group consuming agricultural products Competitive group consuming industrial products, services, tourism 2016- 2020 Thailand, Indonesia, Philippines Thailand, Malaysia, Cambodia Thailand, Singapore, Malaysia After 2021 Thailand, Indonesia, Phillipine, Mianma, Laos, Cambodia Thailand, Malaysia, Cambodia, Myanmar Thailand, Singapore, Malaysia, Indonesia, Cambodia Source: Author Patterns and solutions for FDI Capital investment in Hanoi: principal theory of practice 161 The big difficulty of Vietnam is the high cost of production. The administrative procedures have not satisfied the requirements of transparency and publicity enough, although the Government has shown determination to solve problems to attract investors Strategic but limited FDI attraction. Indonesia, Thailand, the Philippines, India and China are still major competitors in attracting FDI. Table 7. Domestic cost of importers and exporters of some countries (USD/container) Country Export Costs Import Costs China 500 545 Malaysia 450 435 Hong Kong 575 565 Thailand 625 750 Indonesia 644 660 Vietnam 580 670 South Korea 680 695 India 1095 1150 Source: The World Bank (2011), Working for a free world 2.3. Orientations to attract FDI to Hanoi in the coming years 2.3.1. Strengths and difficulties of Hanoi in attracting FDI investors Labor force is abundant and labor price is still relatively cheap. In 2017, the population of Hanoi was about 7.66 million. If the population increases at the current level, there will be about 12 million people in 2050 in Hanoi. Hanoi will have a large market, if the purchasing power of the population is about 6,000 USD, in 2050 the total amount of money that people in the North spend would be about $340 billion on shopping, eating, studying and medical care. Hanoi takes 10% of this market share, it will cost about $34 billion (more than twice of the city's current GRDP). Hanoi has a favorable geographical location, where many national and international universities and institutes of scientific research are located. It is easy to go to the seaport and to the international airport, it is also convenient to domestic and international destinations. It can be said that Hanoi has the potential advantages and comparative advantage over the Northern provinces, many central provinces as well as throughout the country. The area used for agriculture in Hanoi is about 157 thousand ha. Under the development plan up to 2030 and vision to 2050, the city can transfer about two thirds of agricultural land to non-agricultural purposes (55-60 thousand hectares for urban construction. The land’s fund of the city will have capital from land to about 10-15 trillion VND). Urban population of Hanoi will be about 6.5-7 million people, which promises to attract about 15-16 million tourists each year (especially for international tourists 5-6 million people. clean, organic, high quality for urban people and tourists is very great. Tourism can contribute to the city's GRDP about 13-15%. Hanoi has been a commercial center in the North of Vietnam. In the North, the population will be 55-57 million by 2050. If Hanoi is providing consumer goods, it has a total retail value of about 65 trillion VND. However, agricultural production of Hanoi has not developed as Ngo Thuy Quynh 162 its potential, and tourism has not exploited the potential and advantages of the city. In the case of Samsung of Thai Nguyen province, about $16 billion of exports, the total export value of Hanoi is only about $12 billion. The advantages of comparative advantage are still limited, the promotion of comparative advantage has not brought efficiency correspondance to the potential and advantages of the city. Laws are still inadequate, and cities do not have enough specific policies to attract foreign investors. Land prices, rising wages and attractiveness to foreign direct investors might be reduced. 2.3.2. Orientation to attract FDI into Hanoi Hanoi is still in the top 3 provinces attracting the most FDI in the country. The most important thing is that how to attract FDI, how high-tech projects, using less land and less electricity will be applied to bring more efficiency to the leading economy of Hanoi? Table 8. Projection of FDI in Vietnam in 2016-2020 Unit: Million USD Year Total registered capital will attract * 2015 21497 2016 21714 2017 21931 2018 22148 2019 22365 2020 22582 Source: Project KX.01.03/11-15 “Study on adjustment of foreign direct investment policy in Vietnam until 2020” During 5 years from 2018 to 2020, if the city Hanoi attracted about 11-12% of FDI capital to be able to enter Vietnam (currently 9.6%), the capital could attract about 10- 13 billion USD (average $2.5-2.6 billion per year). The structure of FDI attraction in Hanoi will have to be renovated. In order to strengthen the potential, and comparative advantages of the city in the coming years, the FDI capital attracted to the manufacturing and hi-tech processing industries must account for about 30%, the high tech agriculture accounts for about 7% - 8%, transport facilities and waste treatment is about 15-20%, and construction of new urban areas, real estate, recreation areas account for about 35%. In Hanoi, there should be international amusement parks (like Disneyland in Hong Kong, Minor world in Shenzhen, China, or Santosa in Singapore). The attraction of FDI to Hanoi should be given priority: i). To develop the Center for Art Performance and advanced Entertainment; ii). Construction of the royal culture center: a place reflecting feudal dynasties in Vietnam with typical royal culture; iii). Continue to build high-tech and innovative parks to provide innovative and scientific technology for the North as well as for the whole country; iiii). Establishing an international tourism resort chain, linking high-end hotels with high-end entertainment resorts in Ba Vi - Son Tay. Patterns and solutions for FDI Capital investment in Hanoi: principal theory of practice 163 Hanoi could be considere as a land of gold, so far, no big investors, keeping technology leading, has great financial potential and market. Thus, the coming years should attract investment capital from strategic investors from the world's leading developed countries. Table 9. Estimated investment partners mainly in Hanoi Investment partners by country Priority areas calling for investment 1. Japan - Automation equipment, mechatronics for hi-tech fields; supporting industry, medical equipment production - Innovative industry and new material technology - Precision manufacturing technology - The subway 2. America - Information technology, renewable energy, aircraft - New materials technology - Disneyland - regional and international 3. Korea - Technology of mechatronic production - Supporting industries - Hotel, entertainment area 4. EU (especially Germany, France) - Electronic equipment, automobile manufacture, refrigeration equipment, medical equipment, aircraft - New materials technology - The subway - Global Hotel Chain Source: Author 3. Conclusions a). FDI attraction still has strategic significance for Hanoi, but it is necessary to renovate the direction and ways to attract FDI capital to bring the potential, strengths and comparative advantages of the city. b). In order to attract big FDI projects using high technologies and large markets, and hold important positions in a number of global value chains, the Hanoi People's Government will continue to raise the goodwill to develop. Specifically, the Hanoi Government has made a strong commitment that would bring more profits to FDI investors. The Hanoi Government should publicly announce a list of projects that will attract FDI in line with specific roadmaps. The Hanoi Government should also develop a high-quality human resource training program for FDI investors after they are licensed. c). The Hanoi Government should promote trade and investment effectively. Every year, the trade promotion and investment promotion as well as every 6 months enterprises should be met to remove difficulties for them. Ngo Thuy Quynh 164 REFERENCES [1] Topic KX.01.03/ 11-15, 2014. “Study on adjustment of foreign direct investment (FDI) in Vietnam to 2020. [2] ASEAN Secretariat, 2013. ASEAN Comprehensive Investment Agreement - A Guide for Businesses and Investors. [3] General Statistics Office, 2011. Situation of enterprises with foreign direct investment. [4] General Statistics Office, 2017. Statistical Yearbook of the whole country. [5] Hanoi Statistical Office, 2017. Statistical Yearbook. [6] Thai Nguyen Statistical Office, 2017. Statistical Yearbook. [7] Ngo Doan Vinh, 2010. Development: The Miracle and the Mystery. National Political Publishing House [8] The World Bank, 2011. Working for a free world [9] https://ictnews.vn/cntt/nghi-quyet-36nqtw/chu-tich-vcci-trinh-do-cong-nghe-doanh- nghiep-viet-lac-hau-