THE UNIVERSITY OF DANANG UNIVERSITY OF ECONOMICS FACULTY OF INTERNATIONAL BUSINESS BACHELOR’S THESIS RESEARCH ON ATTRACTING FDI INTO VIETNAM’S AGRICULTURAL SECTOR REALITY AND SOLUTIONS STUDENT TRAN TH.
Rationale
Foreign Direct Investment (FDI) plays a crucial role in globalization and regionalization, serving as a key driver for economic development in numerous countries It benefits both the home and host nations, particularly those undergoing industrialization FDI enhances economic growth by injecting capital and expanding foreign markets, while also fostering advancements in science and technology, creating job opportunities, and increasing income for the workforce.
Since the implementation of economic reforms in Vietnam, the agricultural sector has remained crucial to the nation's development Leveraging its natural advantages, Vietnam's agricultural production has demonstrated significant comparative strengths In recent years, the country has focused on modernizing its agricultural practices, aiming to align and compete with advanced agricultural sectors globally.
Vietnam's agricultural sector plays a crucial role in the economy, contributing approximately 13.5% to the GDP in 2020 and serving as the primary income source for rural populations It not only fulfills domestic food requirements but also generates significant export goods Furthermore, during challenging periods, such as the decline of industrial production and services, agriculture remains the backbone of the economy, highlighting its resilience even amidst difficulties like those posed by the Covid-19 pandemic.
19 epidemic: manufacturing operations as well as supply chains were severely disrupted, thousands of factories closed or cut production, the tourism industry
Despite challenges, agricultural production in Vietnam remained robust, significantly contributing to food security and boosting export turnover According to the General Statistics Office of Vietnam, rice production reached approximately 43.52 million tons, reflecting a notable increase and supporting the livelihoods of tens of millions of people.
In 2021, Vietnam's agricultural, forestry, and fishery sectors demonstrated significant growth, with meat production reaching approximately 5.67 million tons (up 5.3%) and fishery output at around 8.6 million tons (up 2.4%) The export turnover for these products is estimated at $35.5 billion, marking a 17.7% increase compared to the same period in 2020 However, despite this progress, investment in the agricultural sector, particularly foreign direct investment (FDI), remains low, accounting for only 0.97% of total FDI in Vietnam in 2020, which is not reflective of the sector's potential for high-quality goods production.
To boost foreign direct investment (FDI) in Vietnam's agricultural sector, a thorough analysis and evaluation of the current FDI landscape is essential Identifying effective strategies and solutions will enhance competitiveness and attract more investment in this vital industry.
Therefore, the author decided to implement the topic " Attracting FDI into Vietnam's agricultural sector: Reality and solutions”
Research subjects
The article titled "Attracting FDI into Vietnam's Agricultural Sector: Reality and Solutions" examines the current state of foreign direct investment (FDI) in Vietnam's agricultural sector It highlights the challenges and opportunities present in attracting FDI, while proposing effective strategies to enhance investment inflows and improve agricultural productivity in the country.
Research objectives
The project “ Attracting FDI into Vietnam's agricultural sector: Reality and solutions ” is carried out with the following objective:
+ Firstly, analyze and assess the current situation of attracting FDI into agricultural sector in the period 2010-2020
+ Secondly, propose the main solutions to increase FDI attraction into agricultural sector in Vietnam in the near future
Research scope
+ Research space: Research on activities to attract FDI into agricultural sector in Vietnam's territory
+ Research period: Research on the status of attracting FDI into agricultural sector in Vietnam in the period 2010 - 2020.
Research methodology
This thesis employs a comprehensive approach by analyzing and synthesizing secondary data from various sources, including documents, reports, and statistical data from the Ministry of Agricultural Sector and Rural Development and the General Statistics Office It focuses on historical statistics related to Foreign Direct Investment (FDI) and relevant policies to conduct a thorough analysis and assessment Furthermore, the research utilizes comparative statistical methods and meta-analysis to elucidate key findings while summarizing global experiences to address related challenges effectively.
Research structure
This article is divided into 4 chapters:
Chapter 1: Literature review This chapter presents and evaluates previous studies related to the research topic
Chapter 2 delves into the theoretical foundations and global experiences in attracting Foreign Direct Investment (FDI) within the agricultural sector It sets the stage for Chapter 3, which elaborates on key concepts related to FDI, including its definition, characteristics, and classifications This chapter also examines the significance of FDI in agriculture, the factors influencing its attraction, and the criteria for evaluating FDI appeal in this sector Furthermore, it highlights the successful strategies employed by various countries to draw FDI into their agricultural industries.
Chapter 3: The reality of attracting FDI into agricultural sector in Vietnam.
Chapter 4 examines the factors influencing foreign direct investment (FDI) attraction in Vietnam's agricultural sector It provides an in-depth analysis of FDI trends from 2010 to 2020, focusing on investment size, structural dynamics, and outcomes achieved The chapter also highlights existing limitations and the underlying reasons for these challenges, offering a comprehensive overview of the current FDI landscape in Vietnam's agriculture.
Chapter 4: Solutions to increase FDI attraction in Vietnam's agricultural sector
LITERATURE REVIEW
Theoretical studies
The theory of ownership advantages, founded by Canadian Marxist economist Stephen Herbert Hymer, was introduced in his 1960 PhD thesis, "The International Operations of National Firms: A Study of Direct Foreign Investment." This theory explores the motivations behind U.S companies' investments abroad, highlighting the necessity for foreign firms to possess advantages in intellectual property rights, intangible assets, and financial capabilities to effectively compete in local markets Hymer emphasized that these ownership advantages enable companies to navigate challenges such as geographical distance and unfamiliar environments Supporting this view, economist J.R Markusen (1995) noted that knowledge-based assets, which are easily transferable and offer cost-effective production methods, lead firms to prefer foreign direct investment over licensing or local partnerships.
The firm-specific ownership advantage theory revolutionizes the traditional views on foreign investment by highlighting the critical role of intellectual property rights and technological strengths of multinational corporations in global market entry However, this theory falls short in explaining why companies from developing nations or those lacking ownership advantages are also able to invest internationally.
The theory of Internalization was introduced by Buckley and Casson in
In 1976, the concept of internalization was introduced, highlighting that multinational enterprises (MNEs) manage the entire production and business process, from sourcing raw materials to delivering final products The authors noted that in imperfect markets, companies encounter challenges such as product quality issues, high contract enforcement costs, and quality control difficulties To maintain product quality, firms often favor foreign direct investment (FDI) over franchising or technology transfer The theory posits that internal transactions (IT) are more advantageous than market transactions (MT) in imperfect markets, characterized by factors like increased transportation costs due to geographical distance, trade barriers, and varying standards related to intellectual property and technology In such environments, high transaction costs lead companies to establish internal markets, facilitating knowledge transfer within their corporate structure rather than relying on local manufacturers The advantages of internalization include eliminating time delays, reducing negotiation complexities, and addressing buyer-seller shortages, provided that the benefits outweigh the costs of creating a parent-subsidiary network.
1.1.3 The theory of location advantage
The theory of location advantage, proposed by Dunning in 1973, posits that investors select locations based on the benefits they offer to businesses, such as maximizing revenue, minimizing costs, maximizing profits, and reducing risks Companies aim to exploit their ownership advantages by choosing locations with the lowest production costs, influenced by factors like information costs, transaction costs, raw material costs, transportation costs, and wages Additionally, while production costs may be location-independent, market factors, barriers, and competition significantly impact revenue maximization, guiding the choice of international production sites Business risks stemming from the economic, political, and social stability of the host country also play a crucial role in location selection, with preference given to areas exhibiting strong institutional frameworks and political stability Ultimately, the theory highlights various attractive location factors, including geographical positioning, infrastructure, market potential, labor costs, resource availability, and supportive policies However, it falls short by not addressing specific factors relevant to foreign investors, such as industry characteristics, product types, motives, and relationships with local enterprises, thus providing only a partial explanation for foreign direct investment decisions.
According to Dunning's eclectic theory, foreign direct investment is effectively realized when three conditions are satisfied:
Ownership advantage, as outlined by Hymer, refers to a company's capacity and readiness to engage in foreign direct investment (FDI) based on possessing unique assets that the host country lacks This ownership enables the investing company to gain a competitive edge over local competitors These valuable assets encompass both tangible resources, such as capital and human resources, as well as intangible assets, including inventions, technologies, know-how, brands, reputation, organizational capabilities, and management skills.
Location advantages, as outlined by Dunning, refer to the essential conditions a host country must offer to facilitate cost reduction, such as access to abundant resources and affordable labor Additionally, a significant market size and a favorable legal, political, and social environment are crucial for attracting foreign investment Companies are motivated to invest abroad only when they can derive tangible benefits from these location advantages.
- The advantage of Internalization (I) (as discussed by Buckley and
Producing a product in-house is often more advantageous for organizations than outsourcing to third parties According to Dunning, entering contracts with foreign companies poses significant risks, as it may expose unique ownership advantages to competitors This could result in existing joint ventures evolving into future rivals, highlighting the potential dangers of outsourcing production.
Previous related research
- Abdullah Khalid's research [ CITATION Abd17 \l 1033 ] indicates that foreign direct investment is directly affected by 06 factors, including: (1) Gross national income; (2) Export; (3) Import; (4) Foreign debt; (5) Military spending;
A quantitative research study analyzing FDI inflows, equity capital, gross national income, and trade data from 1988 to 2012 reveals that asset accumulation, exports, and gross national income positively influence the attraction of foreign direct investment in Pakistan.
- ResLicai Lv Simei Wen Qiquan Xiong’s research [ CITATION Xio10 \l
Factors influencing Foreign Direct Investment (FDI) in China's agricultural sector include market size, imports, exports, fiscal expenditure, and industrial policy Research indicates a significant positive correlation between agricultural market size and FDI, highlighting the importance of China's large agricultural market in attracting investment Conversely, agricultural imports show a significantly negative correlation with FDI, aligning with expectations While industrial policy's impact is not statistically significant, it has a positive coefficient, suggesting that China's WTO membership and the opening of agriculture-related industries to foreign investment have gradually boosted FDI The effects of agricultural fiscal expenditure and exports on FDI remain uncertain.
The Japan International Cooperation Agency (JICA) has conducted a comprehensive study on global FDI inflows, with a particular emphasis on Southeast Asia This report evaluates Vietnam's investment environment competitiveness by analyzing policies across various economic sectors and offers recommendations to enhance the effectiveness of FDI activities, particularly in investment promotion.
Author Nguyen Phu Nhuan conducted a quantitative study involving a survey of 330 foreign direct investors in the Red River Delta economic region The findings reveal that several key factors influence the attraction of foreign direct investment, including investment infrastructure, investment policies, human resources, the living and working environment, competitive input costs, advantages of the investment industry, and local brand methods.
Research by Do Thi Kim Tien has identified seven key factors influencing foreign direct investment (FDI) in the agricultural sector of the Red River Delta These factors, derived from a blend of traditional and contemporary studies, particularly in transition economies, include: (1) Infrastructure, (2) Investment policy, (3) Regional linkage, and (4) Human resources.
(5) Living and working environment; Quality of public services; (7) Local brands
Recent scientific studies on Foreign Direct Investment (FDI) have explored various factors influencing FDI, particularly within the agricultural sector However, these studies are limited in scope, focusing primarily on specific localities Furthermore, the data utilized in these research efforts is often outdated, lacking relevance to the current economic landscape.
THEORETICAL BASIS AND INTERNATIONAL EXPERIENCE
The concept and characteristics of FDI
Foreign Direct Investment (FDI) has emerged as the primary form of international investment, garnering significant interest from countries worldwide Over the years, FDI has played a crucial role in the economic development of nations by enhancing their capital structure It not only facilitates industrialization and modernization but also provides access to advanced production techniques, business expertise, and technological know-how This influx of FDI accelerates industrial growth, contributes to economic restructuring, and fosters rapid development Additionally, FDI is instrumental in job creation, boosting export turnover, and maintaining healthy macroeconomic balances As a result, FDI has become a widely recognized investment form, defined by both international economic organizations and national laws, with various interpretations from economists.
Foreign direct investment (FDI), as defined by the United Nations Conference on Trade and Development (UNCTAD), involves a lasting interest and control by a foreign investor in an enterprise located in another economy This definition highlights the significant influence that foreign direct investors have on the management and administration of foreign enterprises FDI encompasses both the initial transactions between the investor and the enterprise, as well as all subsequent transactions involving both parties and their overseas branches It can be conducted by individuals or entities.
According to the IMF’s Balance of Payments Manual, fifth edition (BPM5), Foreign Direct Investment (FDI) is defined as a type of international investment where a resident in one economy (the direct investor) seeks to obtain a lasting interest in an enterprise located in another economy (the direct investment enterprise) FDI is characterized by three key factors: the presence of a foreign element, the long-term nature of the investment, and the investor's intention to gain direct control over the enterprise's management activities This definition highlights the distinction between FDI and indirect investment in the capital market within the modern economy.
Foreign direct investment (FDI) refers to net inflows aimed at acquiring a significant management interest, typically 10% or more of voting stock, in an enterprise located outside the investor's home economy, as defined by the World Bank These foreign investors can be either individuals or businesses, and their investments may take the form of wholly owned enterprises or joint ventures with local partners.
The 2005 Investment Law of Vietnam does not explicitly define Foreign Direct Investment (FDI) However, Clause 12 of Article 3 states that "foreign investment" refers to the act of foreign investors introducing capital in cash and other lawful assets into Vietnam to engage in investment activities.
Thus, although it is interpreted in different ways, the nature of FDI activities from all points of view has the same consensus that:
Foreign Direct Investment (FDI) involves a firm's capital ownership from one country being established in another, primarily aimed at securing long-term profits In the process of foreign investment, investors extend beyond just relocating financial resources; they also transfer management expertise, production technologies, and brand value to the host country.
Foreign Direct Investment (FDI) involves the ownership and management rights associated with invested capital, requiring foreign investors to exert significant influence over foreign enterprises This influence can manifest through share ownership, representation on the subsidiary's board, participation in voting and decision-making, and personnel exchanges Ultimately, FDI represents the market expansion efforts of multinational companies (MNCs).
According to the textbook of Investment Economics of the National Economics University [CITATION Ngo \l 1033 ], FDI has some characteristics as follows:
Foreign Direct Investment (FDI) primarily involves private investments aimed at generating profit, distinguishing it from indirect investments that offer more stable financial returns The income of FDI enterprises is closely tied to their business performance, leading to less predictable revenue streams However, this model grants investors complete autonomy over their business operations and financial decisions, holding them accountable for both profits and losses This responsibility motivates investors to make strategic decisions to enhance business performance, contributing to the higher efficiency often seen in FDI projects compared to other investment forms.
Foreign investors are required to contribute a minimum percentage of investment capital, which varies by country and influences their management rights and operational participation in investment firms Some countries permit 100% foreign ownership in certain industries, while others limit foreign investors to a maximum of 49% in joint ventures The rights and obligations of each party, as well as the distribution of risks and profits, are determined by their respective capital contributions A foreign investor contributing 100% of the capital retains full control over management and operations, whereas in a joint venture, their influence is proportional to their investment Interestingly, as noted by the IMF (2004), there are instances where foreign investors with equal or lesser capital can exert greater influence than domestic investors.
Foreign Direct Investment (FDI) significantly influences the economic structure and development of host countries by introducing new technologies and creating new industries and job opportunities The growth of FDI enhances the availability of essential goods, advanced equipment, and innovative technologies, thereby boosting export potential and competitiveness while improving the host country's balance of payments and increasing government revenue However, if FDI leads to an unsustainable bubble economy characterized by excessive spending, it can deplete growth resources, exacerbate trade imbalances, and ultimately hinder economic progress Over time, such adverse effects may impact inflation and the overall stability of the economy.
Foreign Direct Investment (FDI) often involves the transfer of advanced technology to the host country, as investors not only provide financial capital but also bring valuable techniques, innovations, and management expertise This transfer of knowledge and skills is particularly crucial for developing countries with limited scientific and technical capabilities Consequently, the potential for technology transfer is a key reason why host nations actively seek FDI, highlighting its distinct advantage over other forms of capital inflow.
As According to Prof Dr Vu Chi Loc, FDI is split into three types based on the investment goal:
Horizontal Foreign Direct Investment (FDI) occurs when a corporation invests in a manufacturing sector where it can compete effectively within a specific product category This strategy aims to leverage potential advantages to penetrate and dominate foreign markets The primary goal of FDI is to produce the same or similar products that the investor already manufactures in the host country.
Vertical Foreign Direct Investment (FDI) targets the utilization of natural resources and cost-effective inputs, such as labor and land, in the host country Investors aim to gain competitive advantages across different stages of the manufacturing process, often resulting in the assembly of goods within the host nation Subsequently, these products are either imported or exported to other countries, making this type of FDI particularly prevalent in underdeveloped regions.
- Conglomerate FDI refers to projects in which enterprises that invest and enterprises that receive investments are involved in a variety of industries and fields.
- 100% foreign-owned enterprise: An enterprise wholly owned by a foreign investor, established in the host country Foreign investors invest, manage and take responsibility for their operations and business results
A joint venture enterprise is formed when parties from both the home country and the host country collaborate to establish a business In this arrangement, each party contributes capital, shares operational responsibilities, and divides risks and profits according to their respective investments This partnership is governed by a joint venture contract or agreement between the governments of the involved countries.
A business cooperation contract is a formal agreement between two or more parties for conducting business investments in Vietnam, outlining each party's responsibilities without creating a new legal entity This type of contract is commonly used in specialized economic sectors such as telecommunications and oil and gas, particularly when foreign investors enter unfamiliar markets Various specific formats for business cooperation contracts include BOT (Build-Operate-Transfer), BTO (Build-Transfer-Operate), and BT (Build-Transfer).
Characteristics of investment in the agricultural sector
(1) Investment in agricultural sector is heavily influenced by natural conditions:
Soil quality and topography significantly impact investment outcomes, necessitating thorough research into these factors Additionally, climate plays a crucial role in agricultural investments; for instance, rice cannot be cultivated in cold winter conditions Therefore, investors must meticulously analyze the natural characteristics of each region to ensure effective investments and implement strategies to mitigate the adverse effects of natural disasters.
(2) Investment in agricultural sector requires a large amount of capital
Investing in infrastructure systems, like irrigation and scientific technology, requires substantial capital For instance, the financial and human resources needed to discover a new plant are comparable to those for developing a new industrial product Similarly, constructing an irrigation system can be as costly as building a factory or a tourist hotel Consequently, investors must implement effective policies to ensure timely capital mobilization.
(3) Agricultural production has a high risk
Agricultural production is heavily influenced by natural environmental factors, including soil quality, climate, water sources, light, and air, which must work in harmony for successful cultivation However, unpredictable fluctuations in these environmental conditions can lead to crop failures and significant losses Additionally, activities from other economic sectors may adversely affect the habitats of plants and animals, further jeopardizing agricultural outcomes.
The integration of science and technology in agriculture has significantly mitigated production risks; however, the industry still faces higher risk levels compared to others This ongoing risk remains a crucial factor influencing both the efficiency and profitability of agricultural operations, ultimately impacting the sector's ability to attract investment.
(4) The profitability of the agricultural industry is not high
Agricultural products are characterized as income inelastic goods, making them challenging to store for extended periods The significant investment required for land reclamation leads to lengthy amortization cycles, while production cycles are heavily influenced by natural conditions Favorable seasons often result in price declines due to supply and demand dynamics, whereas crop failures drive prices up, yet farmers suffer from reduced yields These factors collectively contribute to the low profitability of agribusiness, rendering it less appealing to potential investors.
The role of foreign direct investment in agricultural sector
(1) FDI contributes to the growth of the agricultural sector:
The investment multiplier theory has shown that the growth rate depends on the amount of new investment capital and the efficiency of using new capital according to the formula:
Increased foreign direct investment (FDI) in the agricultural sector can lead to a significant rise in output, represented by the coefficient x, assuming capital efficiency remains constant or improves This boost in capital investment not only enhances the growth rate of the agricultural sector but also contributes to overall economic growth, provided that all other factors remain unchanged.
In countries undergoing industrialization, domestic and agricultural accumulation levels are often low, making foreign direct investment (FDI) a crucial source of additional capital that can significantly accelerate agricultural growth.
(2) FDI contributes to creating new jobs and higher incomes for agricultural workers:
Foreign Direct Investment (FDI) projects in Vietnam's agricultural sector are set to boost labor demand in rural areas, aligning with project requirements Typically, these FDI initiatives demonstrate greater effectiveness compared to domestic investments, resulting in higher and more stable incomes for workers involved in these projects than the average earnings in the industry.
(3) FDI creates favorable conditions for foreign investors to transfer new technologies into the host country
To effectively compete with domestic enterprises, FDI companies must import their know-how into the host country, facilitating the creation of new products and the training of local workers in essential skills Additionally, they should introduce advanced technology that surpasses that of local firms to enhance business efficiency In developing countries like Vietnam, where human resources and technological capabilities are limited for self-investment in research and development, foreign direct investment serves as an effective means to elevate overall technology levels, particularly in agricultural production.
(4) FDI projects create opportunities to export agricultural products
Foreign investors often target markets in their home country or elsewhere for the products developed through FDI projects in the host country When the production costs of agricultural products in these projects are lower than in other nations and align with foreign consumer demands, there is a strong potential for successful exports Additionally, some foreign investors leverage FDI to enhance the agricultural sector by supplying raw materials to businesses in their own or other countries Consequently, FDI capital significantly boosts the agricultural sector's capacity to export products internationally.
(1) FDI contributes to the restructuring of the agricultural and rural economy
FDI inflows, when used appropriately, contribute to agricultural restructuring in all three areas:
The internal restructuring of the agricultural sector is significantly enhanced by Foreign Direct Investment (FDI) projects, which promote product diversification and the adoption of advanced production technologies These initiatives include the introduction of high-yield plant varieties and improved livestock breeds, as well as the implementation of innovative production techniques Additionally, FDI fosters the development of agricultural production service activities, further strengthening the sector's overall efficiency and productivity.
- Facilitating the development of agricultural sector-related industries such as fertilizer production, high-tech agricultural machinery and equipment, animal feed, especially the development of the agricultural product processing industry.
- Transforming labor structure and rural economy through indirect impacts on the development of the service sector in rural areas such as banking, insurance, transportation, construction, commerce, etc.
(2) FDI in agricultural sector creates competitive pressure forcing other agricultural production organizations to innovate
The influx of foreign direct investment (FDI) in the agricultural sector is fostering new competition, compelling domestic agricultural enterprises to innovate in technology and corporate governance to enhance productivity and product quality This drive for modernization not only boosts competitiveness but also supports the development of national agricultural brands in the global market, creating more export opportunities Additionally, the export activities of FDI enterprises facilitate information exchange and raise awareness among domestic firms about exporting possibilities, improving their marketing knowledge and participation in the global distribution system Consequently, the export capabilities of domestic agricultural enterprises are significantly strengthened by these external influences.
Factors affecting the attraction of FDI in agricultural sector
According to Dunning (1993), FDI inflows are influenced by three key factors: Ownership advantage (O), Location advantage (L), and Internalization advantage (I) Ownership and internalization advantages are determined by the foreign investor's experience in multinational operations, product or manufacturing process advantages, international business strategies, and their ability to control production Conversely, location advantage is contingent upon the host country's characteristics, including labor resources, market size and growth, level of development, cultural environment, and political and legal institutions.
Location advantage (L) is a key subjective factor that influences a host country's ability to attract and utilize foreign direct investment (FDI) This aspect is crucial for host countries, as it can be strategically adjusted to enhance FDI efficiency Depending on specific objectives, location advantage can be assessed from various perspectives.
Investment activities are driven by various motivations, with several key factors from the host country influencing the attraction and utilization of Foreign Direct Investment (FDI) These factors include economic elements such as market potential, profitability, and cost considerations Additionally, the availability of resources, including human capital, natural resources, and geographical advantages, plays a significant role Infrastructure aspects, such as technological capabilities, engineering quality, transportation networks, and health services, are also crucial Lastly, the effectiveness of policy institutions can significantly impact FDI decisions.
Factors influencing interoperability in a host country are categorized into two main groups: policy factors, which include investment incentives, enforcement requirements, and financial support; and non-policy factors, encompassing resources, political stability, economic conditions, cultural aspects, infrastructure, market characteristics, and wage costs.
Numerous empirical studies have identified various factors influencing Foreign Direct Investment (FDI) inflows, with a general consensus on key determinants These include market factors, which play a crucial role in attracting FDI by signaling potential profitability and growth opportunities.
Resources; (3) Infrastructure; (4) Institutions and policies In agricultural sector, the above factors are expressed in the following forms:
The agricultural industry is highly susceptible to the effects of natural and seasonal elements, making it one of the most at-risk economic sectors Favorable weather conditions can lead to abundant harvests, while adverse conditions can severely impact crop and livestock yields Growth, development, and mortality of plants and animals are governed by biological rules, which are significantly influenced by external factors like climate and weather changes These natural elements, including climate, humidity, and soil quality, play a crucial role in the agriculture sector's ability to attract foreign direct investment (FDI) Optimal natural conditions not only reduce input costs but also mitigate the risks associated with natural disasters.
Agriculture is a labor-intensive industry that requires a large number of workers In developing countries with low levels of scientific and technological development, the worker force is a competitive advantage.
Robust infrastructure is essential for the development of agricultural production, encompassing general systems like electricity, transportation, and telecommunications, as well as specific agricultural systems such as irrigation and dike systems The irrigation system is particularly crucial, as it ensures proper irrigation and drainage, supports agricultural production, provides daily water supply, facilitates power generation, and enhances living conditions Countries with well-developed infrastructure, like the United States and Canada, are more likely to attract foreign direct investment (FDI), especially in the agricultural sector.
Investors looking to invest abroad must consider the legal framework of the host country, as the regulatory environment plays a crucial role in the efficiency of foreign direct investment (FDI) A well-coordinated, comprehensive, and effective legal system fosters a favorable business climate, making it easier for investors to navigate the complexities of international investment.
The following are legal elements that aid in attracting FDI to the agricultural sector:
- A competitive atmosphere in which private property rights are protected by legislation.
- Clear regulations on profit-sharing clauses and the right to repatriate profits for certain types of foreign capital mobilization
- Licensing and implementation procedures for investment projects The faster these procedures can be completed, the more appealing FDI becomes.
- A variety of tax, price, land, and other incentives These are the variables that have a direct impact on product prices and profit margins.
Macroeconomic variables, including GDP, public investment, currency rates, interest rates, money supply, and inflation, significantly impact foreign direct investment (FDI) flows Investors prioritize locations with economic stability, safety for capital transfer, and higher profitability A stable macroeconomic environment, characterized by anti-inflation measures and monetary stability, is crucial for attracting FDI Consequently, most FDI projects favor investment in economies that demonstrate consistency and stability to enhance efficiency and reliability in their financial ventures.
Evaluation criteria for attracting FDI into agricultural sector
Registered capital refers to the total amount of capital that a foreign investor contributes in cash or lawful assets, including retained profits and other forms of capital, to engage in direct investment activities within a host country (World Bank, 2016) This capital encompasses both the initial registered capital for new projects that are independent of existing investment certificates and additional registered capital aimed at expanding, enhancing, or modernizing existing projects to improve production capacity, product quality, and reduce environmental impact.
The scale of implemented capital refers to the actual investment made by foreign investors in a host country, encompassing costs related to construction, factories, and the procurement of machinery and equipment This metric reflects the effectiveness of investment promotion efforts, the efficiency of state management, and the enforcement of legal frameworks Typically, the implemented foreign direct investment (FDI) is less than the registered FDI for a project By analyzing the difference between registered and implemented capital, one can evaluate the performance of investment activities within a given year, with the disbursement rate—calculated as the percentage of implemented FDI to total registered FDI—serving as a key indicator.
The disbursement rate is calculated by dividing the implemented capital size by the registered capital size and multiplying by 100% A high disbursement ratio indicates a strong alignment between investment commitments and actual implementation, while a low ratio suggests potential issues in the capital disbursement process, including administrative hurdles, investor hesitance, and changing regional and global conditions.
The structure of Foreign Direct Investment (FDI) is a key indicator reflecting the balance or imbalance in the trends of FDI inflows It can be categorized based on various criteria such as investment form, economic sub-sector, geographic region, and investment partners Analyzing these criteria helps assess the evolving patterns of capital flows within the host country, enabling the formulation of effective strategies to enhance FDI attraction.
Experiences of some countries in attracting FDI into agricultural sector
Thailand, known for its rich agricultural traditions, has 80% of its population living in rural areas Over the past two decades, the Thai agricultural sector has experienced significant growth, establishing a strong presence in the global market for tropical agricultural exports.
The Thai government prioritizes attracting foreign direct investment (FDI) to bolster its economy, despite challenges posed by political instability To enhance the investment climate, it has introduced favorable incentives for key sectors, including high-value agricultural processing, high-tech projects, and initiatives focused on environmental protection Furthermore, the government has consistently pursued administrative reforms to streamline foreign investment procedures, ensuring that Thailand remains a compelling destination for FDI.
Thailand is actively attracting investment from Asian nations, with Japan leading as the largest investor, hosting around 7,000 Japanese enterprises Recently, the contributions from Korean and Chinese companies have grown significantly, reflecting a rising trend in foreign direct investment (FDI) Additionally, Singaporean investors play a crucial role, contributing approximately 80-90% of the total investment capital from ASEAN countries in Thailand.
In 2014, Thailand implemented a strategy to attract foreign direct investment (FDI), focusing on key sectors such as agriculture, mining, light industry, machine manufacturing, transportation equipment, electrical and electronic goods, chemicals, and services The agricultural sector plays a crucial role in the Thai economy, especially following the 1997-1998 financial crisis, which prompted a significant shift towards export Thailand aims to become the world's leading exporter of agricultural products, currently ranking as the third largest rice exporter globally.
The Thai government offers attractive tax benefits for business income based on investment regions, with Area 1 projects receiving corporate income tax exemptions or reductions for three years, Area 2 projects benefiting for up to five years, and Area 3 projects enjoying exemptions or reductions for eight years Additionally, the government is shifting from basic tax advantages to comprehensive tax incentives that encompass various aspects such as labor, expedited licensing, and infrastructure support for investors Notably, administrative processes have been streamlined, and tax breaks on imports of production machinery are available, with FDI projects in Regions 1 and 2 eligible for a 50% import tax reduction on machinery subject to rates over 10%, while Area 3 projects can benefit from a full 100% discount.
Thailand facilitates foreign direct investment (FDI) by allowing unrestricted borrowing from various financial institutions, including commercial banks and finance companies While foreign investors and companies are generally prohibited from owning land, those with foreign ownership of 50% or less can acquire land under the provisions of the Investment Promotion Law 2011 and the Ministry of Investment's Notice No 2/2546.
Agricultural product insurance policies are available to all agricultural producers, including foreign investors, covering a variety of crops such as food, oil, and garden crops The compensation levels are substantial, ranging from 60% to 90% of the average output Producers with loans from the Bank for Agricultural Sector and Agricultural Cooperatives are exempt from paying insurance fees, while non-borrowing producers receive government support covering two-thirds of the insurance costs.
In addition to tax incentives, Thailand offers various service incentives, including reduced costs for housing, office space, telecommunications, and transportation The investment process is streamlined, with clear guidelines to assist investors Thailand has also enacted laws to protect intellectual property rights, such as the Trademark Act B.E 2534 and the Patent Act B.E Furthermore, Thailand is a signatory to the Paris Convention and the TRIPS Agreement, which enhance the protection of intellectual property in commercial activities.
In the aftermath of the 1997-1998 crisis, Indonesia faced significant economic challenges, marked by high public debt and limited foreign borrowing capacity To revitalize its economy, the Indonesian government implemented strategic measures to attract foreign direct investment (FDI) This included a reduction in corporate income tax by 5% of the total investment value annually for six years, allowing a company with a $1 billion investment to benefit from a $50 million yearly tax reduction Additionally, import taxes on production goods and raw materials could be lowered to 5% if the original tax rate exceeded this amount, and FDI projects were granted unrestricted access to capital from credit institutions.
In Indonesia, investors in the agricultural sector, including farming, livestock, and aquaculture, are granted land use rights for 35 years, with the possibility of a 25-year extension if used appropriately To enhance the international investment climate, Indonesia has established bilateral investment promotion and protection agreements with 55 countries and is a member of the Multilateral Investment Guarantee Agency (MIGA) to safeguard foreign investors against political risks Additionally, the country has enacted laws to protect intellectual property rights, including Copyright Law No 6/1997, Trademark Law No 15/2001, and Patent Law No 14/2001.
Malaysia has established a one-stop-shop policy for investment activities, streamlining the approval and licensing process through the Malaysian Investment Development Authority (MIDA) This centralized approach minimizes bureaucratic hurdles and corruption, making it easier for investors to navigate necessary procedures As a result, the country has successfully enhanced foreign direct investment (FDI) overall, with particular growth in the agricultural sector.
Malaysia offers various incentives to boost export production, including a 10% VAT reduction and a 5% discount on domestic input materials To foster job creation and attract foreign direct investment (FDI), companies must meet specific criteria, such as employing at least 500 workers or investing over RM25 million Additionally, to promote human resource development, Malaysia provides incentives for businesses engaged in vocational training and the establishment of training schools.
Malaysia offers favorable policies for the agricultural sector, including a corporate income tax exemption for foreign direct investment (FDI) enterprises lasting 3 to 5 years Afforestation projects benefit from a 10-year income tax exemption Additionally, losses can be carried forward and deducted from expenses for up to 5 years, and there is a 50% reduction in corporate income tax for 5 years following the exemption period.
Malaysia is committed to international intellectual property standards, having signed the Paris Convention, the Beme Convention, and the TRIPS Agreement As a member of the World Intellectual Property Organization (WIPO), Malaysia has established a robust legal framework for intellectual property rights protection, which includes the Patent Law of 1983, the Trademark Law of 1976, and the Copyright Law of 1987.
Malaysia promotes investment through various policies but imposes restrictions on foreign investors Investment licenses are selectively granted, particularly for projects involving raw materials and specific sectors The country has largely prohibited sugar refining projects and has placed limitations on palm oil refining, noodle processing, sauces, and spices to safeguard traditional products.
THE STATUS OF ATTRACTING FDI IN AGRICULTURAL
Factors affecting FDI attraction to agricultural sector in Vietnam
Vietnam's strategic geographical location on the Indochinese peninsula in Southeast Asia makes it highly attractive to foreign investors With a long coastline along the Pacific and a 4,550 km border with China, Laos, and Cambodia, Vietnam serves as a vital hub for maritime and land trade Its central position within the dynamic economic landscape of Southeast Asia allows for seamless connections with industrial powerhouses like Japan, Singapore, and Thailand, as well as large markets such as China and India This advantageous location enhances Vietnam's potential as a focal point for maritime exchanges and transshipment, significantly boosting its appeal for foreign direct investment (FDI) compared to other regional countries.
Agricultural land in Vietnam constitutes a significant portion of the country's total natural land area, playing a crucial role in ensuring food security for both domestic consumption and export As outlined in Article 10 of the Land Law enacted on November 29, 2013, agricultural land in Vietnam is classified into four primary categories.
+ Cultivated land used for livestock
Vietnam offers significant opportunities for foreign investment, boasting over 1.2 million hectares of unused land and a coastline stretching approximately 3,200 kilometers, complemented by numerous lagoons The country’s tropical climate provides ideal conditions for agriculture and animal husbandry, making it an attractive destination for investors looking to explore the agricultural sector.
The global average agricultural land per capita stands at 0.52 hectares, with only 0.25 hectares available in Vietnam, according to 2019 data The General Department of Land Management reports a yearly decline of nearly 100,000 hectares of agricultural land, exacerbated by persistent population growth in rural areas This situation has led to a significant reduction in the average arable land per person Additionally, inadequate land management practices are adversely impacting soil quality and agricultural output, primarily due to the excessive use of chemical fertilizers and pesticides by farmers.
Vietnam's humid tropical monsoon climate, characterized by abundant heat and humidity, creates an ideal environment for diverse organisms and vegetation This climate enables the country to cultivate a variety of high-value tropical products, such as coffee, rubber, pepper, and cashew nuts, which are exported to temperate regions The notable climatic differentiation from North to South results in three distinct climate zones, facilitating the exchange of agricultural products across the country and contributing to its rich agricultural diversity The North experiences four distinct seasons, leading to seasonal agricultural production, while the South has two seasons (rainy and dry), which supports more consistent agricultural activities However, the tropical climate can also bring erratic and extreme weather changes, resulting in natural disasters that pose challenges to Vietnam's agricultural development.
In general, Vietnam's natural conditions are favorable for agricultural development in all aspects, including: cultivation, animal husbandry, forestry, fishery, etc.
Vietnam's agricultural sector presents appealing opportunities for foreign investors; however, the threat of natural disasters—particularly in the Mekong Delta, low-lying coastal areas, and mountainous regions—diminishes these areas' competitiveness in attracting tourism investment.
As of 2020, Vietnam's population reached 97.58 million, with 17.72 million individuals (18.15%) employed in the agriculture sector, which is vital due to its labor-intensive nature The low average hourly labor cost of less than $1 provides a significant competitive advantage for producing labor-intensive agro-forestry-fishery products Vietnamese farmers demonstrate resilience, working diligently even in challenging conditions By integrating modern technology, the agricultural sector can enhance product competitiveness in both domestic and international markets, improving price and quality Foreign Direct Investment (FDI) in agriculture can capitalize on Vietnam's low production costs while benefiting from high global product prices To attract FDI and foster sector development, cultivating high-quality human resources is essential for overcoming existing limitations and enticing foreign investors to swiftly implement their projects.
- Labor resources are plentiful and inexpensive Foreign investors love Vietnam's Agricultural Labor Force because of this It aids in cost reduction and so improves competitive advantage.
Vietnamese people are known for their strong work ethic, intelligence, and determination to overcome challenges for success Their passion for work is complemented by a creative drive, making them highly effective in various industries Additionally, Vietnamese workers demonstrate agility and adaptability, quickly embracing new technologies and navigating the evolving market economy.
Labor force for agricultural growth in Vietnam, on the other hand, still have some limitations:
The shortage of trained workers and the limited availability of qualified professionals, especially in fields requiring advanced technology, significantly influence foreign investors' decisions regarding investments.
Farmers constitute the majority of the labor force in rural areas, often exhibiting modest production habits and a lack of specialized skills In contrast, modern production demands high levels of discipline, organization, and an industrial approach This disparity presents substantial challenges in attracting foreign direct investment (FDI) projects.
The expansion of Vietnam's road transportation system, which spans approximately 180,000 kilometers, is enhancing the capacity of the overall transportation network This growth is facilitating the circulation of goods and driving the development of commodity production across the country.
The rural road system is struggling to keep pace with the growth of commercial zones serving the agricultural sector, resulting in significant shortcomings in connectivity to provincial and district roads Poor road quality, light loads, and predominantly single-lane roads contribute to safety issues, including inadequate signage and encroachments from agricultural products The high proportion of unprotected road surfaces exacerbates travel and freight challenges, particularly during rainy seasons, deterring investors from capitalizing on rural and agricultural opportunities Meanwhile, Vietnam's national railway network spans 4,161 km, with 2,651 km of main lines and 260 stations, most of which are outdated and poorly equipped This aging infrastructure hampers load capacity, train speed, and overall throughput, while the lack of integration with logistics services and multimodal transport further diminishes the attractiveness of rail transport, leading to a decline in its market share.
Recognizing the significant benefits of rail transport, including safety, convenience, and substantial cargo capacity, it is crucial to maintain and develop the railway system for national security and socio-economic growth Recently, the railway industry has made notable strides in enhancing passenger service quality through professional cleaning services at stations, early ticketing, and flexible ticketing options To further innovate and improve service quality, the industry is also investing in a new fleet of trains to replace outdated models.
Thirty years ago, VNR began investing in modern loading and unloading vehicles to enhance rail transport efficiency This investment aims to minimize loading and unloading times, facilitating quicker train turnover and establishing cargo gathering points Improved transport connections are also being developed to support rail logistics These strategic solutions are designed to lower transportation costs and gradually attract more customers to choose rail for their shipping needs.
Vietnam's seaport system comprises 45 seaports, including 2 class IA, 12 class I, 18 class II, and 13 class III ports, with a total wharf length of 92.2 km and a capacity exceeding 550 million tons per year In 2021, despite the challenges posed by the COVID-19 pandemic, Vietnam's seaports handled over 703 million tons of goods, marking a 2% increase from the previous year This included more than 184 million tons of exports (up 4%) and nearly 303 million tons of domestic goods (up 5%), with container cargo reaching approximately 24 million TEUs, a 6% rise year-on-year Over 90% of the country's import and export goods are transported by sea, underscoring the seaport system's vital role in facilitating trade and fostering economic development, particularly as international economic integration deepens and foreign direct investment (FDI) volumes fluctuate The seaports are integral to establishing industrial parks and large commercial centers, significantly contributing to the nation's economic growth.
Situation of attracting FDI into agricultural sector in Vietnam in the period 2010-2020
3.2.1 Size and proportion of FDI in agricultural sector:
Vietnam, as an agricultural nation, prioritizes favorable policies for foreign direct investment (FDI) projects in the agricultural sector Despite this, the share of FDI in agriculture has not met expectations from 2010 to 2012.
Table 3.1 Number and total FDI capital in agricultural sector
Foreign direct investment (FDI) in the agricultural sector remains low compared to its potential and significance within the national economy Data from 2010 to 2020 reveals a limited number of projects and FDI capital in agriculture, highlighting its underperformance relative to other industries Additionally, the fluctuations in project numbers and FDI amounts over the past decade have been unstable, influenced by external factors such as economic crises and shifting global conditions, as well as internal policy adjustments linked to Vietnam's economic integration efforts.
From 2011 to 2016, Vietnam experienced a significant increase in foreign direct investment (FDI) in the agricultural sector, largely due to the signing of several key trade agreements, including the ASEAN-Australia/New Zealand Free Trade Area and the Vietnam-Chile Free Trade Agreement in 2011, followed by four FTAs in 2015 with the EU, Korea, the Eurasian Economic Union, and TPP The implementation of the 2014 Investment Law further enhanced the investment environment by providing a secure legal framework for businesses However, FDI projects declined in subsequent years, particularly in 2013 and 2018, primarily due to the global economic recession that began in 2012.
2019, the world trade and economic situation has many uncertainties due to the US-China trade war that negatively affect FDI inflows into Vietnam's agricultural sector.
Among 19 industries attracting FDI, FDI into agricultural sector ranked 10th in terms of the number of projects and 11th among industries that attracted registered capital in recent years Compared with the amount of FDI in manufacturing, electricity and gas production and automobile and motorbike trading, FDI in agricultural sector is just about 1/10 of the attracted capital The structure of FDI in agricultural sector also has many uncertainties FDI projects in agricultural sector focus mainly on projects with quick capital return such as processing agricultural products and food, processing forest products, raising livestock and processing animal feed Vietnam's agricultural investment partners are currently only Japan, the US, South Korea, Currently, the value of Vietnam's agricultural industry is still low compared to its potential, the industries that are slow to transform and develop are farming and fishing
Table 3.2 Structure of FDI invested in Vietnam in economic sectors (2020)
3.2.2 Structure of FDI in agricultural sector by sub-sectors
Since the early 1990s, foreign direct investment (FDI) in the agricultural sector has evolved significantly, initially concentrating on wood processing and forest products From 1995 onward, FDI has diversified, shifting towards various areas including cultivation, agro-forestry-fishery processing, sugarcane production, animal feed production, livestock and poultry farming, afforestation, and paper material production.
Figure 3.1 Structure of FDI in agricultural sector by sub-sectors
The chart clearly illustrates that in the agricultural sector, foreign direct investment (FDI) is predominantly concentrated in the processing industry, which accounts for 55% of the total This is followed by the cropping industry at 13%, livestock at 8%, and fishery at 7%, while the forestry sector attracts the least investment at just 3% The limited interest in forestry is attributed to the lengthy time required to yield investment returns, making it less appealing to investors.
Foreign Direct Investment (FDI) plays a significant role in the farming and agro-food processing sector, which constitutes 31% of total FDI attraction These projects are typically linked to the enhancement of raw material production areas, including rice and sugar cane processing Key provinces benefiting from such FDI initiatives include Thanh Hoa and Nghe An.
In recent years, regions such as An, Long An, and Tay Ninh have shown significant progress by establishing a stable raw material base and enhancing management practices These advancements have played a crucial role in the growth of the sugar industry, generating employment opportunities and improving the livelihoods of local communities.
The livestock and animal feed processing industry demonstrates significant business efficiency, heavily reliant on foreign direct investment (FDI), which constitutes 18% of the sector Foreign investors primarily target Southeast provinces like Dong Nai, Binh Duong, and Ho Chi Minh City due to their advantageous natural conditions, substantial market potential, and welcoming investment policies that align with foreign investors' preferences.
Foreign Direct Investment (FDI) in Vietnam's fishery industry has declined as the focus shifts towards developing new breeds, producing value-added products, and cultivating high-value seafood Additionally, the decrease in investment can be attributed to the enhanced capabilities of domestic enterprises in aquaculture and processing, which now meet international standards and satisfy import market demands.
3.2.3 Structure of FDI in agricultural sector by investment partners
Vietnam's agricultural sector has successfully attracted foreign direct investment (FDI) from over 50 countries, with significant contributions from Asian nations Among these, Taiwan and the British Virgin Islands stand out, with registered capital shares of 18% and 16%, respectively Most of the leading investors in agricultural FDI projects, both in terms of project count and capital proportion, are primarily from Asia, including countries such as Japan, China, and those in ASEAN.
Figure 3.2 Structure of FDI in agricultural sector by investment partners
Despite the potential of Vietnam's agricultural sector, foreign investment, particularly from countries with robust agricultural industries like the US, Canada, and Australia, has been limited However, following the signing of the Vietnam-US Free Trade Agreement, there has been a notable increase in investment from the United States, signaling a growing interest in Vietnam's agricultural opportunities.
2001 and after Vietnam joined the WTO, accounting for 5%; investments from Australia just accounted for 3% of the total registered capital.
Vietnam's agricultural sector faces challenges in attracting foreign investment due to limited promotional efforts and infrequent exhibitions of agricultural products The current policies and incentives for foreign direct investment (FDI) are inadequate and often poorly implemented, leading to complaints about cumbersome investment procedures To enhance the sector, Vietnam must attract investment from countries with advanced agricultural practices, which would not only provide capital but also facilitate the transfer of modern technology, advanced production methods, and effective management experiences.
3.2.4 Structure of FDI in agricultural sector by form of investment:
In agricultural sector, FDI projects into Vietnam have four basic forms: joint venture enterprises, enterprises with 100% foreign capital, business cooperation contracts and joint stock companies.
Figure 3.3 Structure of FDI in agricultural sector by form of investment
The chart indicates that 100% foreign-owned enterprises dominate Vietnam's agricultural investment, comprising approximately 79% of the total capital, while joint ventures account for around 19% The remaining investment forms represent a minimal share Notably, investors from Taiwan, Thailand, Korea, Singapore, and the US predominantly opt for 100% foreign-owned enterprises, whereas those from France, Hong Kong, and Malaysia tend to prefer joint ventures.
While 100% foreign-invested enterprises demonstrate increased foreign investor confidence in Vietnam's legal framework and operate more independently, promoting this investment model without appropriate policies may negatively impact domestic businesses This approach could hinder the beneficial spillover effects of foreign direct investment (FDI) technology and management practices, as investors often seek to minimize risks associated with technology leakage Consequently, Vietnam has struggled with technology transfer, skill development, and business knowledge sharing, and has yet to establish a robust network connecting domestic and foreign enterprises due to existing gaps in technology and labor capabilities.
3.2.5 Structure of FDI in agriculture by localities receiving investment
Assessment of limitations in attracting FDI into agricultural sector in Vietnam
3.3.1 The proportion of FDI in the agricultural sector is still low and unstable:
In recent years, foreign-invested agricultural fields have effectively contributed to economic restructuring in Vietnam, addressing labor challenges and providing the workforce with access to modern management techniques However, the level of foreign direct investment (FDI) in the agricultural sector remains relatively low, averaging only 6 million USD (140 billion VND) per project, compared to 15 million USD (342 billion VND) for projects in the processing and manufacturing industry.
In addition, compared to the industrial and service sectors, FDI invested in the agricultural sector in Vietnam accounts for a very low proportion Specifically, in
In 2020, foreign direct investment (FDI) in Vietnam's agricultural sector represented only 0.97% of total FDI, contrasting sharply with countries like Taiwan, Japan, and South Korea, where FDI in agriculture ranges from 13-21% (World Investment Report 2016) Despite being included in the List of Special Incentives, the number of registered FDI projects in agriculture remains low, and recent policy adjustments in the Investment Laws of 2000, 2005, 2014, and 2020 have failed to significantly attract investors Consequently, the agricultural, forestry, and fishery sectors continue to lack appeal for FDI, with project implementation efficiency being limited and unstable, often resulting in early project dissolutions due to various risks, including adverse natural conditions and slow capital recovery linked to agricultural cycles.
3.3.2 Operational efficiency of FDI projects in agricultural sector is low
Vietnam, with its rich agricultural heritage and favorable natural conditions, faces challenges in effectively utilizing Foreign Direct Investment (FDI) in its farming and forestry sectors Current FDI projects primarily exploit existing resources like land and labor, with limited focus on developing new agricultural varieties The forestry sector, particularly wood processing, heavily relies on imported raw materials, despite Vietnam's significant raw wood exports Poor land planning has hindered the availability of land for investors, forcing some to establish material forests abroad Furthermore, certain afforestation projects have negatively impacted the landscape and environment, raising concerns about national security In the fishery industry, FDI has declined as local enterprises have improved aquaculture and processing capabilities to meet international standards Overall, FDI initiatives have not fully leveraged regional potential or prioritized scientific and technological advancements, resulting in adverse effects on both the environment and local communities.
3.3.3 Lack of diversity in investment partners:
By the end of 2020, Vietnam attracted agricultural investment projects from 50 countries and territories, primarily from Asian nations with established diplomatic ties Notably, over 70% of foreign direct investment (FDI) originated from ASEAN countries, Japan, Taiwan, Korea, and Hong Kong In contrast, the contribution of partners from developed agricultural sectors remains minimal, highlighting Vietnam's challenges in accessing high-quality FDI and technology transfer.
3.3.4 The allocation of FDI capital is unbalanced among regions
Foreign direct investment (FDI) in Vietnam's agricultural sector is unevenly distributed, with most projects concentrated in key economic regions that offer favorable soil and climate conditions for resource production By 2020, the Southeast region was projected to attract over half of all agricultural FDI, driven by its advantageous environmental factors Investment incentives are primarily focused in Dong Nai, Binh Duong, and Lam Dong, highlighting the regional disparities in FDI allocation within the industry.
The insufficient foreign direct investment (FDI) in the Northern mountainous regions, North Central Coast, and Central Highlands has hindered the transformation of agricultural and rural economic structures across these areas This situation highlights the ineffective implementation of policies aimed at attracting FDI to regions with challenging socioeconomic conditions, revealing a lack of appreciation for their potential.
The causes of limitations in attracting FDI into agricultural sector in Vietnam
Attracting foreign direct investment (FDI) into the agricultural sector and rural areas faces significant challenges, including limitations in developing effective investment attraction strategies and inadequate infrastructure for agricultural growth.
We can point out the causes of these inadequacies as follows:
3.4.1 Agricultural investment activities are high risk
The agricultural sector in Vietnam is fraught with risks due to its reliance on unpredictable weather conditions and natural disasters, resulting in low profit margins and income levels for producers Seasonal and perishable products further complicate the situation, while an inadequate irrigation system exacerbates the dependency on climate Additionally, the incomplete agricultural insurance framework fails to attract foreign investment, as potential investors remain wary of the sector's volatility Environmental pollution poses another challenge, necessitating higher capital investments for waste treatment and pollution control, ultimately raising production costs Consequently, foreign direct investment (FDI) projects in aquaculture are struggling with water environment issues, jeopardizing the sustainability of their operations.
3.4.2 The infrastructure system for agricultural sector has not met the requirements
The road traffic system in Vietnam, particularly in remote areas, suffers from poor quality and is prone to damage during the rainy season This adversely affects the production and distribution of goods, resulting in elevated transportation costs Consequently, foreign direct investment (FDI) in the Northern mountainous regions, including the Northwest and North Central areas, remains significantly limited.
- The supply of clean water for living activities in the countryside, the water supply system for production is still lacking
The irrigation system faces significant challenges, including limited capacity and unsynchronized operations, leading to severe water shortages in arid regions such as the Central and Central Highlands In some areas, water pollution renders it unsuitable for agricultural production, while the Mekong Delta suffers from salt contamination Conversely, the Red River Delta experiences flooding issues Currently, only 39.68% of the area dedicated to vegetable and industrial crops is actively irrigated, highlighting the urgent need for improvements in water management and irrigation practices (GSO, 2020).
- The infrastructure system for the research and development of high-tech agricultural sector has not yet received adequate attention
The current commercial infrastructure, including transaction centers, rural services, storage systems, logistics services, and wharfs for gathering and transshipping agricultural products, exhibits significant weaknesses and fails to adequately meet investment demands.
Agricultural foreign direct investment (FDI) enterprises typically allocate significant funds towards professional training for their workforce and the development of essential infrastructure, including in-field irrigation, inter-village roads, and water supply systems However, these investments can inadvertently lead to reduced business efficiency in agricultural production.
While FDI enterprises in industry and commerce are not subject to these investments
3.4.3 Agricultural land is not concentrated
Foreign Direct Investment (FDI) in Vietnam's agricultural sector faces significant challenges due to limited land availability for production Many projects struggle to secure sufficient land as Vietnam's policies often result in fragmented agricultural land being divided among farmers This fragmentation makes it difficult for FDI enterprises, which require larger plots for their operations, to accumulate the necessary land, causing delays in project implementation and hindering expansion efforts Consequently, land-related issues and policies emerge as the primary barriers to attracting FDI in Vietnam's agriculture, as most land remains under the control of farmers, leaving foreign investors with limited options for large-scale agricultural development.
Afforestation and industrial crop projects are struggling due to insufficient land resources, which hampers large-scale production In regions like the Northwest provinces, challenging terrain and poor infrastructure deter investors To secure adequate land for investment, investors must negotiate with farmers, incurring additional costs for land use fees Moreover, agricultural projects often face lengthy timelines and rigorous testing processes, leading to insecurity for enterprises reliant on farmers who may breach contracts for higher offers Compounding these issues, many localities prioritize industrial and urban development over agriculture, neglecting environmental protection, which further diminishes the agricultural land fund, pollutes water sources, and reduces the appeal of the agricultural sector to foreign investors.
3.4.4 The agricultural production is small, scattered, unconnected, and the quality of labor force is still low
The agricultural sector in Vietnam is characterized by small-scale production and a large number of farmers who lack experience in mass production and often face poverty and psychological challenges The production areas lack specialization and cohesive infrastructure, resulting in an unstable production structure and a short-term vision Most agricultural activities are conducted by households using traditional methods and simple techniques, with little training in management or technical skills Farmers independently decide on purchasing inputs like seeds, fertilizers, and veterinary drugs, but the absence of professional supply services leads to low-quality inputs, hindering productivity and product quality This situation discourages foreign direct investment (FDI) in the sector Furthermore, the banking system and credit institutions do not adequately support agricultural producers, resulting in a reliance on short-term cash capital that diminishes FDI interest Consequently, agricultural production has not established sustainable value chains across all stages, creating an unhealthy market for agricultural products and raw materials.
3.4.5 There is no clear and appropriate strategy and orientation to attractFDI into agricultural sector
The lack of proper planning and enforcement in the production of raw materials has hindered the establishment of reputable, branded concentrated production areas with adequate infrastructure for large-scale commodity production This deficiency has led to unregulated growth, arbitrary competition, and monopolistic practices, resulting in a chaotic and unstable agricultural raw materials market Consequently, the absence of state control over the origin and quality of these materials has made the sector unattractive to foreign direct investment (FDI) Furthermore, national projects funded by the government often overlook detailed information about the agricultural sector, presenting brief and subjective project descriptions that fail to highlight the actual benefits for FDI investors, thus diminishing their appeal to foreign stakeholders.
3.4.6 The legal system still has many shortcomings
Investment policies and regulations remain flawed, marked by incompleteness and inconsistency between general and specialized laws Discrepancies in perceptions among management agencies complicate the evaluation of investment certificate issuance and hinder effective business advisory during project implementation Additionally, cumbersome administrative procedures are time-consuming and costly, leading to investor fatigue There is a notable lack of synchronization and cohesion among sectoral plans, as well as between local, regional, and sectoral planning efforts.