The trend of FDI in the world related to the restructuring of the international financial market under the impact of economic recession

DEFINITION OF FDI, FDI CAPITAL

Definition of FDI

According to the World Trade Organization (WTO), foreign direct investment (FDI) is defined as the process where an investor from one country (the home country) acquires and manages assets in another country (the host country).

The management dimension sets Foreign Direct Investment (FDI) apart from portfolio investment in international stocks, bonds, and financial instruments Generally, both the investor and the managed asset are business firms, with the investor known as the "parent firm" and the managed asset referred to as the "affiliate."

- Examples of foreign direct investments include mergers, acquisitions, retail, services, logistics, and manufacturing, among others.

Definition of FDI Flow

- FDI net inflow is defined as the total value of inward overseas direct investment made by foreign entities, including non-resident investors.

Inward foreign direct investment (FDI) involves the exchange of assets and liabilities between foreign investors and domestic enterprises, reflecting the financial interactions that occur when investments are made within the domestic market.

FDI net outflow refers to the total value of direct investments made by residents of a domestic country in foreign businesses This measure highlights the extent of outward overseas investment, showcasing the economic engagement of a country with global markets.

Outward foreign investments involve the transfer of assets and liabilities from domestic investors to foreign businesses in various countries This process is also known as inward direct investment or direct investment abroad.

THE TRENDS OF FDI IN THE WORLD UNDER THE IMPACT OF

The economic recession 2012 – 2013

- The three-year European public debt crisis has forced

Greece, Ireland, Portugal and Cyprus to seek relief from the international community to avoid default.

Spain and Italy are also at risk

France was almost caught in a spiral, and the German economy - Europe's leading - slowed significantly.

 Many European economies fell into recession and the Eurozone eventually failed to avoid recession again in the third quarter of 2012.

- The "financial cliff" in the US: The world's largest economy grew fairly strongly in 2012

Japan faces the risk of entering its fifth recession in 15 years due to deflation, a slowdown in global trade, weak domestic demand, and a significant decline in exports, particularly to China, which fell by 14.5% in November 2012.

- Emerging economies that grow quite quickly such as China, India, Brazil, do not keep their "form".

- The decline in exports was a key reason for a significant slowdown in asia's developing economies

- Structural challenges, weaker investment and excess output have caused the region's two growth engines, China and India, to lose momentum.

In 2012, the Asia-Pacific economy demonstrated resilience with a growth rate of 5.6%, despite a decline from the previously anticipated 6.5%, as highlighted in a United Nations report.

- According to the World Bank (WB), the developing East Asia region (Indonesia, Malaysia, Philippines và Myanmar), not taking into Account China, is a rare bright spot for the global economy.

The trends of FDI under the economic recession 2012 – 2013

Foreign Direct Investment (FDI) flows to developing economies reached a record $778 billion, representing 54% of global inflows, despite a slowdown in growth to 7%, compared to the 10-year average of 17% Developing Asia remains the leading region for FDI, significantly surpassing the European Union, which has traditionally held the largest share Additionally, FDI inflows increased in other major developing regions, with Africa experiencing a 4% rise and Latin America and the Caribbean seeing a 6% increase, excluding offshore financial centers.

Although FDI to developed economies resumed its recovery after the sharp fall in

2012, it remained at a historically low share of total global FDI flows (39 per cent), and still

57 per cent below its peak in 2007 Thus, developing countries maintained their lead over developed countries by a margin of more than $200 billion for the second year running.

Developing countries and transition economies represent 50% of the top 20 economies based on foreign direct investment (FDI) inflows, with Mexico ranking tenth Additionally, China achieved its highest FDI inflows to date, solidifying its status as the world's second-largest recipient of foreign investment.

Foreign Direct Investment (FDI) by transnational corporations (TNCs) from developing countries hit a record high of $454 billion, representing 39% of global FDI outflows alongside transition economies, a significant increase from just 12% in the early 2000s In 2013, six developing and transition economies emerged as some of the world's largest investors, highlighting the growing trend of TNCs from developing nations acquiring foreign affiliates of their developed counterparts within the developing world.

The 9 per cent increase in global FDI inflows in 2013 reflected a moderate pickup in global economic growth and some large cross-border M&A transactions The increase was widespread, covering all three major groups of economies, though the reasons for the increase differed across the globe FDI flows to developed countries rose by 9 per cent, reaching $566 billion, mainly through greater retained earnings in foreign affiliates in the European Union (EU), resulting in an increase in FDI to the EU FDI flows to developing economies reached a new high of $778 billion, accounting for 54 per cent of global inflows. Inflows to transition economies rose to $108 billion – up 28 per cent from the previous year – accounting for 7 per cent of global FDI inflows.

Developing Asia continues to lead globally as the largest recipient of foreign direct investment (FDI), with all subregions experiencing an increase in FDI flows except for West Asia, which has seen its fifth consecutive decline This decline is attributed to a lack of significant deals and increasing instability in various areas, leading to uncertainty that hampers investment Notably, FDI inflows to the Association of Southeast Asian Nations (ASEAN) reached a record $125 billion, marking a 7% increase from 2012 Additionally, East Asia's robust FDI inflows are largely driven by significant investments in China, which remains the second-largest recipient of FDI worldwide.

In 2013, foreign direct investment (FDI) flows to Latin America and the Caribbean rose by 14% to reach $292 billion, following a period of stability in 2012 Excluding offshore financial centers, FDI increased by 6% to $182 billion Unlike the previous three years when South America led FDI inflows, 2013 saw a significant surge in investments in Central America A notable contributor to this increase was the acquisition of Grupo Modelo in Mexico by Belgian brewer Anheuser Busch.

In 2012, South America experienced a significant decline in foreign direct investment (FDI), primarily driven by a nearly 30 percent drop in Chile, the region's second-largest FDI recipient This downturn was largely attributed to equity divestment in the mining sector and reduced reinvested earnings from foreign mining companies, following a decrease in commodity prices.

Foreign Direct Investment (FDI) in Africa increased by 4% to reach $57 billion, with Southern African nations, particularly South Africa, seeing significant inflows Despite ongoing political and social tensions impacting North Africa's FDI, Sudan and Morocco demonstrated notable growth Conversely, Nigeria experienced a decline in FDI due to the withdrawal of foreign transnational corporations from its oil sector.

In developed countries, inflows to

Europe were up by 3 per cent compared with

2012 In the EU, Germany, Spain and Italy saw a substantial recovery in their FDI inflows in 2013 In Spain, lower labour costs attracted the interests of manufacturing

TNCs The largest declines in inflows were observed in France, Hungary, Switzerland and the United Kingdom.

FDI flows to North America grew by

Asian investors significantly contributed to regional inflows, accounting for 23% of total acquisitions Notable transactions included CNOOC's $19 billion takeover of Canadian oil and gas firm Nexen, Softbank's historic $21.6 billion acquisition of Sprint Nextel, and Shuanghui's $4.8 billion purchase of Smithfield, marking the largest Chinese acquisition of a U.S company Additionally, foreign direct investment (FDI) flows to the United States increased by 17%, indicating a positive trend in the country's economic recovery over the past year.

Transition economies witnessed a significant 28% increase in foreign direct investment (FDI) inflows, totaling $108 billion, largely influenced by the Russian Federation Russia's FDI inflows surged by 57% to reach $79 billion, positioning it as the world's third-largest FDI recipient for the first time This growth was primarily driven by a rise in intracompany loans and BP's acquisition of an 18.5% stake in Rosneft, which was part of Rosneft's $57 billion purchase of TNK-BP.

Global FDI outflows rose by 5 per cent to $1.41 trillion, up from $1.35 trillion in

In 2012, investors from developing and transition economies significantly increased their foreign investments, driven by rapid economic growth, investment liberalization, and higher income from elevated commodity prices By 2013, these economies represented 39% of global outflows, a notable rise from just 7% fifteen years earlier Meanwhile, transnational corporations (TNCs) from developed economies adopted a cautious "wait and see" strategy, maintaining low investment levels similar to those of 2012.

Foreign Direct Investment (FDI) flows from developed countries have remained stagnant, with outflows unchanged since 2012 at $857 billion, which is still 55% below the peak levels seen in 2007 Multinational corporations from developed nations are holding significant cash reserves in their foreign affiliates, primarily as retained earnings This retained earnings component, crucial to FDI flows, has reached a record high of 67%.

Investments from the largest investor – the United States – dropped by 8 per cent to

In 2023, global foreign direct investment (FDI) outflows reached $338 billion, primarily driven by a decrease in cross-border mergers and acquisitions and unfavorable intracompany loans Meanwhile, U.S transnational corporations (TNCs) recorded a significant increase in reinvested earnings abroad, achieving an unprecedented level of $332 billion Additionally, FDI outflows from the European Union experienced a notable rise.

5 per cent to $250 billion, while those from Europe as a whole increased by 10 per cent to

Switzerland emerged as Europe's largest outward investor with $60 billion, contributing to a total of $329 billion in investments This growth was driven by a significant increase in reinvested earnings abroad and a rise in intracompany loans Countries like Italy, the Netherlands, and Spain, which experienced substantial declines in 2012, saw a remarkable rebound in their investment outflows.

France, Germany, and the United Kingdom experienced a notable decrease in foreign investments, with TNCs from France and the UK significantly reducing their equity holdings overseas In contrast, Japanese TNCs demonstrated resilience, increasing their investments by over 10% to a record $136 billion, despite the considerable depreciation of their currency.

The trends of FDI under the economic recession 2020 – present

The economic recession 2020 - present

- With the spread of Covid-19 becoming a full-blown pandemic disrupting supply chains, mass layoffs, countless bankruptcies and business dissolutions, paralyzing industries such as aviation and travel

- The wave of closures in the retail industry is spreading, unemployment is increasing rapidly, all delaying the recovery step during the epidemic period

Developing countries are facing a critical fiscal gap of $2-3 trillion due to the urgent need for increased health spending, declining tax revenues, reduced export earnings, and outstanding debt The international community has yet to address this pressing issue.

- Many countries have stepped up the implementation of blockade measures to prevent epidemics, causing economic activities such as production, consumption, investment, etc to all decline.

The ongoing trade war between the US and China has triggered a global economic crisis that significantly disrupts the global supply chain, posing serious challenges to the developmental progress of nations worldwide.

The trends of FDI under the impact of COVID – 19 Epidemic

- The COVID-19 crisis will cause a dramatic fall in FDI.

Global FDI flows are forecast to decrease by up to

40 per cent in 2020, from their 2019 value of $1.54 trillion.

- The pandemic is a supply, demand and policy shock for FDI The lockdown

12 measures are slowing down existing investment projects The prospect of a deep recession will lead MNEs to re-assess new projects.

2.2 FDI flows vary by region

Foreign Direct Investment (FDI) flows to Europe are projected to decline by 30 to 45 percent, a sharper decrease compared to North America and other developed economies, which are expected to experience falls of 20 to 35 percent This significant drop is attributed to Europe's more fragile economic position prior to the crisis In 2019, FDI flows to developed economies collectively rose by 5 percent, reaching $800 billion.

Foreign Direct Investment (FDI) flows to Africa are projected to decrease by 25 to 40 percent in 2020, further impacted by low commodity prices This decline follows a 10 percent drop in FDI in 2019, which amounted to $45 billion.

Developing Asia is expected to face significant challenges as foreign direct investment (FDI) is projected to decrease by 30 to 45 percent due to supply chain vulnerabilities, the high reliance on global value chains (GVC), and the increasing global trend to diversify production locations In 2019, FDI flows to the region already fell by 5 percent, reaching $474 billion, despite some growth in Southeast Asia, China, and India.

Foreign Direct Investment (FDI) in Latin America and the Caribbean is projected to decline significantly in 2020, potentially halving due to the compounded effects of the pandemic, ongoing political instability, and existing structural weaknesses in various economies In contrast, FDI in the region experienced a 10 percent growth in 2019, reaching $164 billion.

- FDI flows to economies in transition are expected to fall by 30 to 45 per cent The decline will largely undo a recovery of FDI to the region in 2019

The future of foreign direct investment (FDI) in structurally weak and vulnerable economies appears bleak, particularly for least developed countries (LDCs) that rely heavily on FDI in sectors like extractive industries and tourism Landlocked developing countries are especially impacted by disruptions in supply chains In 2019, FDI inflows to LDCs fell by 6 percent to $21 billion, accounting for merely 1.4 percent of global FDI.

FDI Inflows, Top 10 host economies in 2019

FDI Outflows, Top 10 home economies in 2019

China Germany Canada Hong Kong

2.3 Trends in greenfield investment projects and Cross-border M&As by sector

Announced greenfield projects in manufacturing fell by 14% to $402 billion However, investments in the manufacturing of coke and refined petroleum products increased by 12%, reaching $94 billion, despite a downturn in the extractive industries.

- Cross-border M&A sales in developed countries declined by 40 per cent in 2019, to

$411 billion The decline of cross-border M&As in 2019 was much stronger than the

Global mergers and acquisitions (M&A) activity has declined by 14%, reflecting a continued trend of reduced interest in cross-border expansions and consolidations This downturn is particularly pronounced in the services sector, which experienced the steepest drop in sales, followed closely by the manufacturing sector.

The International financial market under the impact of Covid – 19 Epidemic

The pandemic's impact on foreign direct investment (FDI) is being exacerbated by a global oil glut, leading to significantly low oil prices and a general decline in commodity prices.

- Although the pandemic will affect all industries, several services industries are being hit disproportionally, including aviation, hospitality, tourism and leisure in 2019.

- There was a notable downward trend in the first quarter of 2020 in announced greenfield investment.

- The pandemic has highlighted the dense interconnection of economies and factories in

The pandemic has highlighted the fragility of supply chains in East and South-East Asia, particularly due to work stoppages in China that have caused significant disruptions for numerous factories This situation emphasizes the critical role these supply chains play in the global economy.

China and other Asian economies as global production hubs.

- The decline was driven mostly by a 13 per cent drop in investment in East Asia, primarily in Hong Kong, China and the

Republic of Korea Inflows to China rose marginally and reached an all-time high of

- The number of M&As dropped by 35 per cent in April 2020 from the monthly average of 2019.

In 2019, South-East Asia experienced substantial inflows; however, the region is now facing a significant economic slowdown due to the pandemic, which has led to major disruptions in production and supply chains across various industries.

- Investment commitments in Indonesia and Viet Nam declined by 10 %.

- Market-oriented investment in construction, real estate, hospitality and other services will also be significantly affected by the economic slowdown.

In the long run, countries with lower labor costs, such as Indonesia and Vietnam, are likely to perform better as multinational enterprises (MNEs) expand their operations These nations stand to gain from MNEs' strategies to diversify geographical risks and create more resilient supply chains.

Investment relocations by multinational enterprises (MNEs) to mitigate trade tensions between the United States and China have significantly increased foreign direct investment (FDI) Notable companies like Intel from the U.S., and Japan's Nintendo and Kyocera, have shifted their operations from China to Vietnam.

3.3 In Latin America and Caribbean

Foreign Direct Investment (FDI) in 2020 is projected to be cut in half, significantly impacting commodity exporters in the region who are grappling with plummeting prices and reduced export volumes to key trading partners Investment in the extractive sector, which represents the largest share of FDI in the area, saw a substantial decline in the first quarter and is unlikely to rebound this year.

- Flows to the tourism industry, a key services sector industry in many economies of the region, especially in the Caribbean, are also sinking.

Outward foreign direct investment (FDI) from economies in transition is projected to decline further in 2020 and 2021 due to economic recessions in these home countries and the impact of low oil prices, which hinder the investment capabilities of multinational enterprises (MNEs) in the region.

The value of cross-border M&A purchases by MNEs in developed countries actually fell by 34 per cent, mainly in manufacturing and services.

Cross-border M&A sales fell sharply in chemicals and chemical products and in financial services.

- Several developed countries have introduced or are considering measures aimed at protecting critical domestic infrastructure and other sensitive industries

- Earnings forecasts for 2020 of the top MNEs based in developed countries show an average downward revision since the outbreak of 39 per cent.

VIETNAM’S FDI MARKET

Some advantaged situations

In 2020, the COVID-19 pandemic significantly disrupted the global supply chain, compounded by the ongoing trade war between the US and China, prompting a rapid shift of production away from China As a result, corporations increasingly turned to Vietnam for investment opportunities, particularly in four key sectors: information technology and high technology, electronic equipment, e-commerce and logistics, and consumer goods and retail.

Vietnam's strategic proximity to China enhances its appeal for investment and machinery movement, making it an attractive destination for international investors The country's favorable policies aimed at attracting foreign direct investment (FDI) facilitate the transfer of investments As a result, numerous global corporations are actively recruiting and exploring supply chain opportunities, with Vietnam emerging as a key player in this transition.

- Within 9 months from 2020, Vietnam also participates in many Free Trade Agreements such as CPTPP, EVFTA, etc that facilitate trade relations with many

Vietnam's strategic partnerships with 20 countries and regions enhance its appeal for international cooperation Additionally, the stability of the Vietnamese currency serves as a significant advantage in attracting foreign investment.

A 2019 report highlights that Vietnam boasts lower labor costs compared to Thailand, Malaysia, and Indonesia, while also experiencing a growing and increasingly skilled labor force.

Vietnam is emerging as a top investment destination for international companies, thanks to supportive policies that include reductions in corporate income tax, import and export taxes, land rental assistance, and streamlined administrative procedures These initiatives facilitate investment, company establishment, and the acquisition of investment registration certificates, making Vietnam an attractive choice for global investors.

The situation of attracting Foreign Direct Investment (FDI) in Vietnam

As of August 20, 2020, the Ministry of Planning and Investment reported that foreign investors' total newly registered, adjusted, and contributed capital for share purchases reached $19.54 billion, representing 86.3% of the amount from the same period in 2019 Additionally, the estimated investment in executing foreign direct investment (FDI) projects was $11.35 billion, which is 94.9% of the investment level from the previous year.

- Vietnam's FDI tends to decrease, which is mainly due to the outbreak of the Covid-

19 pandemic As of August 20, 2020, the total newly and adjusted registered capital of foreign investors reached 19.54 billion USD, equaling 86.3% over the same period in 2019.

In the first eight months of 2020, while newly registered and adjusted capital saw an increase compared to the previous year, foreign investment in joint ventures experienced a decline, leading to a reduction in the overall investment capital attracted during this period.

In the latest report, a total of 1,797 new projects received investment registration certificates, reflecting a decline of 25.3% compared to the same period in 2020 However, the total registered capital saw an increase, reaching US$ 9.73 billion, which is a 6.6% rise from the previous year This growth in investment capital is largely attributed to the Bac Lieu liquefied natural gas (LNG) power plant project, which secured a new investment registration certificate with a substantial investment of US$ 4 billion, representing 41.1% of the overall registered capital.

In the recent analysis, there were 718 registered projects seeking to modify their investment capital, reflecting a 20.9% decrease compared to the same period in 2020 However, the total additional registered capital surged to over 4.87 billion USD, marking a significant increase of 22.2% from the previous year.

2020) During 2020, adjusted capital in the 8 months of 2020 increased due to the adjustment of the South Vietnam Petrochemical Complex Project in Ba Ria - Vung Tau (Thailand).

In the first eight months of 2020, foreign investors engaged in joint stock brokerage 4,804 times, marking an 8.2% decline from the same period in 2019 The total capital contributed amounted to 4.93 billion USD, which represents only 51.8% of the value recorded in the previous year Additionally, the proportion of capital contribution and share purchases within total capital investment significantly decreased, dropping from nearly 42% in 2019 to just 25.2% in 2020.

Foreign investors have significantly contributed to 18 sectors, with the processing and manufacturing industry attracting over $9.3 billion, which represents 47.7% of the total registered capital Following closely is the electricity production and distribution sector, securing more than $4 billion, accounting for 20.6% of the overall investment.

Singapore leads foreign investment in Vietnam with a total capital of $6.54 billion, representing 33.5% of the country's total investment Following Singapore, South Korea holds the second position with $2.97 billion, accounting for 15.2% of the total China ranks third with $1.75 billion in registered investment, making up nearly 9% of the total investment capital Other notable investors include Japan, Thailand, and Taiwan.

SWOT Analysis of FDI market in Vietnam

This article analyzes the SWOT model of Vietnam concerning Foreign Direct Investment (FDI) attraction, identifying the country's strengths, weaknesses, opportunities, and threats By understanding these factors, Vietnam can develop effective strategies to capture global investors' interest Additionally, it emphasizes the importance of minimizing threats and addressing weaknesses to mitigate potential challenges in the near future and enhance economic growth.

Suitable location Lack fully oriented stable development

Abundant labor forces High-qualified labor forces demand

Low-cost production Long time for procedures

Low labor cost Corruption & bureaucracy

Stable politicy The Infrastructure is still being completed

Growing good reputation High competitive region

WTO’s member (2006) Some environmental issues

Supportive policies related to tax incentive

What does Vietnam need to do to attract FDI?

- Companies looked for some key factors when considering direct investment in a country.

Companies seek a skilled and experienced labor supply, convenient logistics for raw material shipment and finished product distribution, minimal bureaucratic hurdles for factory establishment and operation, as well as a stable political and economic environment.

- Vietnam scored well in most of these aspects, and quickly improves in areas it did not.

- But there were several things it could do to become more attractive to investors.

To enhance its standing in the World Bank Logistics Performance Index, currently ranked 45th, the country must urgently address its high logistics costs and invest in the development and improvement of its physical infrastructure.

- Government also needed to improve the country’s position in the World Bank’s ease of doing business rankings by streamlining the bureaucratic processes related to setting up and operating a business.

- “In the most recent World Bank survey, Vietnam ranks 70th out of 190 countries, ahead of countries like Indonesia, and the Philippines but behind Malaysia and Thailand.”

The government's newly introduced 'fast track' initiative aims to expedite the licensing process for Foreign Direct Investment (FDI) projects, showcasing its commitment to minimizing red tape and alleviating bureaucratic challenges faced by businesses.

- The Government should consider promoting quality FDI by setting up an Investment Promotion Agency (IPA) to actively market Vietnam’s advantages as an FDI destination around the world.

The Government has historically taken a reactive stance towards foreign direct investment (FDI), primarily engaging with foreign companies that initiate contact However, the Ministry of Planning and Investment, along with other relevant government departments, has become increasingly proactive in pursuing potential investment opportunities.

Vietnam must enhance its vocational training to equip the workforce with the necessary skills for more complex tasks Investing in research and development, along with upgrading technical universities, is essential for this improvement.

- Finally, the Government could encourage the formation of industrial clusters around desirable industries such as electronics.

- This strategy would have the dual advantage of maximising Vietnam’s benefit fromFDI investments and giving firms more confidence to locate their higher value- added activities in the country.

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