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Looking through weaknesses to attract EU capital flows: Report

The European Union-Vietnam Free Trade Agreement (EVFTA) and the European-Vietnam Investment Protection Agreement (EVIPA) have helped the country attract foreign direct investment (FDI) from EU member states.
Looking through weaknesses to attract EU capital flows: Report ảnh 1Speakers at the event on October 25 morning. (Photo: VNA)
Hanoi (VNS/VNA) - The European Union-Vietnam FreeTrade Agreement (EVFTA) and the European-Vietnam Investment ProtectionAgreement (EVIPA) have helped the country attract foreign direct investment(FDI) from EU member states.

However, the treaties also posed many challenges in luring capitalfrom EU businesses, especially amid the uncertainties of the COVID-19 pandemic,as well as geopolitical and economic instability, in general, and the EUeconomy, in particular, a report showed.

Since 2010, EU enterprises have increased their investment in Vietnamdespite the fact that the United Kingdom (UK) left the bloc.

In general, the number of EU partners investing in Vietnam tendsto increase over the years. Especially in 2020, 26 out of 27 countries in thisbloc registered to invest in the country. By August, the EU had atotal of 2,378 valid projects in Vietnam, worth 27.59 billion USD, according toa report released on October 25 at the workshop on "FDI flows from the EUto Vietnam in the context of EVFTA and EVIPA".

Recently, EU businesses have been interested in serviceindustries, clean energy, supporting industries, food processing, high-techagriculture, and pharmaceuticals.

Looking through weaknesses to attract EU capital flows: Report ảnh 2Illustrative image (Photo: VNA)
According to the report, the EVFTA and EVIPA have raised the scaleof FDI from EU member countries and FDI in general due to commitments on tariffreductions and creating competitive advantages for the countries in attractingthe EU’s FDI.

The main competitors in the region in terms of trade andinvestment do not have FTAs with the EU. Singapore is the only country in ASEANthat has signed an FTA with the EU.

However, this advantage may be short-term, as the orientation ofboth ASEAN and the EU is to sign an FTA between the two regions.

The agreements also contribute to the re-organisation of the EU'sinvestment in Vietnam by sectors and assist in creating a favourableenvironment through changes to the institutional and legislative framework.

"The implementation of EVFTA and EVIPA will be the drivingforce and requirement for the country to reform its institutions and legalframework, enhance the business environment, and provide morefavourable and safer conditions for investors," Nguyen Thi Vu Ha,co-author of the research, said at the forum.

Nevertheless, these agreements are just one of many conditionsrequired to get EU managers’ attention. The risks of the new context are likelyto weaken the business sentiment of global entrepreneurs in general and EUinvestors in particular. 

The digital transformation process may also narrow the EU'sinvestment flows into Vietnam, especially those investing in high-valuesectors, due to the change in investment objectives of multinationalenterprises. 

“Foreign investors tend to choose Vietnam for its cheap labour ornatural resources, but in Industry 4.0, their goal is to find knowledge andtechnology. Unfortunately, this is not an advantage of the country because itstill has many limitations in terms of skilled workforce and technological andfinancial capacity, while the quality of infrastructure for high-techindustries is still underdeveloped,” noted Nguyen Thi Thanh Mai, co-author ofthe report. 

Besides, the EU's FDI comes with high corporate socialresponsibility standards in protecting and training workers as well asrespecting and protecting the environment. Therefore, the implementation ofEVIPA requires continuously improving the competitiveness of the Vietnameseeconomy and its readiness to take advantage of opportunities from theagreement.

And due to resource limitations, Vietnam risks becoming adestination for low-quality FDI projects, the report pointed out.

At the event, Nguyen Chien Thang, Director of the Institute ofEuropean Studies, said that the pandemic was also a cause for the reduction inEU capital flows as some countries pursued the near-sourcing approach, bringingmanufacturing facilities back to their countries. 

High transportation expenses were also a problem for investorsbecause their main focus was making a profit, therefore they sought locationswith better investment opportunities.

With all the difficulties, the report proposed strengtheningresearch, popularising and disseminating information on the EVFTA and EVIPA,promoting institutional reform, improving the quality of the businessenvironment and infrastructure, reforming the financial market, and focusing ontraining to build a workforce that meets high-skill industry demand./.
VNA

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