Foreign direct investment (FDI) inflows from Europe will initially be slow to move into Vietnam following the implementation of the EU-Vietnam Free Trade Agreement (EVFTA) which entered into force on August 1.

With the implementation of the EVFTA and the EU-Vietnam Investment Protection Agreement, they are both seen as a way of helping the nation receive more quality investment capital flow from EU financiers. However, with their being no sign of complicated developments relating to the novel coronavirus (COVID-19) stopping, capital flows from various free trade agreement (FTA) will be slow to enter the country.

With regard to opportunities to receive EU capital, Nguyen Hai Minh, Vice Chairman of the European Chamber of Commerce in Vietnam (EuroCham), said the shifting of capital from European investors to the nation is not likely to enjoy a rapid increase in the near future.

According to some major groups and enterprises, there is a trend occurring of capital shift, although they still consider this issue to be within ASEAN nations or countries in South Asia such as India, Minh notes.

According to data released by the Foreign Investment Agency under the Ministry of Planning and Investment, as of June 20 the total newly registered figure for FDI, adjusted, and contributed capital to purchase shares for foreign investors had reached US$15.67 billion, representing 84.9% compared to the same period in 2019. In addition, FDI inflows into the country in June recorded an increase, although the waves of shifting investment have yet to be seen.

Nguyen Hai Minh says that European financiers are interested in three key factors in the nation, namely, improving infrastructure, quality human resources, and the investment and business environment, all of which can be considered as "magnets" which serve to attract investment.

Most notably, one of the leading issues among the European Commission as well as the European Parliament is the country’s commitment to trade facilitation for import and export activities, especially with regard to the prerequisite element which is information transparency and customs regulations.

Investors remain cautious

Moving cautiously when making investment decisions in the context of the COVID-19 epidemic adversely affecting the global business environment is currently a necessity for businesses. Therefore, it is difficult to assess the trend of investment shifting from the EU, even with the EVFTA coming into force imminently.

EuroCham's survey during the first quarter of the year on business climate index (BCI) indicates that the COVID-19 has had a significant negative impact on the European business community. Indeed, a similar situation is occurring throughout the world, as the pandemic has had a strong impact on international trade and investment in general.

As a result, the BCI has dropped to its lowest level, down to 26 points from the 77 points recorded in the fourth quarter of 2019.

According to EuroCham, this result directly reflects the impact of the pandemic on the global business climate. Accordingly, 55% of firms surveyed say that the environment for enterprises is either "not good" or "very bad". Furthermore, 93% of them say the COVID-19 has negatively impacted their operations, with more than half judging it to be at a "significant" level. Participants added that the three most negative effects include a reduction in the number of customers and orders, revenue decline, and supply chain disruption.

In order to take part in "handshakes" of co-operation, EuroCham says, the two sides will move to promote the establishment of the Vietnam-Europe Business Council with a view of gathering strength among businesses from both sides, as well as compiling strategies and investment projects in the future.

According to analysis by Giorgio Aliberti, Ambassador of the EU Delegation to Vietnam, the implementation of FDIs are often coupled with a strong boost in trade relations. Moreover, FDIs will serve to increase trade exchange between partners.

Both of these agreements therefore provide the country with the opportunity to become a regional production centre. Compared to similar economies in the region, the nation has the advantage of being a pioneer after negotiating for up to 10 years to have the privilege of accessing the EU market. Only Singapore, which signed and ratified an FTA before Vietnam, is in a similarly favourable position, Aliberti explains.