Will FDI in Vietnam retreat after FED raises the interest rate?

FED has decided to raise the prime interest rate by another 0.25-1.25 percent per annum, raising the concern that the foreign direct investment (FDI) flow to Vietnam will slow down.



The FED’s move of raising the interest rate is expected to affect FDI flow to emerging markets like Vietnam. However, analysts say the theory may not occur in Vietnam.

In December 2016, FED raised the interest rate to 0.75 percent per annum.

By March 20, 2017, Vietnam had licensed 493 new foreign invested projects, an increase of 4.2 percent in comparison with the same period last year, with the total registered capital of $2.92 billion, an increase of 6.5 percent.

Meanwhile, investors had registered the capital increase for 223 projects (up by 9.9 percent) with the total additional capital of $3.94 billion (three times higher).

There were 1.077  deals of capital contribution and stake acquisition reported (up by 48.3 percent) with the total value of $853 million (2.7 times higher).

As such, the total FDI capital registered in the period was $7.71 billion, a sharp increase of 77.6 percent compared with the same period last year. The implemented capital was $3.62 billion, up by 3.4 percent.

In March 2017, FED once again raised the interest rate to 1.0 percent. By May 20, 2017, Vietnam had licensed 939 new projects (up by 3.5 percent) with total registered capital of $5.6 billion (down by 26.1 percent). There had been 437 expanded projects (up by 2.8 percent) with additional registered capital of $4.74 billion (up by 83 percent) and 2.061 deals of capital contribution valued at $1.79 billion in total, twice as much as the same period last year.

By May 20, 2017, the total FDI capital registered in the period was $12.13 billion, up by 10.4 percent. The implemented capital was $6.15 billion, up by 6 percent.

The figures don’t show evidence about the effects of the interest rate hike to the FDI capital flow to Vietnam. There was no clear downward tendency in the capital registered in the months after FED raised interest rates.

A report showed $750.71 million worth of FDI from the Eurozone was registered in Vietnam in 2016, which accounted for 3.1 percent of total FDI capital.

The figure was $622 million in the first five months of the year, or 5 percent of total FDI capital.

As for investors from the US, the newly registered and additional capital in the first five months of the year was $96 million, an increase of 20.3 percent over the same period last year.

The figures show that investment from the Eurozone and the US continue to increase.

Thanh Mai / vietnamnet