Disbursed foreign investment this year may reach around US$12 billion, while pledged foreign investment may total almost $60 billion, Indochina Capital Vietnam said in a note to investors. Disbursed capital, which totaled $8 billion last year, hasn’t decreased since 1999, while pledged foreign investment in Vietnam last fell in 2002.

Rising foreign investment in Vietnam has helped underpin economic growth which last year reached 8.5 percent, the fastest since 1996. Inflows of capital from abroad have also allowed the central bank to maintain foreign-exchange reserves and provide support for the dong.

“Difficulties in mobilizing both onshore and offshore credit are expected to slow the disbursement rate and level of new commitments in 2009,” Indochina Capital said in its monthly update. Vietnam has “inevitably been sucked into the impending economic maelstrom of a global recession.”

Companies worldwide are anticipating a prolonged period of poor prospects and are cutting back on investment, the International Monetary Fund said last week.

Postponing investments

“The full effects on trade and investment have yet to come out,” US ambassador to Vietnam, Michael Michalak, told journalists in Hanoi Thursday.

“We’re seeing some companies that wanted to come to Vietnam to inspect investment opportunities saying, ‘we want to postpone, we want to wait a little while until we see how the financial crisis is going to affect our companies’,” he said, declining to identify any by name or industry.

While credit conditions in Vietnam have improved from earlier this year, the global lending environment has worsened, Peter Ryder, Hanoi-based chief executive of Indochina Capital Corp., said. The Vietnamese government has also become “more discerning” about licensing large projects, he said in a telephone interview Thursday from New York.

Posco, Asia’s third-biggest steelmaker, Friday said the government asked the company to relocate a planned $5 billion factory in Khanh Hoa Province, citing concerns including the area’s attempt to focus on attracting tourists.

Steel plants

The government also asked Sumitomo Metal Industries Ltd. and China Steel Corp. to shift a $1.15 billion steel project from a planned location in the south of the country out of concern the area has too many such plants, a government official said in September.

“Some of the mega-projects the authorities have approved in the past are either never going to happen or are not going to happen on the scale at which they were licensed,” said Ryder. “Globally, the incredible drop in consumer spending will have to have an impact on the amount of money coming into Vietnam.”

Slower foreign investment may contribute to a weakening of the dong against the dollar, HSBC Holdings Plc said this month.

“Vietnam has one of the largest current-account funding requirements as a percentage of gross domestic product in the region,” wrote Daniel Hui, a foreign-exchange strategist at HSBC in Hong Kong, in a November 5 note. “Our expectation for a sharp slowdown in regional foreign direct investment inflows thus has particularly serious implications for the currency.”

Vietnam, which controls the dong by setting a daily reference rate, has let the currency weaken 6 percent this year. The dong was at 16,970.5 against the dollar as of 1:45 p.m. Friday in Hanoi.

Thanh Nien news - November 15, 2008