FDI businesses dominate exports: Old problem, not easy to solve

Vietnam has enjoyed a trade surplus since 2016 but the trade surplus is entirely thanks to the fact FDI businesses have a trade surplus. Photo: TKTS

Trade surplus belongs to the FDI sector

The policy of encouraging export-oriented foreign investment has supported Vietnam's greater access to international markets, improving its export capacity, especially in industry. According to the Ministry of Industry and Trade, in 2001, exports of FDI businesses reached 45.2% of total turnover, including crude oil. The proportion of exports of FDI businesses has increased greatly, reaching the highest level of about 71.4% in 2018.

Talking to a reporter from Customs Newspaper, economic expert Le Quoc Phuong analysed that the characteristics of Vietnam's economy are very strong in FDI attraction. Many FDI businesses are export-oriented, so the proportion of exports increases rapidly. They have markets, partnerships, technology, good management, stronger financial potential. Therefore, over the past years, FDI businesses have continuously increased their export proportion, as well as FDI businesses, have increased. Export growth is always higher than domestic businesses, which is understandable.

In recent years, Vietnam has continuously had a trade surplus with a higher level of trade surplus next year than the previous year. However, the worrying point is that Vietnam's high trade surplus is mainly due to FDI businesses. “For many years now, FDI businesses have high trade surplus, domestic businesses have large trade deficit. The difference between the two sides is the trade surplus of the economy. Trade surplus is due to FDI businesses, export achievements are determined by FDI businesses", expert Le Quoc Phuong said.

At the end of 2020, when evaluating and summarising both the working process in 2020 and the five years of 2016-2020, implementing the tasks in 2021 for the Industry and Trade sector, the Ministry of Industry and Trade frankly pointed out that: "In general, exports are still heavily dependent on the FDI sector because the production and exports of this block strongly depend on regional and global supply chains, whenever there is a change in the supply chain, Vietnam's exports will be strongly affected."

Focus on connecting among FDI businesses and domestic businesses

In fact, looking back at the export process throughout, it can be seen that, after FDI businesses grew their exports continuously and completely overwhelmed domestic businesses, from 2018, domestic businesses began to rise strongly to create changes significantly in export growth. Specifically, in 2018, domestic businesses exported about $69.2 billion, up 15.9%, higher than the general export growth rate and 12 times higher than the growth rate of FDI businesses (including crude oil) 9%,” assessed by the Ministry of Industry and Trade.

At the time, expert Le Quoc Phuong, when talking to a reporter from Customs Newspaper, expressed his excitement and said that "2018 is the first year that domestic businesses have higher export growth than FDI businesses. For the first time, the continuously decreasing trend in the proportion of domestic businesses in exports compared to FDI businesses temporarily reversed. The proportion of FDI businesses has continuously increased for many years, but for the first time, it also stopped and decreased. This is very gratifying. The above reversal results are partly due to the efforts of businesses themselves, partly due to the Government's solutions to improve the business environment, remove difficulties, improve competitiveness, and create favorable conditions for businesses.”

The strong rise of domestic businesses continued to be maintained in 2019 when out of the total export turnover of $263.45 billion of the whole year, the domestic economic sector contributed $82.10 billion, an increase of 17. 7%, accounting for 31.2% of total export turnover; FDI sector (including crude oil) reached $181.35 billion, up 4.2%, accounting for 68.8%.

However, such above positive signals have not reached stability and do not last too long. The proof is that even in 2020, of the total export turnover of goods reaching $281.5 billion, the domestic economic sector only contributed $78.2 billion, down 1.1%, accounting for 27.8% of the total turnover of export quota while the foreign-invested sector (including crude oil) reached $203.3 billion, up 9.7%, accounting for 72.2%. Right in the first 4 months of 2021, FDI businesses continued to show their dominant position in the "picture" of goods exports when exports reached $78.14 billion, up 34.4% over the same period last year, accounting for 75. 2% of total export turnover; while the domestic economic sector reached $25.77 billion, up 12.8%, accounting for 24.8% of total export turnover.

According to expert Le Quoc Phuong, over the past time, Vietnamese businesses have improved in the proportion of exports, but it is too slow and not entirely stable. The inherent weakness of domestic businesses is still trade deficit. From there, it shows that the improvement trend of Vietnamese businesses in the export structure is not enough to assess sustainability, much effort is still required. The Government must support a lot; the policy must be suitable within the framework of international commitments. In addition, businesses themselves also have to make efforts to improve their position in exports.

According to Nguyen Van Toan, Vice Chairman of the Association of Foreign Investors, no country can develop if it only depends on foreign investment without self-reliance, relying on foreign investment will forever fall into a difficult position; domestic businesses must grow stronger by building their own stronger industrial brand.

Some economic experts expressed the view that it is necessary to encourage private businesses to expand their business, especially in the fields of manufacturing and high technology to strengthen the domestic industrial base. Vietnam to attract FDI must apply the appropriate "tailor-made" method. That means Vietnam offers tax incentives, mechanisms, in return for clear requirements to have an impact and spread to domestic businesses on technology transfer.

The representative of the Ministry of Industry and Trade also emphasised that in the future, it is necessary to pay more attention and focus on connecting FDI businesses with domestic businesses, bringing domestic businesses to participate more and deeper into the value chain for FDI businesses to create out. The Ministry of Industry and Trade has determined that it will focus on solutions such as improving institutions, creating conditions for FDI businesses to own high-value, high-tech production lines and products to invest in Vietnam; focus on promoting the spillover effects of FDI businesses on domestic production.

In addition, the Ministry of Industry and Trade also exchanged and encouraged large FDI businesses to enter into joint ventures and associations, develop supporting industries and increase the localisation rate through domestic suppliers; Transfer technology and modern management skills to domestic businesses through joint venture and association projects in a number of important industries and fields.