Long for a "new" filter to select FDI projects

Ho Chi Minh City Hi-Tech Park is attracting many foreign technology corporations to invest. Photo: Hoàng Triều

Not commensurate with the benefits

According to Mr Dau Anh Tuan, Deputy General Secretary and Head of the Legal Department of the Vietnam Confederation of Commerce and Industry (VCCI), over the past 35 years since the official promulgation of the Foreign Investment Law was 1987, Vietnam has become an attractive investment destination to foreign investors. This is also a bright spot in Vietnam's economic development in the recent period. Compared to 1991, there were only 1.28 billion USD of registered capital and 428.5 million USD of realized capital, the amount of registered and disbursed capital in 2021 was about 30 times and 38 times higher, respectively. Although this is the year, the country was heavily affected by the Covid-19 pandemic.

The production and business activities of enterprises in the FDI sector also play an important part in creating jobs, and promoting international trade, cluster linkages and value chain linkages. At the same time, production efficiency is considerably contributed.

It is estimated that the export value of the FDI sector is equivalent to about 72% of Vietnam's total export turnover, having a hand in Vietnam's trade surplus in recent years. However, although FDI inflows are one of the important resources for economic development, the operation of foreign investment projects over the past has also encountered inadequacies.

According to a tax office report, there is still fraud in some FDI enterprises, such as transferring prices and evading taxes in Vietnam. In addition, some businesses do not comply well with the environmental regulations of Vietnamese law, creating a devasting effect on society. The incident in the Central Sea in 2016 or the discharge of waste into the Thi Vai River in 2009 reminds of the potential environmental risks if FDI projects are not properly managed and strictly supervised. Therefore, the problem is how to attract quality FDI projects, or find responsible investors and businesses; minimize the socio-economic and environmental risks caused by poor quality FDI projects", emphasized Mr Dau Anh Tuan.

Agreeing with the opinion of the Head of the Legal Department of VCCI, Mr Nguyen Van Toan, Vice Chairman of the Association of Foreign Investment Enterprises (VAFIE), also affirmed that, in terms of the quality of FDI projects up to this point, there are still many limitations such as modest high-tech projects from developed economies into Vietnam and the number of enterprises and insignificant numbers of research and development (R&D) centres.

Moreover, although the FDI economic sector is an important driving force with a growth rate that is always higher than other economic sectors in the economy, their donations to the state budget are not commensurate with the scale of the project as well as the incentives to be enjoyed", Mr Toan concerns.

Need a "new" filter to select the right investor

According to a survey by VCCI, so far, FDI project approvals are mainly based on experience, without detailed instructions, specific criteria, and detailed evaluation. Remarkably, investment projects are perfunctorily chosen in some localities especially, aspects such as environment and society are less focused.

In addition, the concept of a "responsible business project" is still very new, so the selected projects mainly focus on economics and are suitable for each separate place, but there is no synchronization between the two provinces and cities. As a result, several FDI enterprises do not comply with environmental regulations, labour and even the phenomenon of project running, transfer pricing, and money laundering.

In addition, participation in free trade agreements, especially new-generation agreements, also creates an impetus for Vietnam to harmonize regulations on transparency of the law, worker protection and anti-corruption. These promote both domestic and foreign businesses to take full awareness.

Faced with this fact, it is necessary to have more criteria to attract quality FDI projects from investors with a responsible business orientation. "Although we have policies, we lack detailed instructions or tools to support the screening, assessment and appraisal of investment projects in the localities," said Mr Tuan. And recently, VCCI and the United Nations Development Program (UNDP) jointly developed a tool to review FDI projects applying for permits in Vietnam.

The filter includes categories and factors to help localities evaluate when receiving investment license applications from foreign investors. Specifically, the tool will include Mandatory assessments on the compliance of investment laws in Vietnam; mandatory assessments of potential economic, social and environmental risks; criteria to encourage business compliance based on international best practices and responsible business practices. In addition, this toolkit includes a list of relevant factors in the screening and appraisal of FDI projects. On the other hand, initial reviews to exclude unqualified projects are also listed to raise business compliance with international standards and good business practices.

After evaluating the filter, Mr. Dao Xuan Duc, Vice Chairman of Ho Chi Minh City Industrial Park Association (HBA) said that localities need to have an accurate approach to this toolkit to take effective applications. The toolkit only gives the overall suggestion and recommendations Therefore, localities should proactively re-quantify the contents accordingly. Moreover, localities should also apply to concretize their situation. The more specific, the better in attracting investment because an accurate evaluation can make it easy for investors to understand the projects.