New direction needed to eliminate "dark areas" in FDI attraction

With the projects that Vietnamese enterprises are capable of joint venture, companies are encouraged to apply the form of "joint venture enterprise" in order to transfer technology, management skills and improve skills for employees. Photo: H. Anh.

Contribute to scale up the economy

For the 30 years since Vietnam began implementing the Law on Foreign Direct Investment (FDI), the FDI sector has played a significant role in the Vietnamese economy. According to the Ministry of Planning and Investment (MPI), from 1988 to 20 May 2018, 64 provinces and cities have received 25,691 FDI projects from 127 countries, with registered capital (still valid) of 322.9 billion USD, realized FDI capital of over 170 billion USD. The FDI sector now contributes about 25% of total social investment and 20% of GDP of the country.

According to Prof. Nguyen Mai, former Vice Minister of MPI, Chairman of the Association of Foreign Invested Enterprises (VAFIE), statistics on the development of the Vietnamese economy from 2000 to present, shows the size of the economy. Our country’s economy has become many times bigger, in which the FDI sector contributes more and more to investment capital, state budget revenue, GDP, export and import. Accordingly, from 1991 to now, implemented FDI has increased rapidly, in the period 1991 - 2000 reached 19.462 billion USD, average 1.95 billion USD/year. In the period of 2001-2010, it was 58,497 billion USD, equivalent to 3 times the previous decade and USD 5.85 billion a year. In particular, in the period 2011 - 2016 reached 84 billion USD, equaling 4.55 times the period of 1991 - 2000 and 1.43 times 10 years ago, on average 12 billion USD per year.

"For localities attracting many FDI projects such as Hanoi, Bac Ninh, Thai Nguyen, Vinh Phuc, Hai Phong and Thanh Hoa in the north, and HCMC, Binh Duong, Dong Nai in the south, the contribution of this area is much bigger, making fundamental changes in the economic structure of each province and city, creating conditions for domestic businesses to develop their business with high economic efficiency, and people in the areas have become richer than neighboring provinces", Prof. Nguyen Mai affirmed.

Emphasizing the contributions of the foreign investment sector in terms of budgets, Dr. Phan Huu Thang, former director of the Foreign Investment Department, said that the contribution of FDI to the budget has increased from 2.8 billion USD in 1994-2000 to 14.2 billion USD in the ten years since 2001- 2010. By 2011, the FDI sector will contribute 3.5 billion USD to the budget; 2012 was 3.98 billion USD; 5.8 billion USD in 2015 and 6 billion USD in 2016. FDI also contributes significantly to Vietnam's export. In the recent years, the export of the FDI sector accounted for over 70% of the total export turnover of the country with the main items being high technology goods. In 2017, the trade surplus of the FDI sector has offset the trade deficit of the domestic business sector and created a trade surplus of 2.7 billion USD in the Vietnamese economy.

One of the issues of concern is the spillover effect of the FDI sector. According to Prof. Nguyen Mai, spillover effect is an important target of FDI attraction, and the reality of the past 30 years has shown that international economic integration, including FDI, has a direct impact on; capital investment goods and services, import and export, budget and GDP, but also creates a competitive environment forcing domestic enterprises to innovate technology, business innovation, business management, approach to production, distribution, business progress, changing the thinking and customs of enterprises and people.

In spite of this, besides the great contribution to Vietnam's economic development, the FDI sector has its dark areas, its limitations have caused its consequences. According to Dr. Phan Huu Thang, "There is a long way to look at the truth in the attraction and use of FDI over time to see the causes and find solutions to eliminate the dark patches in the FDI picture. An urgent requirement for state management of FDI in the coming period".

Improve management efficiency

According to expert Phan Huu Thang, the dark patches of FDI over the past few years may include slow-moving projects and the high number of suspended projects. The quality of FDI is still low due to low technology level FDI projects; transfer or evasion of tax, evasion or failure to fulfill obligations to laborers and third parties creating a loss in business; The investment form of "100% foreign invested enterprises" is very high, up to 82% of FDI enterprises, leading to limitations on technology transfer. The use of land and mineral resources is not really effective ... In this regard, the report of the Foreign Investment Agency showed that out of 25,691 registered FDI projects in Vietnam in the past 30 years, there are up to 21,577 projects with 100% foreign capital, with a total registered capital of 233.3 billion USD. This represents nearly 84% of total FDI projects in Vietnam. Joint-stock companies only accounted for a modest share of 3,855 enterprises with about 70 billion USD.

"In particular, there are two major perspectives of FDI in the past, which must be pointed out for remediation. First of all, the environmental pollution of some FDI projects on a large scale (such as Vedan in Dong Nai), and very large scale (such as Formosa in Ha Tinh) are typical examples. Second, the connection between FDI enterprises and domestic enterprises is very weak, or in other words, there is no spillover effect of FDI enterprises on domestic enterprises", Dr. Phan Huu Thang emphasized.

At present, global FDI inflows are likely to shift sharply to developing economies, especially in Asia, and from the above constraints, many argue that there needs to be a new direction to attract FDI in the new period. According to the Minister of Planning and Investment Nguyen Chi Dung, this is an important time for Vietnam to finalize the evaluation of the surface and not just for foreign investment, and put in a new context with the movement of the world. There are changes in the Vietnamese economy that require a new strategy to attract foreign investment in the right direction, for the purpose of serving the economic development needs of the country. This is the selection of projects with high technology content, high value-added source technology, large projects of transnational corporations to create a spill-over effect by promoting domestic enterprises, and development of supporting industries through the connection of FDI enterprises and domestic enterprises. These are projects that reduce the dependence on cheap labor, reduce energy consumption and input materials.

In this regard, Professor Nguyen Mai emphasized that in order to achieve green growth, it is not advisable to attract more FDI projects to produce cement, steel and petrochemical refineries. This can be done by choosing investors and modern technologies to be implemented for a number of coal-gas and gas-fired power plants, while encouraging them with incentive policies attractive to large economic groups for solar, wind and electricity renewable energy projects. The near future is tidal power. In order to improve the spillover effects of the FDI sector, the expert suggested that for some projects where Vietnamese enterprises have the capacity to enter into joint ventures with foreign investors is, "In order to pass on mutually beneficial cooperation in order to transfer technology, business management skills and raise the skill level of Vietnamese workers, engineers and staff.

From a management perspective, Dr. Phan Huu Thang said that the concern of this is to improve the effectiveness of state management on FDI, and the responsibility of the contingent of civil servants. Existence of FDI can be attributed to weaknesses in state management and the quality of state management staff. Therefore, overcoming the negative impacts of FDI and in order to continue using FDI more effectively in the coming period, is a mandatory requirement for state management.