New orientation in attracting FDI

Specific policies and solutions should be implemented to increase the upstream linkage and the spillover effect of FDI. Photo: H. Anh.

More than 25,000 projects and 320 billion USD

According to Ministry of Planning and Investment (MPI), up to April 2018, Vietnam has attracted more than 25,000 FDI projects with a total registered capital of 321.25 billion USD. Of these, 177.47 billion USD was disbursed, equivalent to 55.2% of the total registered capital.

According to MPI and World Bank experts, it can be said that Vietnam has achieved particularly good results in attracting FDI. Annual FDI inflows have increased by nearly 1,000% in the last 10 years. By 2016, FDI inflows into Vietnam have surpassed all other ASEAN countries except Singapore. In proportion to GDP per capita, Vietnam's FDI attraction has surpassed China and India (and all major ASEAN countries except Malaysia). FDI in Vietnam is also expanding geographically with 51 provinces and cities having FDI projects by 2016. Vietnam is ranked as the top 14 emerging markets in terms of attracting new investment from abroad compared to the scale of the national economy.

According to the Minister of Planning and Investment Nguyen Chi Dung, the FDI sector now contributes about 25% of total investment to society and 20% of GDP of the country, helping to speed up the process of economic restructuring, focusing on industry and services, promote export activities. For example, in 2017, the FDI sector accounted for 72% of the total export value, contributing to the international economic integration process.

However, 30 years of FDI attraction have certain limitations. According to Minister Nguyen Chi Dung, high technology, source technology from the FDI sector to support economic development... is not as expected. In some cases, it is a backward or low technology that affects the environment as well as the quality of growth. Law enforcement of some enterprises is not serious, many enterprises have the behavior of transfer pricing, trade fraud or environmental damage... Especially the linkage and connection between FDI enterprises and Vietnam enterprises have limited processes. FDI enterprises in Vietnam are mainly engaged in assembling and using cheap labor, taking advantage of the Government of Vietnam's preferences but not raising the added value.

In addition, figures from MPI show that FDI flows to Vietnam are mostly from Asian countries but have not attracted many projects from developed countries such as the US, European countries. Among the top 10 countries investing in Vietnam are mainly the countries and territories in the region, the "Asian dragons" (Hong Kong, Taiwan (China), Singapore, Korea accounting for 49% of the total FDI projects and 42% of the registered capital from 1988 to 2016; Japan accounts for 14% of projects and 12% of registered capital; China accounts for 7% of the projects and 3% of the registered capital. The United States accounts for only 4% of projects and 5% of registered capital.

Despite impressive results of FDI attraction, Vietnam needs a strategic policy change to maintain its competitiveness in ASEAN, ensuring the sustainability of FDI inflows. To receive and boost FDI with higher added value to achieve development goals.

Efficiency-based incentives

According to the draft of Strategic Orientation for FDI attraction in Vietnam for the period of 2018-2030, the main focus is the shift of focus from attracting appropriate investors to "products" of Vietnam to develop appropriate products (ie business environment and appropriate investment conditions) for the type of investment that Vietnam needs in the future, thereby maximizing the spillover effect and value increase of FDI.

On the issues to be noted in order to attract FDI in the coming time, Dr. Phan Huu Thang, former director of the Department of Foreign Investment (MPI), said that what is immediately needed is to review and re-evaluate the situation of attracting and using FDI during the past 30 years to realize the specific source causing shortcomings, weakness and have practical solutions. Dr. Phan Huu Thang emphasized the need to focus on each stage of the investment and business cycle of FDI in Vietnam: investment promotion, licensing, post-licensing ... to clarify the reason why at each stage, there are shortcomings such as the imbalance in the proportion of potential investors, the unsuitability of planning and projects, the delay in project implementation, the pollution of the environment, the abandonment of enterprises…

"It is necessary to clearly define orientations and plans for development of FDI attraction in the coming period in line with the development planning of each branch, locality, economic zones, existing industrial zones and special economic zones. Accordingly, it is necessary to build projects calling for specific FDI capital of each branch, locality and economic zone, thereby finding solutions to reach potential investors that Vietnam needs. It is not only waiting for the investors to come in, submit their dossiers and review their dossiers, but also select investors so as to ensure the progress of the project, the speed of economic development and construction, establishing a self-reliant economy with the close co-operation of Vietnamese businesses with FDI enterprises", Dr. Phan Huu Thang emphasized.

With regard to this issue, the new draft for FDI attraction strategy for the period 2018-2030 also provides recommendations to effectively attract this source of capital. Accordingly, MPI and the World Bank, the drafting agencies, propose that the establishment of a new "next-generation foreign investment management agency" with full jurisdiction and a deeper integration function to direct the implementation for the new FDI attraction strategy generation.

At the same time, specific policies and solutions should be implemented to increase the upstream linkage and the spill-over effect of technology through FDI, especially in the group of foreign FDI seekers who are looking for efficiency when coming to Vietnam. At the same time, it is important to revise the current investment incentive framework and to re-establish the balance between "profit-based" incentives with "efficiency-based" incentives, whereby transferring the provisions of the Investment Law to the Tax and Customs Law, with the support of an effective monitoring and evaluation system.