Last updated: Monday, April 22, 2019


FDI - Strong Boost to Lift Vietnam Role and Posture

Posted: Wednesday, October 10, 2018

The Law on Foreign Investment in Vietnam was passed by the law-making National Assembly at the end of 1987. In the past 30 years, foreign direct investment (FDI) has made important contribution to national socio-economic development. The Vietnam Business Forum Magazine has an interview with Prof Nguyen Mai, Chairman of the Vietnam Association of Foreign-invested Enterprises (VAFIE) and former Vice Chairman of the State Committee for Cooperation and Investment (SCCI), on this issue. Quynh Ngoc reports.

You are reportedly one of first three people to open the way for FDI into Vietnam. Over the past 30 years, how do you assess Vietnam’s success in FDI attraction?
Vietnam attracted 25,691 FDI projects with a total registered capital of nearly US$323 billion as of May 2018. Foreign investors were estimated to spend US$179.12 billion in their projects, accounting for 55.5 per cent of their total registered capital. Up to 127 countries and territories invested in Vietnam, led by South Korea, Japan, Singapore and Taiwan (China). They invested in 63 provinces and cities in Vietnam and created 3.6 million full-time workers and 5-6 million more in indirect labour.

Since the Law on Foreign Investment was adopted in December 1987, Vietnam has attracted FDI funds for over 30 years. Needless to say, FDI has become an important economic sector of Vietnam.

More than US$182 billion of FDI has been invested in most economic sectors in Vietnam to date and contributed significantly to economic development, economic restructuring and formation of key industries such as telecommunications, petroleum, electronics, chemicals, steel, automobile, motorbike, information technology, leather and footwear, garment and textile, agricultural and food processing. FDI has made an enormous contribution to boosting Vietnam’s production and export capacity.

Today, the FDI sector accounts for about 25 per cent of total social investment and over 70 per cent of total export value of the country.

In addition, the FDI sector has played an important role in increasing tax revenue, stabilising social affairs and creating jobs for people who receive training to master advanced technologies and management skills.
FDI has also facilitated international economic integration, thus helping raise the standing, role and position of Vietnam in the international arena while placing pressures for perfecting the socialist-oriented market economy, accelerating economic restructuring more effectively and more substantively towards reforming growth model and enhancing economic competitiveness.

How would you assess the role and contribution of FDI enterprises in Vietnam?
30 years is a long enough time to properly assess the importance of the FDI sector to Vietnam’s socio-economic development, as well as the objective and scientific approach to FDI issues to draw experience lessons for shaping FDI policies.

The FDI sector has increasingly asserted its great role in Vietnam’s economy. It accounts for over 20 per cent of the gross domestic product (GDP) and GDP growth, over 50 per cent of industrial output and nearly 70 per cent of export value. It also generates direct and indirect jobs for 12-13 million people.

Foreign investment has made positive and impressive contribution in many aspects in integration and socio-economic development in each development period of the country.

First, foreign investment is a very important boost to growth and export. FDI accounts for about 25 per cent of total social investment. Despite existing priority given to land access, land rent, tax exemption and reduction, the FDI sector’s tax payment is not inferior to that of domestic firms. In 2017, foreign invested enterprises exported US$155.4 billion worth of goods, accounting for 72.6 per cent of the country’s export value and took a trade surplus of nearly US$30 billion, thus substantially reducing trade deficit.

Second, foreign investment has played an important role in creating employment and improving personnel quality, a fundamental factor for integration and development. In the early 1990s, labour redundancy and underemployment were very hard to be solved and resulted in low labour costs which foreign investors were interested in. Foreign investment has importantly helped solve that hardship and gradually raise the position of Vietnamese workers. While working for foreign-invested enterprises, workers have grown in many aspects like industrial working manner, corporate culture, professional attitude, technical and management skills, and foreign language skills. Many, after working for FDI enterprises, have become key technicians and executives in businesses.

Third, foreign investment directly and indirectly facilitates technology transfer and development, engages in and accelerates industrialisation process in Vietnam. FDI enterprises imported modern machines, equipment and technological lines for production and transferred technical processes, technological know-how and management experience to Vietnamese technicians, engineers, and executives. Many Vietnamese technicians and executives can hold positions previously specific to foreigners. This is good for FDI enterprises, since labour costs in Vietnam are much lower than in foreign nations. It is also very good for Vietnam’s technological development and human resources, as well as its magnetism to foreign investors. Many world-leading corporations from Japan, South Korea and the United States have invested in Vietnam. For example, Samsung Group aims to build its largest base of the world in Vietnam and recently built a large Research and Development (R&D) Centre with 2,000 engineers recruited in Vietnam, a very favourable condition to acquire and develop technology.

Fourth, foreign investment has supported deeper integration. Integration and foreign investment are mutually supportive and integration results strongly promote foreign investment and vice versa. Free trade agreements (FTAs), particularly new generation FTAs - the symbol of integration - are helped by foreign investment. Foreign investment also indirectly upholds cultural, social, tourist and friendship exchanges with other countries around the world.

Fifth, foreign investment and integration are important to boost technical and social infrastructure development and policy improvement, especially in trade and investment fields.

Sixth, foreign investment has exerted ripple effects on domestic firms. Many Vietnamese companies have enjoyed direct benefits when they enter joint ventures with FDI enterprises and engaged in export-driven production chains.

To increase spillover effects of FDI inflows on the economy while stimulating domestic businesses to grow, what policies does Vietnam need to adopt?
In my opinion, first of all, we need to improve our institutions, enhance our competitiveness to select and attract high-quality FDI projects in line with the country's socio-economic development strategy, as well as scientific and technological changes in the Fourth Industrial Revolution and shifts in international capital flows. At the same time, we need to identify sectors, industries and partners that need to be given priority to approach FDI. The Government should set out many guidelines and directions to create a more open investment and business environment highly appreciated by investors, businesses and people in the country and the world.

Vietnam should make a greater effort to create a modern market economy in line with the best possible standards/practices. State roles and functions should be reshaped. Stronger market economy and deeper integration mean narrower use of traditional intervention tools. The Government must shift its focus to creating a transparent, competitive, predictable business environment; promoting entrepreneurship that encourages investment and innovation/technology transfer; improving infrastructure; and raising human resource quality. This has created an attraction to FDI while assisting Vietnamese enterprises to grow.

Two main bottlenecks of growth are State apparatus and staff. The apparatus is cumbersome and inefficient, while public employees are redundant, unprofessional and unprincipled, thus dragging down business development. These two strains need to be addressed in order to produce new effective FDI policies.

I stress that changing direction is very important. Reviewing 30 years of FDI attraction, we must map out new directions to woo more qualified and substantive FDI.

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