Last updated: Tuesday, March 26, 2019


How to Attract New Generation FDI?

Posted: Wednesday, December 26, 2018

It is time for Vietnam to build a new approach to draw new-generation FDI inflows, helping prevent FDI flows from transfer pricing, and raise the quality and environmental friendliness of high-tech industries, as analysed by experts.

New scenarios needed
Data released by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment showed that Vietnam licensed 2,714 new foreign direct investment (FDI) projects with a combined registered capital of US$15,788.4 million in the year to November 20, 2018, an increase of 18.4 per cent in projects and a decrease of 20.3 per cent in value from the same period of 2017. Combined with funds added to existing projects, the aggregate FDI value amounted US$23,191.7 million in the reviewed period, down 16.6 per cent year on year. Realised FDI fund rose 3.1 per cent year on year to US$16.5 billion.

In addition, 5,882 equity deals worth US$7.64 billion were struck in the period, 44.4 per cent more than a year ago. Of the sum, 995 equity pooling deals valued US$2.96 billion (resulting in the increase in registered capital of purchased entities) and 4.887 equity purchase deals were worth US$4.68 billion (not resulting in the increase in registered capital of purchased entities).

According to Mr. Nguyen Noi, the above figures showed that FDI inflows have changed markedly year after year. However, what draws policymaker's concern is the downside of this FDI inflow. For example, there is no real boost to other economic sectors and transfer pricing is still complicated. Thus, the investment and planning sector is looking forward to working with domestic and foreign experts to develop a strategy to attract new-generation FDI for Vietnam, he said.

Meanwhile, according to Mr. Wim Douw, Head of Private Sector at International Finance Corporation (IFC), what troubles FDI projects and capital flows in Vietnam is most FDI projects are involved in easy-to-bite pies in easy-to-tap markets and quick-profit fields like real estate, processing and manufacturing industries. Meanwhile, according to IFC researches, very few FDI firms regard highly skilled employees or competitive local supply chains as Vietnam's strength. Simultaneously, foreign companies operating in China, Thailand or the Philippines all said that workers in these countries are more skilled and supply chains are better than Vietnam.

Dr. Phan Huu Thang, former Director of the Foreign Investment Agency, said, it is time for Vietnamese policymakers to look straight into the real status of Vietnam's FDI inflows to thoroughly address obstacles of this economic fund inflow.

Troubleshooting solutions
Foreign strategists recommended that, in the coming time, it is necessary to focus on attracting capital from Vietnam’s environment-friendly, low-energy high-tech industries. Accordingly, Vietnam needs to actively promote investment for industries that generate most added values such as manufacturing and processing, services and logistics, agriculture, tourism, and education and healthcare. In particular, IFC experts are also open to the likelihood that foreign investors are currently operating at the Industry 4.0 level but Vietnam's institutional and business environment is still at the 2.0 level. Therefore, authorities need to fill this gap to successfully carry out the new-generation FDI attraction strategy.

From the institutional perspective, Mr. Dau Anh Tuan, Director of the Legal Department under the Vietnam Chamber of Commerce and Industry (VCCI), proposed that a major content of the new-generation FDI attraction strategy is that the Government of Vietnam aims at how to change investment attraction promotion methods. Project quality is priority rather than rushing to draw as much FDI as possible.

Mr. Bui Ngoc Tuan, Deputy General Director of Tax Consultancy at Deloitte Vietnam, said, Vietnam’s institutions are very accommodating to FDI enterprises which enjoy import tax exemption or reduction and preferential land tax. They are also exempted from corporate income tax. But, in the coming time, Vietnam needs to change this approach because preferential policies are rarely the first criteria for multinational corporations to consider and decide their operation positions. For that reason, in order to choose right investors with advanced environment-friendly industries, the country needs to develop a preferential mechanism to attract investors eyeing the domestic market. Authorities need to change their approach from racing to introduce incentives to draw investors to using specific advantages such as strategic position and assets to pull investors, he recommended.

Mr. Do Nhat Hoang, Director of the Foreign Investment Agency, said, in the coming time, we must focus on promoting investment projects. Investment promotion is necessarily nationalised and centralised to ensure cross-industry and cross-region connectivity and embrace product value chains. For priority sectors and areas targeted at transnational corporations, investment promotion agencies need to introduce specific addresses with sufficient information for investors to persuade them to locate their projects in Vietnam, he concluded.

Anh Phuong

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