FDI Enterprises: Remarkable Contributions to Vietnam Economy

8:38:45 AM | 7/21/2021

FDI enterprises have been playing an important role and contributing to the socio-economic development of the country, especially in manufacturing and export of goods and creating jobs.

Present in all business fields

The largest FDI enterprise in Vietnam is Korea's Samsung. Samsung Vietnam has been investing in Vietnam via Samsung Electronics Vietnam (SEV) factory since 2008. Up to now, the company has disbursed 100% of the total approved capital of US$17.5 billion with six factories across the country. Each year, the company adds hundreds of millions of dollars of investment in Vietnam. The total export turnover of Samsung Vietnam in 2020 was about US$57 billion, accounting for a significant proportion of Vietnam's total export turnover. Of the US$28.79 billion earned from exporting phones in 2020, Samsung contributed over US$25.9 billion, accounting for over 90% of the total export turnover of this item.

Over the years, Singapore's enterprises have shown a keen interest in the Vietnamese market when investing heavily in many fields. In particular, Vietnam is currently attracting a record number of Singaporean businesses in the context that these companies continue to seek opportunities to expand their operations abroad despite the COVID-19 pandemic. In the first four months of 2021, Singapore has become the largest investor with a total investment of over US$4.8 billion, accounting for nearly 39.6% of total investment capital in Vietnam. One of the symbols of bilateral economic cooperation between Vietnam and Singapore is the 10 Vietnam-Singapore Industrial Parks (VSIP) across Vietnam, 9 of which have been put into operation with an occupancy rate of about 76.5%. Those projects are always evaluated for high efficiency.

As one of the first foreign-invested enterprises in Vietnam, for over 26 years, Toyota Vietnam (TMV) has continuously improved its techniques, expanded its production scale, and supplied high quality products to Vietnam and the world market, making a significant contribution to the development of Vietnam's automobile industry as well as socio-economic development, becoming one of the most successful FDI enterprises in Vietnam. Not only ensuring production and supply for the domestic market, the company also makes a great contribution to export value, bringing Vietnam into the global value chain of Toyota Japan Corporation. In 2020, Toyota Vietnam contributed more than US$900 million to the State budget and was one of 30 enterprises honored by the General Department of Taxation at the Taxpayer Honoring Ceremony 2020.

According to a survey by Navigos Search, Japanese manufacturers in electronic components and automobiles are planning to expand their operations in Vietnam in 2021.

In addition, many large corporations such as Apple, Foxconn and Luxshare have plans to increase supplier orders and increase investment activities in Vietnam. Many enterprises from China, Singapore, Korea and Japan are also exploring the market to develop production and business activities in Vietnam, especially the southern market. There have been many high-tech companies choosing Vietnam as their global production base such as Sanyo, Sony, Fujitsu, Toshiba, Panasonic, Nidec, Intel and Microsoft. These corporations have built production factories with modern technology and are continuing to pour more capital and expand the investment scale in Vietnam.

In particular, FDI has made great contributions in leading the process of industrialization, modernization and economic growth in Vietnam. In the period of 2016 - 2020, foreign investors have invested in 19 industries, in which the processing and manufacturing industry attracts many foreign investors, with total newly and additionally registered capital from US$13 to US$24 billion, accounting for a high percentage of total registered investment capital (40 - 70%).

In the first six months of this year, foreign investors poured capital into 18 industries in Vietnam. Taking the lead is the processing and manufacturing industry, attracting a total investment of US$6.98 billion. The second is the electricity production and distribution sector with a total investment of US$5.34 billion and the third is the real estate business with a total registered capital of US$1.15 billion.

High proportion in import and export

In the field of import and export of goods, FDI enterprises both account for a high proportion and have a higher growth rate than Vietnamese enterprises. Statistics show that, since 2001, FDI enterprises have exceeded 50% in the proportion of exports. FDI enterprises have continuously played a dominant role in the export of goods and the FDI sector recorded over 72% of the export proportion for the first time in 2017. The export growth rate of FDI enterprises is always higher than that of domestic enterprises, so the FDI sector is increasingly dominant in export.

Notably, in 2020, despite being affected by the COVID-19 pandemic, the total import-export turnover of FDI enterprises reached US$371.9 billion, accounting for 68.38% (out of the total US$543.9 billion). In the first five months of 2021, the export proportion of FDI enterprises accounted for nearly 75%. This shows that the resilience of FDI enterprises is quite good. Currently, FDI enterprises contribute about 10% of GDP in the production of domestic consumer goods, creating significant employment.

Notably, through the implementation of FDI projects, the labor structure is shifting from low-skilled labor-intensive industries to higher-quality labor-intensive industries.

In the early stages of attracting foreign investment, labor was often concentrated in a number of labor-intensive manufacturing industries such as textiles, garments and footwear. Up to now, the proportion of employees in several high-tech manufacturing industries is increasing rapidly, and the proportion of employees in electronics has increased continuously in recent years. Labor productivity also has improved thanks to the capital of the foreign-invested sector. Labor productivity of FDI enterprises is 3-5 times higher than the general labor productivity of the whole country, higher than that of the entire enterprise sector in general and of non-state enterprises in particular.

FDI enterprises have had a really important role in promoting economic growth, contributing to the increase in social investment, GDP growth, creating spillover effects on technology, and improving the level and capacity of production-business and management for domestic enterprises.

By Quynh Chi, Vietnam Business Forum