Monday, May 21 2018


FDI adds little to State budget

Update: November, 29/2014 - 09:22

Foreign-invested enterprises contribute less than the State sector, deputy director of the Viet Nam Institute of Economics Nguyen Chien Thang told the newspaper Hai quan (Customs).

In your opinion, what are the main contributions made by FDI to Viet Nam's economy in the past 25 years?

FDI contributions to our national economy have increased year by year. In the first few years, they played an important part as at that time Viet Nam had a big shortage of capital resources. FDI enterprises provided jobs for many people and created an impetus for the application of advanced technology.

Overall, FDI's biggest contributions to the national economy has been in job creation and capital resources. Technology application is still limited and not up to expectations.

If we want rapid economic growth, we need more money, but our financial capacity is still weak. Our gross fixed investment accounts for about 40 percent of GDP, of which 10 per cent comes from FDI. This figure indicates the important contribution to our national economy made by FDI.

Without FDI, I don't think that we would have achieved the high growth rate as at present, nor a current per capita income of $2,000. By the end of 2013, FDI enterprises will have provided jobs to more than 3.2 million people, an increase of eight times over the year 2000.

However, FDI contributions to the State budget rank third, after the State sector and private sector although they account for 25 per cent of grossed fixed investment and more than 60 per cent of total export turnover. This totally runs against our expectations, as business run by the FDI enterprises are more efficient than Vietnamese enterprises.

Yet reports on their losses are much higher than those of their Vietnamese peers. FDI enterprises have complained about their production losses while still expanding production. Have they applied a strategy of price transferring? This is still an open question.

Do you know why the FDI sector's contribution to our State budget is so small?

I think the contradiction here comes from inspections and tax surveillance of FDI enterprises that show signs of price transferring. Quite a few FDI enterprises, including Coca-Cola, Keangnam, Metro and others have been listed as possiblly being involved in price transferring.

Meanwhile, the Government has not yet adopted effective measures to correct the situation. I'm pretty sure, if we can handle this issue properly, tax payments to the State budget from FDI enterprises will be improved.

The FDI sector has generated many jobs. Do the workers involved have technical skills or simply work in production lines?

Most of the workers are on production lines of low value-added FDI enterprises. That's why their skills are low. For example, for workers in Samsung, Toyota, Honda or Ford enterprises, simply work on assembly lines - the last stage of production.

However, those who work in supporting industries have a chance to improve their skills as they actually involved in producing spare parts.

I visited Keiki Precision company in a hi-tech Park in Da Nang. I was told many of the workers there were sent to a four months' training course in Japan. After returning, they became trainers for their co-workers.

As a result, the number of workers acquiring new working techniques has increased. Later on, some of the best workers who have high motivation and innovation often set up their own companies to manufacture supporting industrial products for Japanese companies.

FDI enterprises have a continual excess of imports over export. So their added value to our economy is very small. Do you agree?

Yes. The added value they give to our economy is the workers' salaries. That's why we want to develop our own support industry. In other words, our enterprises will become part of the production of FDI enterprises. This is a good way to add value to Vietnamese workers. Of course, a part of the added value is reflected through their salaries.

At present, the link between FDI enterprises and Vietnamese enterprises is still weak. According to a survey conducted by the UNIDO and Viet Nam Chamber of Commerce and Industry (VCCI), about 30 per cent of Vietnamese enterprises have become in-put supply enterprises to FDI enterprises. I think if a good linkage is created between Vietnamese and FDI enterprises, advanced technology will be transferred.

Many people worry that Viet Nam may become a venue for FDI to be used to hire low-cost workers. What's your position on this?

This is a big challenge for us. Only a few countries are able to turn their countries from assembling places to places of innovation. In Asia, only a few countries can do that, including South Korea, Taiwan and Thailand. Among countries caught in the middle- income trap, only South Korea and Singapore have so far been able to get out of the trap.

For Viet Nam, it will take time, as our human resources are of low quality. There is an urgent need to overcome this because Viet Nam needs to elevate its economic advantages in the region and internationally. — VNS

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