Vũ Đại Thắng. – Photo vietnamfinance.vn
Three decades since the country began its process of economic renewal, foreign direct investment (FDI) has become one of the key sectors in Viet Nam’s economic structure and made great contributions to the country’s socio-economic development. However, in addition to the many advantages, there are still drawbacks with this fast-growing sector. Vũ Đại Thắng, Deputy Minister of Planning and Investment, speaks to Vietnam News Agency about FDI.
How do you evaluate Việt Nam’s achievements after 30 years of drawing FDI capital?
Since the Law of Foreign Investment took effect in December 1987, Viet Nam has spent more than 30 years luring FDI capital, which has turned into one of the country’s most important economic sectors.
More than US$182 billion worth of capital has entered Viet Nam in the past three decades, targeting almost every sector of the Vietnamese economy and making great contributions to the country’s economic development and transformation. FDI has helped Viet Nam create spearhead industries such as telecommunications, oil and gas, electronics, chemicals, steel, automobile and motorbike manufacturing, information-technology, garment and textile, footwear, and agricultural product processing. Thus, FDI has improved Viet Nam’s production and export capacity.
Up to now, FDI projects account for 25 per cent of the country’s total socio-economic capital and 70 per cent of the country’s total export turnover. Besides, FDI projects help increase revenue for the State budget, create more jobs and stabilise society. This sector creates 3.5 million direct jobs and nearly five million indirect jobs, of which many labourers receive training and have access to the world’s most advanced technology and management expertise.
FDI capital also helps Viet Nam in its global integration, raise its international status and complete its socialist-oriented market economy. Thus, Viet Nam’s economic restructuring can be faster and more effective, so that the country can change its economic growth model and improve its competitiveness.
What are the problems with FDI projects?
In addition to the great contributions of FDI projects to Viet Nam’s socio-economic development, there are problems such as technology transfer of FDI companies being below expectations, which in some cases has had negative impacts on the environment and slowed growth.
Additionally, FDI companies have had little effect on domestic firms, especially those in the supporting industry, resulting in just a small number of Vietnamese companies joining the global value chain. Most FDI companies in Viet Nam are manufacturers and processing firms, take advantage of low-cost labour and other input sources that receive incentives from the Vietnamese Government.
Meanwhile, we haven’t seen effective solutions to increase Viet Nam’s added value in the global value chain. Some domestic firms haven’t strictly complied with the law while some have committed transfer pricing and trade fraud, thus damaging the quality of the business environment.
Luring high-quality, value-added FDI capital has always been a priority for Viet Nam. Which sectors will be receiving the most FDI capital in the next few years?
First of all, we must perfect the legal framework and improve the country’s competitiveness to attract high-quality FDI projects that suit the Government’s socio-economic development strategy in the context of new science-technology, Industry 4.0 and the re-allocation of capital flows in the global financial market. Plus, we need to address which fields and sectors require the most FDI capital flow.
In the near future, we must give priority to launching high-tech projects and attract investment from multinational corporations in the fields of manufacturing, high-tech agriculture, information-technology and services in which Viet Nam has comparative advantages and potential over other economies. Those projects should be environmentally-friendly, natural resource and energy-saving, and match the Government’s socio-economic development strategy. We should also prioritise the development of FDI projects that are able to influence and connect with domestic firms.
We also need to carefully select FDI projects that are technology-rich and have value-added technologies, especially multinational corporations’ projects that encourage local firms to grow and promote the development of the supporting industry through linking FDI and domestic businesses. Those projects should cut their dependence on low-cost labour, save energy and save input materials.
Enhancing the connectivity between FDI and domestic firms is key to the improvement of added value and development of the Vietnamese economy. What will be the policies and solutions for this matter in the future?
Increasing the effectiveness of FDI projects and connecting FDI and domestic businesses are essential at the moment, especially when Industry 4.0 is causing changes in the world’s production and every economic sector via automation and use of artificial intelligence (AI).
To achieve that, we need to improve the quality of Government administration and control over all aspects, including private and FDI sectors, to minimise the number of violations in FDI projects such as import of backward technologies, environmental pollution, transfer pricing, tax evasion and labour strikes. I think this solution would be the most fundamental and important for Viet Nam.
We also need to improve the quality of labourers by giving them intense training so that they become high-quality technicians and managers and meet practical requirements on work safety and environmental protection. At the same time, Vietnamese companies must improve the quality of corporate governance and production management, especially when facing problems in work safety and environmental protection.
On the other hand, Viet Nam must focus more on its growth model – meaning the economy should be a place in which domestically-made products are good enough for domestic consumption – thus, foreign investors would feel the domestic market is highly attractive. Meanwhile, we should encourage domestic companies to produce their own input materials to become investors of the supporting industry.
I need to stress that we should encourage and motivate the private sector, and press Vietnamese companies to renovate and improve the quality of their technologies and management systems. Next, the Government will develop policies to support local companies so that they are able to stand level with international firms. If those are achieved, domestic companies will be connected, otherwise, there is no connectivity at all. – VNS