Increasing spillover effect of FDI sector

Minister of Planning and Investment Nguyen Chi Dung admitted that the foreign direct investment (FDI) sector has rapidly developed in recent times. However spillover effect on the economy has not been recognized due to missing links with private businesses. 

Significant contributions

According to the Ministry of Planning and Investment’s statistics, as of date, Vietnam has attracted nearly US$300 billion in FDI from 114 countries and territories in the world. The FDI sector has created around three million direct and about four million indirect jobs, and contributed 65 percent to Vietnam’s total export turnover.

Vietnam Chamber of Commerce and Industry (VCCI) Chairman Vu Tien Loc said that the FDI sector has made significant contributions to Vietnam’s economic growth and created many jobs for workers with the presence of a series of big corporations such as Samsung, LG, Honda, Toyota, Canon and Honeywell. These groups have contributed to increasing the attractiveness of the Vietnamese market.

In addition to advantages in terms of geographical location, political stability, cheap labor costs and large consumer market, Vietnam has attracted the interests of large corporations because of incentives for the FDI sector. Many provinces and cities throughout the country have paid special attention to FDI attraction, and are ready to create the most favorable conditions for FDI businesses.

However the FDI sector has not created spillover effect on the economy and has not promoted the development of private businesses as there is no link between FDI companies and private businesses.

“FDI companies, which enjoy technological, financial, marketing and managerial advantages, have received incentives and are supported from the global value chain as a basis for stronger growth, while private businesses have not been interested,” Vu Tien Loc said.

Tripartite principle

The government, international organizations and domestic associations have paid special attention to strengthening links between FDI companies and private businesses. Economists also discussed about its issue in the Annual Vietnam Business Forum 2016. Almost all of them said that FDI companies and private businesses have to strengthen links as they play a key role in the Vietnamese economy and are seen as a factor for sustainable development. Further links not only provides opportunities for stronger development of private businesses to help them participate in the global value chain, but also benefit FDI companies.

Korean Chamber of Commerce and Industry in Vietnam (Korcham) Chairman Ryu Hang Ha said, “The purchase of domestic spare parts produced by private businesses will have more significance compared to imported parts and accessories thanks to easier tax refund and administrative procedures. In addition, there are no extra cost and waiting time to FDI companies when purchasing domestic spare parts.”

The government, FDI companies and private businesses must have responsibility to coordinate with each other in order to strengthen links between the two sectors. Of which, the government has to act as a supporter through improvements in mechanisms and policies. Specifically, the government should introduce policies to improve quality of human resources by promoting reforms in the educational system.

Korean Business Association in Vietnam Chairman Han Dong Hee said that the government should have policies to create favorable conditions for FDI companies with a focus on expanding trading relations with private businesses. In addition, an intermediate goods channel is required and plays a particularly important role, helping FDI companies and private businesses understand each other and seek effective cooperation opportunities.

In addition to the government’s support, FDI companies and private businesses need to be active to strengthen links. FDI companies will offer opportunities for private businesses to find out about spare parts and accessories that they have a demand in the manufacturing process as well as facilitate private businesses in accessing the value chain. Meanwhile, private businesses need to be active in investing in modern machinery and equipment, promoting technology innovation, conducting market research and training of human resources in order to produce products meeting the needs of FDI companies.

Nguyen Hoa / ven