Looking back at three decades of foreign investment

This year marks 30 years to the introduction of the Law on Foreign Investment, which launched a period of unprecedented contribution to the Vietnamese economy. But along with the success of the legislation’s outcomes, many shortcomings also need to be resolved. 

Achievements and shortcomings

According to the Ministry of Planning and Investment, to date, Vietnam has attracted more than 22,000 foreign direct investment (FDI) projects from 114 countries and territories in the world, with total registered capital of nearly US$300 billion. Vietnam is open to FDI in 19 economic sectors.

The FDIs have made significant contributions to the implementation of the country’s socioeconomic development targets. According to the General Statistics Office, they have contributed to more than 70 percent of the country’s export value and 20 percent of Vietnam’s GDP, creating jobs for around four million workers directly and millions of others indirectly.

In addition to the country’s advantages in terms of geographical location, political stability, cheap labor costs and a large consumer market, Vietnam has attracted the interest of large corporations because of incentives offered to investors. Many provinces and cities have focused on attracting FDI, seeking to create the most favorable conditions for foreign business.

However the FDIs have not created a spillover effect on the economy and have not promoted the development of private business as there is no link between FDI-funded companies and private Vietnamese firms.

The FDI sector has also revealed shortcomings such as the gap between registered and disbursed capital. The chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), Nguyen Mai, said that FDI disbursement has to date accounted for more than 53 percent of total registered capital in the country.

FDIs totaled an estimated US$21 billion in 2016, while disbursement reached around US$16 billion, meaning that the gap between registered and disbursed FDI capital has been narrowed. But, in all, about US$140 billion in total foreign investments have not been disbursed.

FDI capital in Vietnam focuses mainly on the manufacturing and processing sector with most being assembly projects. In addition, some of the FDI projects have resulted in negative environmental consequences and have affected Vietnam’s sustainable development.

Increasing spillover effect

Although the FDI sector is indispensable to Vietnam, there is growing awareness of the need to pick and choose the projects in order to enhance their contribution to the economy and reduce their negative consequences. Authorities seeking to attract foreign investors should also keep in mind that there are fewer and fewer lands available for investments, particularly in some big cities like Hanoi and Ho Chi Minh City, and there is a shortage of labor in some places.

This is the consequence of many local authorities across the country scrambling to lure foreign investment, Vietnam Chamber of Commerce and Industry Chairman Vu Tien Loc said.

According to VAFIE Deputy Chairman Nguyen Van Toan, in order to improve the effectiveness of FDIs, the government and local authorities should prioritize quality rather than quantity.

Dr. Hoang Van Cuong from the Central Institute for Economic Management said that Vietnam should have specific measures for FDI attraction. In particular, the government needs to perfect mechanisms and policies in accordance with Vietnam’s international economic integration process and promote administrative reforms in order to create the most favorable conditions for businesses.

To narrow the gap between registered and disbursed FDI capital, the government and localities need to attract selectively, with a focus on high-tech projects, while resolutely refusing infeasible projects with backward technologies. Concerning the problem of environmental pollution, some public opinion is of the view that Vietnam should not trade the environment for FDI projects.

To attract high-quality FDI projects and increase their spillover effect on the economy, Vietnam needs to pay greater attention to the training and development of human resources and improvement of labor productivity and competitiveness, while promoting links between FDI companies and private businesses.

Nguyen Hoa / VEN