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May 22, 2018 / 10:07

FDI attraction: Achievements and Shortcomings

Over 30 years of Vietnam`s effort in attracting foreign direct investment (FDI), Minister of Planning & Investment Nguyen Chi Dung pointed out several achievements and shortcomings of the process.

The FDI sector has been one of the driving force and played a pivotal role in Vietnam's socio-economic development, Dung said at a Q&A session of the National Assembly. 
 
Illustration photo.
Illustration photo.
In summary, he considered 7 achievements and 6 shortcomings during the process of FDI attraction. 

Firstly, foreign investment has created a new way of attracting investment with significant spillover effect for economic growth, in turn having a positive impact on realizing potential and utilizing efficiently of internal resources. 

Currently, FDI accounted for 25% of total social investment and 20% of GDP, according to the General Statistics Office. 

Secondly, FDI also contributed significantly to export, accounting for 72.6% of export turnover in 2017 alone.  Foreign investment has shifted the export components toward high added value goods export, instead of raw materials. 

Thirdly, FDI also amounted a significant portion into state budget revenue, raising from US$1.8 billion in period 1994 - 2000 to US$14.2 billion in period 2001 - 2010. In period 2011 - 2015, state budget revenue from FDI sector reached US$23.7 billion, contributing 14% of total state budget revenue. In 2017, the figure is estimated at nearly US$8 billion, equivalent to 14.46% of state budget revenue. 

Fourthly, FDI has had a positive impact on shifting economic components. At present, 58.2% of FDI investment capital concentrated in manufacturing and processing, producing 50% of industrial production value. Consequently, FDI sector has partly formed some main industrial sector of the economy, including telecom, oil & gas exploitation, electronics, information & technology (IT), steel and cement production. 

"Foreign investment has played a certain role in shifting agricultural components, diversifying products, increasing agricultural products value and applying modern technologies in the production process," Dung said. 

Fifthly, FDI has created jobs, improving the quality of human resources and a shift in the workforce's structure. 

Sixthly, enhancing the technological application rate of the economy, especially in oil & gas exploitation, electronics, telecom, IT, automobile mechanics, textile & garment, footwear production. 

Seventhly, FDI has completed the market mechanism, improving the government's economic management, corporate governance, supporting the reform process of state owned enterprises, administrative procedures. All of these efforts are aimed to enhance the economy's competitiveness. 

However, along with achievements of the FDI sector, there remain several shortcomings needed to be addressed. 

Firstly, the rate of job creation is not proportional with the investment scale, the average income of employees in the FDI sector is slightly higher than in the private sector. 

Secondly, the objective of attracting high technologies and technology transfer through FDI projects has not fully been attained. 

 Thirdly, FDI attraction orientation in sector and partners is limited. Specifically, FDI is mainly concentrated in assembling, with low localization rate; production process still required high amount of labor forces, resulting in low added value. Additionally, supporting industries have not grown as expected. Investment in the real estate sector is quite high in compared to other sectors such as agriculture - forestry - fishery (accounting for 1.6% of registered FDI), as well as a small number of projects in infrastructure development. 

Fourthly, most FDI projects are of small scale in total of 24,000 projects. Specifically, 75.9% projects with investment capital of under US$5 million, accounting for 5.7% of total investment; 45.1% projects with investment capital under US$1million, accounting for 1% of total investment. 

Fifthly, low spillover effect and cooperation between FDI sector and local enterprises. 

Sixthly, a number of FDI enterprises have conducted transfer pricing, tax evasion and trade fraud, while there remains FDI enterprises violate environmental regulations.