The Hanoitimes - After gaining tremendous achievements in attracting foreign direct investment (FDI) inflows in the past years, Vietnam now plans to focus only on high-quality FDI projects in a move to optimize the capital source a spillover effect on the domestic sector.
FDI inflows in Vietnam has increased by nearly 1,000 percent over the last decade, making the country's FDI value per capita exceed the levels recorded in China, India, and all the major ASEAN countries, excluding Malaysia.
According to the Foreign Investment Agency under the Ministry of Planning and Investment (MPI), foreign investors registered to pour US$35.88 billion in Vietnam last year, up 44.4 percent over the previous year. FDI disbursement also saw a record, as it increased 10.8 percent to $17.5 billion.
Education will be among 17 sectors with the most potential for targeted investment.
With its improved position in the region and the world as well as its attractive business climate, Vietnam is clearly an appealing destination for foreign investors. Together with the recovery of the world's economy, experts said Vietnam's FDI inflows will continue to keep advancing at least until 2020.
However, processing and manufacturing, which create low added value, wages, and weak spillover effects, have been dominating the country's FDI scene with huge total investment value.
Large-scale FDI businesses are not those from the EU or US, in contrast, most of them are from Asia, economist Nguyen Minh Phong said, adding that some of the projects caused negative impacts on the environment, such as the Formosa incident in April 2016.
The FDI sector's role in promoting the domestic economic sector has also fallen far short of expectations, Chairman of Vietnam Association of Foreign Invested Enterprises Nguyen Mai said, adding that Vietnamese firms still have very modest positions in the global supply chain.
Mai took the textile and garment industry as an example, where domestic firms continued to participate mainly in low-added value stages despite the sector's exports reaching $31 billion in 2017. A similar story was repeated in mobile phones production, he added.
Wim Douw from the World Bank Group's Trade and Competitiveness Global Practice said Vietnam has drawn more and more investments over the past 30 years because of the country's strengths in terms of cheap labor costs and preferential policies. However, Vietnam's socio-economic position has completely changed and the spillover effect of FDI on the domestic sector has not been high.
New FDI strategy
"It is time for Vietnam to control or say no to FDI projects with too small scale," Mai said, adding that FDI quality was the most important factor and its impact on the domestic enterprises was an indicator.
Investment Minister Nguyen Chi Dung also affirmed that Vietnam would not attract FDI at all cost. Rather, it will facilitate projects based on high technology, source technology, and a high added value.
It will also seek to lure large projects of transnational corporations, which are strong enough to promote the development of the domestic economic sector and of support industries by connecting FDI enterprises with domestic ones, he said, adding that this requires consistent cooperation between relevant authorities and localities.
Under the move, MPI, with supports from the World Bank, is mapping out a new draft strategy for attracting FDI in the 2018-2023 period, targeting to identify priority sectors in order to attract high-quality FDI and create a spillover effect on the economy with focus on high-tech, environmentally friendly, low-energy consuming and renewable energy projects.
The strategy identifies 17 sectors with the most potential for targeted investment in addition to enhancing connectivity between FDI businesses and domestic companies. Among them are education and healthcare, pharmaceuticals and high-tech equipment and transportation.