Sep 09, 2019 / 17:01

Linkage between FDI and Vietnamese firms remains weak

The Hanoitimes - The weak linkage between the FDI businesses and the private sector may put the economy in a vulnerable situation, when foreign investors may leave the country easily once things turn bad, an expert has said.

Only two out of 10 foreign direct investment (FDI) companies establish joint ventures with Vietnamese partners, leading to low added value from FDI projects to the economy, according to Vu Tien Loc, president of the Vietnam Chamber of Commerce and Industry (VCCI). 
Overview of the conference. Source: VGP.
Overview of the conference. Source: VGP.
Vietnam has been a success story of FDI attraction globally, but the efficiency of such capital inflow to the economy is disproportionate to the total amount of investment, not to mention growing cases of FDI companies engaging in transfer pricing or trade frauds, Loc said at a workshop discussing measures to improve the quality of FDI to Vietnam on September 6. 

After 30 years of attracting foreign investment, the amount of FDI commitments has reached US$350 billion to date, averaging annual growth of 20%, which is also the economic sector with highest growth rate in Vietnam’s economy. 

The weak linkage between the FDI and the private sector may put the economy in a vulnerable situation, when foreign investors may leave the country easily once things turn bad, Loc added. 

Deputy Minister of Planning and Investment Vu Dai Thang said measures are needed to help local enterprises further integrate in foreign investors’ value chain, referring to the Politburo’s recently-issued Resolution No.50, which provides guidance on perfecting the legal framework and policies towards greater efficiency in foreign investment until 2030.

Thang said it is unfair to blame foreign investors for the weak linkage, and local enterprises also have to step up their efforts. 

Regarding this matter, Loc admitted low capabilities of Vietnamese enterprises and its workforce in absorbing technologies have caused difficulties in lifting efficiency in the linkage between the FDI and private sectors. 

According to Loc, a recent survey showed 85% of FDI companies are having difficulties recruiting Vietnamese high quality personnel and experts.

Loc expected local enterprises to improve corporate governance and efficiency in operation for mutual benefits of both foreign investors and Vietnamese enterprises. 

Moreover, FDI companies should focus on creating added value in Vietnam, as no incentive should be given to companies that import input materials just for assembling in the country for export later, Loc stated. 

Among criteria set in Resolution No.50, Vietnam’s supreme decision-making body has requested foreign investments to undergo thorough scrutiny for their possible implications to national security, a point Deputy Minister Thang considered a normal practice and receives positive response from the business community. 

VCCI President Loc said the issue of national security is directly related to the independence of Vietnam’s economy, in which the private sector plays an essential part. 

Loc said many foreign companies are welcoming this new requirement, which could open new room for development and create conditions for a new wave of higher quality of investment inflow to Vietnam. 

Measures to attract high quality FDI projects 

For the new strategy to fulfill its objectives in Vietnam’s next phase of development, the Politburo outlines a number of measures. 

First, a screening process is required to prevent issues relating to investors with limited financial capabilities, high risks of transfer pricing and trade frauds. 

Second, investment should be promoted based on a comprehensive review, including possible implications to national security. 

Third, government agencies are required to draft a list of areas where foreign investments are restricted in compliance with Vietnam’s international commitments. Other than this list, foreign and domestic investors are treated equally and fairly. 

Fourth, each sector and province to has to devise sets of criteria for foreign projects. 

Fifth, projects using obsolete technologies or posing risks to the environment would not be considered for expansion or validity extension. 

In addition to these measures, the Politburo requested to include measures protecting rights of foreign investors in terms of intellectual property, assets and capital, but at the same time clarifying the responsibilities of investors in environmental protection during the project implementation. 

The Politburo sets target for FDI commitments in the 2021 – 2025 period at US$150 – 200 billion, averaging US$30 – 40 billion per year, and disbursement of US$100 – 150 billion during the period.

In the 2026 – 2030 period, FDI commitments would reach US$200-300 billion and disbursement of US$150 – 200 billion.