According to experts, investment incentives are among the vital tools to make the country more attractive to foreign investors, amid growing competition and changes in key global trends, while low salaries will no longer be an advantage. Vietnam currently relies heavily on profit-based incentives, like time-limited tax exemptions and tax reductions, as well as on preferential tax policies and import duty exemptions.
Ho Chi Minh City has so far lured US$44.4 billion of FDI capital
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According to International Finance Corporation, given Vietnam’s interest in growing FDI in more innovative, high-tech fields, the use of tax exemptions and concessionary rates is likely to create a higher cost to the government while delivering fewer of the intended benefits. Vietnam needs to focus on revising its strategy to adopt more tailored and cost-efficient incentives in line with its new FDI strategy.
Not all FDI priority sectors should necessarily receive incentives, IFC said, adding that incentives should be focused on those investors who will be most responsive based on their motivations and an analysis of the cost-benefit trade-off.
According to experts, international best practices suggest the need for precise tailoring and targeting of incentive instruments. Investment incentives should be linked to clearly defined policy objectives. The choice of the instrument, its parameters, and eligibility criteria should then be tailored to these specific policy objectives.
Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises, also said that competitiveness in the region has changed, while key global trends have taken shape. Meanwhile, investments from the EU and the US in Vietnam remain humble so if Vietnam doesn’t have a new and effective approach to attract them, the country’s FDI will mostly come from Asian nations like South Korea and Japan.
Disparity in FDI attraction
New policies are also needed to balance the FDI source among cities and provinces nation-wide as there is a huge disparity among the localities in attracting the capital inflow, experts said.
Statistics showed that more than 70 percent of FDI is now concentrated in only 11 of the country’s 63 cities and provinces, which account for only 33 percent of the population.
According to the Foreign Investment Agency under the Ministry of Planning and Investment (MPI), all of the country’s cities and provinces have acquired foreign invested capital. However, capital flows mostly pour in Ho Chi Minh City (US$44.4 billion) and Hanoi (US$32.9 billion). Besides Binh Duong occupying the third rank, there are also Ba Ria-Vung Tau (US$29.6 billion) and Dong Nai (US$28.2 billion). In the bottom of the list are Dien Bien, Lai Chau, and Ha Giang, which have only attracted a few million of dollars.
To deal with the shortcoming, MPI Deputy Minister Vu Dai Thang said that in the near future, MPI is going to put forward a new legal framework that encourages cities and provinces to co-operate with one-another and rise to success as a group, distributing gains more evenly. At the same time, there should be strategies to narrow the gap in FDI attraction among the cities and provinces.
There must be individual FDI attraction policies that suit each locality’s development level and available infrastructure, Thang said.
