30 years of FDI attraction: capital increase but technology unexpected
SGGP
After exceeding last year target of US$25 billion to reach $28 billion in October, Foreign Direct Investment (FDI) capital attraction obtained the new record of $35 billion for the entire year, the highest level for the last ten years. Disbursement approximated $17 billion, the highest ever level.
Auto tire production at Southern Rubber Industry Joint Stock Company or Casumina (Photo: SGGP)
These are meaningful numbers as 2017 marked the 30th year of implementing the Foreign Investment Law since 1987.
Dr. Vo Tri Thanh, former deputy head of Central Institute for Economic Management, says that the largest award which Vietnam gives foreign investors is the affirmation that FDI is an organic part of the Vietnamese economy, successes of FDI firms are also of Vietnam.
The sector has made important contributions in many aspects such as 20 percent Gross Domestic Product, 50 percent industrial output, 70 percent export turnover and 12-13 million direct and indirect jobs. The more important thing is valuable policy lessons.
Sharing the same view, Professor Dr. Nguyen Mai, former deputy chairman of State Committee on Cooperation and Investment, known as the Ministry of Planning and Investment now, told that in 2011 he attended a special event hosted by Vietnam Posts and Telecommunications Group--the 10th anniversary of wrapping up trading cooperation contract with Telstra Corporation, Australia. The contract ended in 2001.
At the time when VNPT and Telstra worked together, the United States did not lift the trade embargo against Vietnam but Telstra still brought the country the most advanced technologies. Furthermore, the corporation helped build a business mode able to approach consumers, train human resources including many people taking key positions in VNPT afterwards and improve management level for Vietnamese partners.
Besides the flow of foreign currencies, the above things are factors which Vietnam expects to receive from foreign investors. The quality of investment capital is showed through such factors creating a strong spread and warming up the economy, he added.
On the other hand, Dr. Phan Huu Thang, former head of the Foreign Investment Agency under the Ministry of Planning and Investment, noted that FDI’s spread in technology, skills and others is still weak in Vietnam because of two reasons. Firstly, foreign investors do not have enough faith to transfer all skills and business secrets to Vietnamese side. Secondly domestic companies are incapable to receive positive spillover effects from FDI firms because of limitations in scale and ability.
From macro angle, Dr. Vo Tri Thanh said that foreign capital flows might cause risks and instability.
Right after and before Vietnam’s WTO membership, FDI and other flows of capital streaming into Vietnam raised difficulties for monetary policies, increased pressure on inflation, stock and real estate markets. These caused serious consequences especially when the country lacked suitable macroeconomics policies.
Some FDI investors have used environmentally unfriendly technologies or operated their projects regardless of the Environmental Protection Law. The marine environmental disaster in the central region in 2016 is an example.
Stating at a forum last December, head of the Foreign Investment Agency Do Nhat Hoang said that amid the extensive change of the world and Industry 4.0, designing the system of policies to not only lure but also maximize FDI efficiency is a challenge for management agencies.
For instance, the price of a robot used in the garment and textile industry is only US$20,000. A business recruiting thousands of workers formerly now need only tens of workers after using robots in production with capacity not reducing but even increasing. So attracting FDI with low cost labor cost is ineffective.
Vietnam has clearly recognized challenges, operated a good filter and chosen sincere and capable investors. However, investors from many economies and continents at business and development forums last yearend commented the far distance from will to practice of building a tectonic, incorruptible and serving Government as per Prime Minster Nguyen Xuan Phuc’s stress for many times.
Domestic and foreign experts have said that Vietnam will continue to be an attractive destination of foreign investors in 2018 and following years till 2023. Making the good prospect real depends on attempts by the Government and two side businesses.
Memorable milestones in FDI attraction
December 1987, Foreign Investment Law was issued, attracting 213 projects with the total capital of $1.79 billion.
June 1990, the law was amended for the first time. The second time was in December 1992. FDI attraction increased to 459 projects with the total capital of $5.28 billion creating the first investment wave.
1996: the law was continued being amended and Foreign Investment Law 1996 was issued. FDI capital disbursement increased 25 percent in the following year but reduced 40 percent in 1998 and further dropped an extra of 22 percent in 1999 under the region’s economic crisis.
2000: the law adjustment continued. FDI attraction slowed down reaching only $2.84 billion.
2005: the Investment Law was issued to replace the Foreign Investment Law and Domestic Investment Law. FDI capital rebounded back with $6.84 billion creating the second investment wave.
2014: the Investment Law was modified and Investment Law 2014 was issued, creating a breakthrough in thought as investors and businesses have been entitled to do things which the law does not ban. The third investment wave started. FDI capital set a new record with $35 billion in 2017.
