New FDI strategy much needed to build resilient economy

Infographics: Overview of foreign investment inflows since 1977

Viet Nam began reform (Doi moi) process in 1986 and one year later, the first Law on Foreign Investment was introduced to make foreign invested sector an integral part of the economy.

The Southeast Asian country made another step forward by issuing the Law on Investment in 2015, putting domestic and foreign business on equal footing.

By the end of September this year, Viet Nam was home to 26,646 valid FDI projects worth US$344 billion, according to the Ministry of Planning and Investment.

Foreign investment came from 129 countries and territories, in which the Republic of Korea and Japan were the biggest foreign investors with a combined investment capital of US$117 billion.

In 2016, FDI to Viet Nam exceeded inflows into all other ASEAN countries except for Singapore. More importantly. Foreign capital rose to US$36 billion in 2017 from US$20 billion in 2014, said the Ministry.

Foreign-invested enterprises (FIEs) have been performing well in Viet Nam over the past years. Specifically, in 2016, their return on sales hit 6.7% compared to the average 4% of all enterprises in the economy.

In addition, FIEs’ return on assets reached 6.9%, much higher than the average 2.7% of all enterprises in the economy. Also in 2016, FIEs’ net revenue rose the highest, by 34.5% against 2011, accounting for 27.4% of all enterprises’ total net revenue.

According to official statistics, foreign-invested sector contributed 20% to GDP and 23.7% of total social development capital. It accounted for 50% of total industrial production values and up to 70% export values.

Toward a resilient economy

As the host of the World Economic Forum on ASEAN 2018 last September, the Government of Viet Nam expected to seek advices for building a resilient economy in the industry 4.0 and this means a shift to foreign investment mobilization is a must-do thing.

Lessons learned from over 30-year of foreign investment mobilization show that high-tech FDI projects could be the shortest way for Viet Nam to manufacture new projects with high quality in a bid to gradually narrow tech gap between Viet Nam and other countries and build a resilient economy, said Phan Huu Thang, former Director General of Foreign Investment Agency under the Ministry of Planning and Investment.

Thanks to the Government’s recent efforts, Viet Nam has lured several high-tech projects that help stimulate technological transfer and innovations, especially in such domains like electronics-telecommunication, computing, manufacturing, construction among others, Thang said.

A number of tech giants such as Sanyo, Samsung, Sony, Fujitsu, Toshiba, Panasonic, Nidec, Intel and Microsoft have chosen Viet Nam as their global production hub, helping to Viet Nam to move to higher ladder of making projects with higher added value.

Another encouraging signal for Viet Nam is many FDI enterprises export nearly all their products, helping the country to balance trade and making significant contributions to economic growth over the past years.

Foreign invested sector also put pressure on domestic enterprises as many of them have been forced to import modern equipment and technologies or set up research and development units to compete with foreign invested ones.

Thang, however, frankly pointed out that there remain limits in attracting high-tech FDI projects partly due to foreign investors’ capability and Viet Nam’s verification and management capacity.

Though Viet Nam figured out general orientations for luring high-tech investment, it still lacks specific instructions for each domain while local authorities have paid little attention to improving capacity to select high-tech projects, thus allowing import of outdated equipment and technologies from foreign countries.

Foreign invested enterprises themselves put aside limited resources for research and development activities or only finance simple innovations.

Vietnamese vocational training facilities have not focused much on practices, thus it is difficult for trainees to meet requirements of FDI enterprises in terms of quality and quantity.

Moreover, it seems that there are no linkages between foreign-funded and local enterprises as the tech capacity of local enterprises is low.

It is clear that Viet Nam has a list of things to do in order to build a resilient economy, including the implementation of a major skills supply push to enable next-generation FDI. Investors cite the lack of industry-ready skills (technical, language, and soft skills) as the greatest barrier to growth.

Experts also suggested that the Government introduce “Investment Climate 4.0” commensurate with business needs in the digital age.

“Industry 4.0 needs a business environment 4.0. Ideally, this environment should be ambitious, moving from ‘playing catch-up’ towards offering a superior investment climate and operating experiences compared to competing locations in the region,” said Sebastian Eckardt, the World Bank’s lead economist for Viet Nam.

Opening the market to foreign investment has been proved to be a right policy and foreign investment inflows are still important for Viet Nam in years to come. However, Viet Nam needs a fresh FDI strategy with a focus on high technologies to heighten the country’s economic level and realize the goal of building a resilient economy./.

By Quang Minh