After the global economic crisis, investors throughout the world have restructured and adjusted business strategies. In general, Vietnam is still a very attractive destination for foreign investors in the long term, which is proven by facts. Although the country drew only US$21.48 billion of FDI capital in 2009, only equal to 30 % year on year but the disbursed capital reached US$10 billion, only down 13 % from one year earlier.
However, there was a strong shift in FDI capital in invested sectors. In 2008, FDI capital mainly channelled into the industrial sector (with 912 new projects worth US$35.6 billion, accounting for 58.6 % of total projects and 53.4 % of total capital) but in 2009 the service sector attracted most FDI capital, with 498 projects and US$13.2 billion, accounting for 59.3 % of total projects and 81.2 % of total value while the industrial sector lured only 325 projects with only US$3 billion.
Without doubt, foreign-invested enterprises are making significant contributions to socio-economic development of Vietnam like creating jobs, raising incomes and importing technology and management methods. However, it is high time to assess the back side of FDI capital in Vietnam as well as the actual value of this capital flow. According to a research conducted by Prof Nguyen Quang Thai and Prof Bui Trinh, in 10 years (1999-2009), the incremental capital output ratios (ICOR) of the state sector, the private sector and the FDI sector were respectively 7.76, 3.54 and 7.91. The total factor productivity (TFP) of these sectors was 8.6, 3.1 and minus 17.6 during this period, respectively. These data proved that the investment efficiency of the FDI sector was very low and technology transfer is largely unavailable.
According to statistics from the largest city in Vietnam - Ho Chi Minh City, in 2009, nearly 60 % of FDI enterprises reported operating losses. As much as 61.3 % of FDI companies in 2008 and nearly 70 % in 2007 were loss-making. This meant that the State did not collect a single penny of corporate income tax from these companies. The loss is reportedly caused by “deliberately added” values for imported materials and machines, leading to high intermediate fees and losses. This is a way of transferring the price to other nations to avoid taxes in Vietnam. Looking at the State Budget collection, the FDI sector makes up less than 10 % of the country’s total budget revenue although its production and export scales are expanding continuously.
Moreover, in many FDI enterprises, most issues concerning techniques, technologies and accounting processes are unrelated to Vietnamese people. The growth of such type of enterprises often does not have the spill-over effect and does not stimulate the domestic economy. FDI enterprises mainly operate in labour-intensive industries. Foreign-invested companies in Vietnam are principally importing materials from foreign countries for domestic production, not locally made ones. They only use low-cost land rentals and low-paid labour in Vietnam. Nonetheless, the FDI workforce does not make up a significant proportion in the labour market. In fact, this economic sector creates least jobs in comparison with private and State-run sectors.
According to many experts, it is high time Vietnam chose FDI projects carefully in order to increase the quality and sustainability of FDI inflows. It is proven that many FDI projects worth billions of US dollars are adversely affecting the national economy. To be fair, matters respecting FDI project quality and capital inflow quality were put forth since Vietnam opened its economy to outside investment. However, in the first phase, Vietnam tried to attract foreign investment capital into all sectors regardless of scales, given its lack of finances and other assets for development. The country needs to make proper adjustments to balance growth-driving elements with modern, sustainably-developed economic structure.
Dinh Thanh
Vietnamese
