Improving FDI Attraction Efficiency

In previous years, foreign direct investment (FDI) was always a driving force for Vietnamese economic development but when the world economy is undergoing big changes, this capital source is falling. To attract foreign investors, many localities applied very open mechanisms, even beyond the regulatory framework, but it seems not to be enough to entice investors. At present, many incomplete projects have been suspended and investors have returned to their countries. This reality has existed in many projects for years.

 

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, by the end of July 2012, the country had a total registered capital of US$5.2 billion with 584 projects licensed, equal to 55.9 percent in the same period in 2011. Most projects had small and medium-scales, and there were no colossal projects, as had been registered in previous years.

 

Only one property project had registered capital of over US$1 billion in the seven month of the year; 55 projects had investment capital of US$10 million upwards (9.4 percent of total projects), totalling US$4.5 billion. “Quite many projects have micro and small scales in the first seven months of 2012, with 111 projects capitalised at US$100,000 downwards (19 percent of total projects). These projects were mainly registered to operate in consulting services, commercial business and software production,” said the Foreign Investment Agency.

Vietnam is the favourite destination for small fry rather than the big fishes, or powerful corporations in the world. Thus, there is a real need for effective measures to widen the flow for big fishes to swim into Vietnam.

 

Bui Quang Vinh, Minister of Planning and Investment, said: Once policies change, upcoming FDI will bring to Vietnam source technology, high technology, and environmentally friendly technology, bring good governance levels, competitive products, and opportunities to participate in global value chains. And, following them are many satellite investors who can help develop supporting industries in Vietnam.

 

Bui Tat Thang, Acting Director of the Development Strategy Institute under the Ministry of Planning and Investment, said: The biggest gain for Vietnamese enterprises in cooperation with multinational corporations is the involvement in international labour processes, global production chains, and world export markets, in addition to economic benefits. This is an opportunity for local businesses to learn and accumulate business experience.

 

Multinational corporations normally employ modern technologies in production and business processes. This will also help inspire Vietnamese businesses to invest in new technology for enhanced competitiveness.

 

Attracting foreign direct investment, especially from multinational corporations with long-term development strategies and plans will be one innovative way to promote economic development. But, how to create a suitable, convincing mechanism to pull them into Vietnam is a big concern. According to economic experts, Vietnam first needs to review its investment policy and incentive systems. It needs to pay attention to financial incentives with public, transparent and stable regulations.

 

Nguyen Xuan Trung, an expert at Vietnamese Academy of Social Sciences, said that the investment environment in Vietnam needs to have policies and mechanisms reformed, and enhance predictability. It needs to seriously exercise intellectual property rights, develop synchronous infrastructure, and create high-quality human resources. Vietnam should provide incentives and special privileges for strategic investment partners, particularly multinational corporations.