“Capital flows will spur economic growth, generate employment, transfer technology or turn Vietnam into a production base of the world with a low ripple effect and negative impacts on the environment” is the main content of the seminar on "FDI impacts on Vietnam economy” held recently in Hanoi.
Growth-spurring capital
Mai Thi Thu, Director of the National Centre of Socioeconomic Information and Forecasting, said since the Law on Foreign Investment was issued in 1987, FDI capital has had great impact on Vietnam’s economy by mobilising capital for development and promoting economic development. FDI also contributed towards creating conditions for the transfer of technology, accelerating economic restructuring, generating jobs for the local people and accelerating the country's global integration. This sector spent US$23.09 billion on imports in the review period, up 24 percent year on year and accounted for 62 percent of the country’s total imports. Thus, their trade surplus was US$1.98 billion.
Dr Do Nhat Hoang, Director of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, said FDI helped to strengthen the linkage between foreign and domestic businesses, and assisted Viet Nam's economy to integrate deeper with the global economy. According to FIA, in 2014, the newly registered FDI valued at US$21.92 billion. In the context of domestic economic hardships, this capital has important effects on socioeconomic development.
He said FDI companies hired 3.7 million workers as of December 31, 2013. With FDI capital, the agricultural contribution to GDP reduced from 22 percent to 18 percent and services increased from 40 percent to 44 percent. Besides, FDI firms dramatically contributed province Vietnam’s exports. In the first quarter of 2015, FDI companies’ export value (inclusive of crude oil) was expected to reach US$25.08 billion, up 12.9 percent year on year and accounted for 70 percent of the country’s total exports . This sector spent US$23.09 billion on imports in the review period, up 24 percent year on year and accounted for 62 percent of the country’s total imports. Thus, their trade surplus was US$1.98 billion.
Downside of FDI
However, experts also pointed out the apparent downside of FDI on the Vietnamese economy like a few of advanced technologies, transfer pricing and tax evasion, unbalanced investment structure, adverse impacts on the environment, monopoly in some sectors that harm competitiveness. Hoang recommended that many domestic companies hardly access potential business lines, thus affecting market prices.
According to Dr Morgenroth from the Institute of Socioeconomic Research of Ireland, from initial estimation results, it is obvious that FDI in Vietnam has certain positive impacts on the economy in general and job market in particular. Spending on domestic goods is increasing and secondary employment generated from FDI enterprises’ consumption of domestic products and workers in enterprises at the service are on the rise. However, when they are put in comparative ratios, estimation results show that secondary jobs tend to decline. And, this will somewhat negatively impact the Vietnamese economy in the long run, he said.
Mr Le Quoc Phuong, Deputy Director of the Industry and Trade Centre under the Ministry of Industry and Trade, said that excessive dependence on FDI capital will pose the economy to inherently risk. He said FDI accounts for 20-25 percent, sometimes approximating 30 percent, of the total social capital. “This rate is too high as it is just 3-4 percent in China and 10 percent in Thailand.
According to experts, the ripple effect of FDI companies on the economy is waning on limited absorption of capital, underdeveloped supporting industries, unbalanced investment structure and low technology transfer.
Typically, Canon Vietnam has 70 parts suppliers but only 10 of them are Vietnamese while the rest are active FDI companies in Vietnam. Honda Vietnam reported its localisation rate at 40 percent but its parts are mostly supplied by FDI firms operating in Vietnam. Vietnamese companies can supply just 10 percent of Samsung’s parts.
To counter this situation, experts proposed the increased role of private sector as it is believed to be the driving force of the economy. The Government of Vietnam has issued many legal supports for this sector, including Law on Investment and Decree on Public Private Partnership.
Vietnam needs to build technological research and development centres, speed up technology transfer, apply advanced technologies from FDI companies to domestic firms. For their part, domestic companies must also have technological breakthroughs as well as source technologies, advanced technologies and human resources to cooperate with FDI firms in global value chains.
Anh Phuong
Vietnamese
