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Ensuring excellence

Released at: 07:57, 24/03/2014

Ensuring excellence

Mr Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises, spoke with VET's Minh Tien about the importance of capital movement in improving foreign investment quality.

by Minh Tien

Mr Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises

Can you elaborate on the connection between capital movement towards process and manufacturing industries and foreign investment quality?

The eight largest processing and manufacturing projects, including both newly-registered and those with additional capital, attracted nearly $13 billion out of a total of $21.6 billion in foreign direct investment (FDI) in 2013, or approximately 60 per cent. Samsung was a typical example, and I see three favourable points in its case.

Firstly, Samsung was the largest investor in Vietnam last year, with a figure totalling $5.7 billion. They are also preparing for a massive power project in north-central Ha Tinh province and a technology research and development (R&D) centre in Hanoi’s Hoa Lac Hi-Tech Park. Its mobile phone manufacturing plant in northern Thai Nguyen province will begin operations next year, confirming the fact that its investment implementation is extremely quick.

Secondly, the appearance of Samsung marked a milestone for Vietnam, as we are beginning to have the world’s largest manufacturing centres of particular goods, which in the case of Samsung are mobile phones. The corporation manufactured 120 million mobile phones in Vietnam and recorded export turnover of $12.2 billion in 2012, while 2013’s export turnover was even more remarkable, at $20 billion. When the Thai Nguyen factory is completed, Samsung expects to manufacture around 240 million mobile phones, accounting for more than half of its global production. This is extremely important to Vietnam, as such massive production should be sufficient to foster a network of support industries. Compared to the automobile industry, where we have been struggling to build an industrial strategy for the support sector and failed so far, the Samsung case is a positive sign for the establishment of a support industry network, which will have a domino effect and change other industries.

The third is that Samsung has created was 130,000 direct jobs and so many more indirectly. The average income of its workers is VND6 million (nearly $300) per month, which is notably higher than at local enterprises. Samsung also built an accommodation facility for more than 7,000 workers. This year it will also recruit and train thousands of young engineers to work at its R&D centre. This sole corporation can therefore create hundreds of thousands of jobs, which is an extraordinary figure.

Meanwhile, Thanh Hoa province’s Nghi Son Oil Refinery had secured additional capital of $2.8 billion and become the largest refinery in Vietnam. With this refinery, Vietnam will be much more independent regarding inputs in many domestic manufacturing industries, such as garment and clothing, shoes and leather, plastics, and others, which are recording a substantial trade deficit with China.

Do you view the appearance of a range of large projects as reflecting satisfaction among multinationals regarding Vietnam’s investment environment and is there a trend to move their main manufacturing facilities to the country?

The appeal of Vietnam’s investment environment is undeniable. This is one reason why Japan has announced that 65 per cent of Japanese enterprises operating in Vietnam will expand their production scale in the years to come. Many major corporations as well as small and medium-sized enterprises (SMEs) are planning to invest in Vietnam. A Japanese investor once came to see me and expressed his intention to move 200 projects from China to Vietnam. In order to successfully seize such opportunities, however, we will have to “clean up our house” by creating a transparent legal framework and a stable and attractive investment environment.

There are concerns about the flipside of FDI, such as low disbursement figures, a lack of positive influence on domestic enterprises, transfer pricing and tax evasion issues, etc.  What are your thoughts?

Many people say that there is a significant discrepancy between registered capital and disbursed capital, but I believe the latter is sufficient. Disbursement in 2013 was $11.5 billion, accounting for nearly 27 per cent of all social investment, which was approximately $40 billion. If added to official development assistance (ODA) and loans of State-owned enterprises (SOEs), the proportion would be 30 per cent, and that is beginning to become too much and comes at the expense of local investors.

Regarding expectations that foreign-invested enterprises (FIEs) will give us access to global high-technology, this is impractical and we should understand that nobody takes their best technology to another country. Most will transfer their second-best technology and equipment. In order to secure our own technologies we must conduct R&D ourselves. Nevertheless, it is important to remember that the term “technology” not only refers to machinery but also to business practices, service quality and development strategy, etc. FIEs are doing really well in these regards.

The criticism levelled at FIEs is they take advantage of loopholes in laws and regulations to boost profits, but I believe only a small number do so. We can’t hold the 12,000 FIEs operating in Vietnam responsible for the actions of a few. We don’t disregard any possible negative activities, but we should not point the finger at everyone and deny the achievements of the FIE sector as an economic driving force.

Regarding the direction of FDI attraction in the future, what issues do you think need to be addressed?

It is now time for us to put the FDI sector in better order and be more selective in the future. The lesson from hasty FDI attraction is the closure of more than 500 FIEs. We can decide whether to choose foreign enterprises or local enterprises, but local enterprises should be prioritised whenever they have the capacity to do the same job of similar or even better quality.

I don’t really support the current expansion of the strategic partner list. There are partners that are far, far away and throw in only a few million dollars each year. They should not be considered strategic partners. We are now attracting SMEs from nearby countries such as Japan, South Korea, China and Singapore, while not much has been done regarding countries like the US, European countries, and members of the Organisation for Economic Cooperation and Development (OECD), etc. These partners would provide exactly what we need to attract in the future: high-class education, high-class healthcare, and high-technology, etc.

In addition to our traditional partners we need to find new partners, but must select them carefully. We should attract partners with modern technology and we should not be hasty. In order to do this we will have to improve the selection skills of State and local authorities, especially in investment attraction.

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