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FDI a major source of growth

Released at: 14:42, 28/04/2018

FDI a major source of growth

Photo: VET Magazine

Mr. Dang Xuan Quang, Deputy Director of the Foreign Investment Agency (FIA) at the Ministry of Planning and Investment, tells VET's Ngoc Lan about FDI attraction over the last 30 years.

by Ngoc Lan

What is your view on Vietnam attracting foreign direct investment (FDI) over the last 30 years, since 1987? What are the country’s advantages and disadvantages in attracting FDI?

Mr. Dang Xuan Quang, Deputy Director of the Foreign Investment Agency (FIA)The Law on Foreign Investment in Vietnam was passed by the National Assembly at the end of 1987. As at December 20, 2017, there were 24,748 valid projects in the country with total registered capital of $318.72 billion. Disbursed capital was estimated at $172.35 billion, or 54 per cent of the total pledged.

The FDI sector has invested in 19 out of Vietnam’s 21 sectors and is present in its 63 cities and provinces. The processing and manufacturing sector accounts for the highest proportion, with $186.1 billion, or 58.4 per cent of total investment, followed by real estate with $53.1 billion, or 16.7 per cent, and electricity production and distribution with $20.8 billion, or 6.5 per cent.
Foreign investment has come from 125 countries and territories. South Korea leads the way, with registered capital of $57.66 billion, or 18.1 per cent of the total. Japan follows, with $49.46 billion, or 15.5 per cent, then Singapore, Taiwan, the British Virgin Islands, and Hong Kong.

FDI has had a positive impact on Vietnam’s economy in the last 30 years. The sector contributes markedly to revenue collection and the figures are increasing. 

In 2014, the FDI sector contributed $5.43 billion to revenue collection, $5.8 billion in 2015, up 6.8 per cent, and $7.1 billion in 2016, up 22.4 per cent and accounting for 14.8 per cent of the total. Registered investment capital increased by nearly 50 per cent in 2017 compared to 2016 and disbursement was also the highest ever, up nearly 11 per cent compared to 2016. FDI also plays an important role in exports, accounting for 71.5 per cent of total export turnover in 2016.

FDI has contributed to economic growth and boosted and enhanced the efficiency of domestic investment resources. FDI capital now accounts for about 25 per cent of total investment and contributes more than 20 per cent to GDP.

Foreign investment also helps improve human resources and the FDI sector employs 3.5 million workers directly and 4 to 5 million indirectly. It also helps to improve technology levels and technical human resources, especially in industries such as petroleum, electronics, telecommunications, informatics, machinery, and textiles and footwear.

Currently, 59.4 per cent of FDI capital is concentrated in the processing and manufacturing sector, representing over 50 per cent of industrial production value. This will help Vietnam gain access to modern and advanced technologies, creating conditions for the ongoing formation of a number of key industries, such as electronics, software, information technology, precision engineering, and petroleum.

FDI also helps promote the reform of State-owned enterprise (SOEs) and administrative procedures, improve market economy institutions, and promote national economic integration, helping Vietnam expand its external relations, promote the national brand, and enhance the globalization process.

In addition to quantifiable contributions, FDI is also highly regarded by many experts and economic organizations for its spillover effects to other sectors of the economy, raising domestic investment resources, transforming the economic structure, diversifying products, and creating new high-quality services in banking, insurance, auditing, logistic, hotels, and office space.
In addition to the positive results achieved, in the process of attracting FDI there have also been certain shortcomings and problems that need to be addressed, such as the fact that newly-created employment is inadequate, targets for attracting technology have not been met, and the occurrence of FDI enterprises engaging in transfer pricing and tax evasion, while other projects have caused environmental pollution.

What solutions are there to address the difficulties, shortcomings and limitations? 

We need to implement a host of synchronous measures. It is necessary to continue to implement solutions to perfect the legal system and policies relating to investment in a consistent and transparent manner, facilitating investors and increasing competitiveness with regional countries.

Under Resolution No. 103/NQ-CP, dated August 29, 2013 from the government, we need to improve the investment environment and the efficiency of State management over FDI and promote the growth of the capital source with higher quality and efficiency.

Vietnam will select high-quality, high-tech, environmentally-friendly and highly-competitive projects that are in line with economic restructuring in each region and sector and the country as a whole. It will also attract large-scale projects and those manufacturing highly-competitive products participating in the global value chains of transnational corporations (TNCs), thereby building and developing sectors and support industries.

■ What are the prospects for FDI attraction in the time to come?

In addition to attracting investment from large corporations and TNCs, Vietnam also focuses on attracting investment from small and medium-sized enterprises (SMEs), and rejects projects that may pollute the environment, waste energy, use outdated technology, or inefficiently use land and other resources.

We must focus on mobilizing all resources to make a strategic breakthrough in building synchronized infrastructure, especially the transport network connecting regions and key economic areas, and quickly implement investment in the form of public-private partnerships (PPPs).

Finally, it is necessary to accelerate the deployment of workplace training to meet the needs of enterprises and make full use of the capacity for training high-quality human resources for FDI enterprises.

Vietnam possesses many advantages in attracting investment, such as security and political stability, a geographic location favorable for trade with the world, and an abundant workforce. Many foreign enterprises also hold the country’s business and investment environment in high regard, with its improving investment climate and greater transparency.

I am therefore certain that foreign investors will continue to believe in and select Vietnam and look upon it as an attractive investment market with a great deal of potential.

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