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Focus on quality FDI

Released at: 09:17, 07/10/2018

Focus on quality FDI

Photo: VET Magazine

A new approach is needed among local authorities to draw high-quality foreign investment.

by Minh Do

The contribution of FDI to Vietnam’s socioeconomic development can never be overstated, but the quality of such capital is still an issue, Deputy Minister of Planning and Investment Vu Dai Thang told a conference in Hanoi during July on recommendations for Vietnam’s next-generation FDI strategy and vision in 2020-2030. As the country needs to change its way of thinking about FDI attraction, the Ministry of Planning and Investment (MPI) is mapping out a new strategy amid global changes prompted by Industry 4.0 and new trade agreements. Next-generation FDI will therefore primarily focus on high-quality and high labor-intensive projects in the fields of manufacturing and processing, services, logistics, agriculture, tourism, and education.

Leading the way

A new approach to FDI attraction has already been adopted in certain localities. In Ho Chi Minh City, authorities at Saigon Hi-Tech Park (SHTP) are in the process of convincing a Silicon Valley-based battery producer supplying Tesla electric vehicles to invest at the park. The producer is considering their options in terms of land rentals and other incentives, with the choice coming down to SHTP and a location in the Philippines, according to Mr. Le Hoai Quoc, Director of SHTP’s Board of Management. “If the company chooses us as its investment destination, we could approve its investment certificate this year,” Mr. Quoc told a press conference in mid-August in Ho Chi Minh City. 

Tesla announced in July an intention to set up its first electric vehicle plant outside of the US, in Shanghai, China, with an expected annual production capacity of 500,000 vehicles. Few companies are capable of producing the batteries used in Tesla’s vehicles, as they must meet the US Government’s environmental standards. If the deal comes SHTP’s way, it would be a $500 million windfall. Excluding the battery production project, SHTP has targeted $600 million in FDI this year, to account for 30 per cent of the city’s total export value. 

Under the next-generation FDI attraction strategy, SHTP has defined targeted investors as being foreign tech corporations in the Fortune 500. Its authorities have recognized that it is competing with other countries in the region and the world in seeking overseas investment, not with other cities and provinces in Vietnam or other domestic industrial parks.

In 2017, each worker at SHTP created an average value of $300,000; 15-fold higher than in other industrial and processing zones, for average added-value growth of 23 per cent over the last five years. With advantages in location, infrastructure, telecommunications, and supportive policies, SHTP has lured many billion-dollar projects from leading multinational corporations, including Intel, Samsung and Nidec, over the last 20 years. 

Ms. Le Thi Bich Loan, Deputy Director of the Board of Management at SHTP, told VET it is focusing on attracting investment in IT, electronics, telecommunications, automation, and biotechnology and has built an investment promotion strategy for attracting high-tech FDI.

Southern Binh Duong province, one of the leading destinations for FDI, particularly in support industries, has also been active in attracting and selecting FDI projects. The majority are located in 28 industrial parks, such as the $124-million Tetra Pak Binh Duong project at the Vietnam Singapore II-A Industrial Park and the $220 million KVT-1 tire fiber production project. “The province’s policy is to attract investment in high added-value and labor-intensive sectors, especially in support industries,” Mr. Nguyen Thanh Truc, Director of the provincial Department of Planning and Investment, told VET. “Most large-scale licensed projects are in high-tech and support industries and this trend is expected to continue to grow rapidly in 2018 and subsequent years.” 

“Over the last ten years, the province has welcomed FDI projects to its industrial parks,” said Mr. Dau Anh Tuan, General Director of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI). “Its direction is now clear, and it will not accept paper processing or textile and garment projects.” 

Neighboring Dong Nai province is another example of a locality with a next-generation FDI strategy, Mr. Tuan added, focusing on projects that aren’t labor- or land-intensive and that can create high added value. According to Mr. Nguyen Huu Nguyen, Deputy Director of the provincial Department of Planning and Investment, the province has long attracted multinational corporations to invest or expand their production capacity. For new FDI projects, investors must use modern and automated machinery and equipment. Thus, production lines require fewer employees. 

In the first eight months of this year Dong Nai has welcomed FDI projects worth $980 million in high-tech, such as material manufacturing for fiber and yarn, textiles and garments, footwear, machinery and spare parts, and electronic components. It continues to attract many Japanese investors in support industries, according to Mr. Kadowaki Keiichi, Chairman of the Japanese Business Association in Ho Chi Minh City. Some factories employ less than ten people but can produce millions of products each year, he added. 

Proactive approach

Binh Duong and Dong Nai are certainly in the minority in adopting next-generation FDI strategies. According to Mr. Tuan, most cities and provinces continue to pay attention to quantity rather than quality. Mr. Wim Douw from the International Finance Corporation (IFC) said that most target business fields such as real estate and manufacturing and processing with low added value. Surveys by the IFC reveal that almost no foreign-invested enterprises believe that a quality workforce or competitive supply chains count among Vietnam’s strengths.
The government and relevant agencies are, however, working to define what high-quality FDI projects actually encompass. One measure is that they be labor-intensive, yet this is a challenge for many localities. “Human resource training centers in many cities and provinces remain poor, while private investment in training industry is quite a new concept,” Mr. Tuan said. “Though Binh Duong has prepared human resources so it can receive high-quality projects, it remains problematic.” 

In the eyes of investors, cost and risks from regulations and administrative procedures are bigger issues than incentives they may receive. The annual Provincial Competitiveness Index from VCCI shows that cities and provinces with many FDI projects have better quality governance. “The quality of governance in cities and provinces can improve if local authorities meet with foreign investors to understand their demands and then provide appropriate support to removing obstacles,” Mr. Tuan said. For most localities, however, a “good” FDI project is still one that brings jobs and socioeconomic development. 

In the changing global and regional context, where countries are deeply integrated and Industry 4.0 is moving ahead rapidly and dynamically, Vietnam needs to change its mindset in regard to investment attraction. In the “Recommendations on Vietnam’s Next-generation FDI Strategy and Vision 2020-2030” report, conducted by the Ministry of Planning and Investment and the IFC, proactive investment promotion is one of eight measures that would help Vietnam attract more FDI in high value-added sectors. 

According to Mr. Nguyen Van Khuoc, Vice Chairman of the Vinh Phuc Provincial People’s Committee, its plan to attract more FDI inflows over the next few years requires the northern province expand its investment promotion activities by enhancing the scale and methods and facilitating additional cooperation with investment promotion agencies. 

Dr. Phan Huu Thang, former Director General of the Foreign Investment Agency (FIA) at MPI, said that decentralization has limited the role of the FIA. The agency has two functions - promotion and management - but the promotion function has now been handed over to cities and provinces, which are in charge of selecting and granting licenses to investment projects. 
Meanwhile, the existing model of investment promotion in cities and provinces is far from comprehensive. The IFC also recommended that Vietnam establish a new Next Generation Foreign

Direct Investment Foreign Investment Agency. Mr. Tuan suggested it is necessary to separate the management and investment promotion functions of FIA. 

Each province uses its own experience rather than following certain standards, he added, and are unclear about the criteria in impact assessments for FDI projects prior to licensing. Mr. Tuan recommended that a promotion agency focus on policies, actively initiating global impact assessments on matters such as the US - China trade war or how the trend towards trade protection will affect investment and industries in Vietnam. Or the agency could provide evaluations and advice to cities and provinces on new trade agreements, which may affect their ability to attract investment and their economic development, exports, and budget revenue.

“I expect that the new agency could provide useful assessments, such as the quality of FDI projects and their technology compared with average global technology and the benefits or otherwise of providing incentives to FDI projects,” he said. “Information about global trends should also be provided.”

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