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Vietnam Today

IFC & MPI launch recommendations on new FDI strategy

Released at: 14:15, 10/07/2018

IFC & MPI launch recommendations on new FDI strategy

Photo: Huyen Thanh

Recommendations to serve as key inputs for the government to develop new national FDI approach.

by Minh Do

The IFC recommended that Vietnam establish a new Next Generation Foreign Direct Investment Foreign Investment Agency at the announcement of the “Recommendations on Vietnam’s Next Generation FDI Strategy and Vision 2020-2030” report in Hanoi on July 9.

The announcement was held by IFC and the Ministry of Planning and Investment, providing findings and recommendations to serve as key inputs for the government to develop Vietnam’s new national FDI approach, as part of the country’s strategic documents such as the Socioeconomic Development Strategy (2021-2030).

The IFC, a member of the World Bank Group, is supporting Vietnam to unlock the next generation of FDI to sustain the country’s rapid economic development, competitiveness, and inclusive prosperity.

“The challenge we face is unique, as record FDI inflows contrast with still limited spillover and value-added benefits,” Deputy Minister of Planning and Investment Vu Dai Thang said at the announcement. “We believe the recommendations outlined today will underpin a new national approach to FDI and contribute to the achievement of national development goals.”

While open-door investment and trade policies have led to increases in FDI inflows, employment opportunities and diversification of exports, especially over the last decade with annual FDI inflows rocketing by almost ten-fold and outperforming most regional competitors, this new report responds to a growing realization that Vietnam requires breakthrough reforms to compete for higher quality streams of FDI.

Developed in partnership with Switzerland’s State Secretariat for Economic Affairs (SECO), the strategy responds to recent findings that FDI in Vietnam is substantively driven by low labor costs and generous incentives. In fact, investors have identified a lack of skilled labor as an impediment to growth, while the absence of integrated local supply chains has further blunted the competitiveness of firms, as has the lack of qualified domestic suppliers and effective policies to assist local players.

“By addressing these issues, the government is likely to unlock more opportunities for Vietnam,” said Mr. Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia and Laos. “The core analysis involved an intensive review of potential priority sectors. It aimed to identify which sectors, and under what circumstances, represent the most competitive opportunities for Vietnam to attract investment, both FDI and domestic, to create more and better jobs and increase sourcing from local firms.”

Having emerged from a qualitative survey and stakeholder consultations on FDI strategy, the recommendations translate into eight proposed breakthrough reforms.

An immediate priority is the adoption of concrete policies that increase FDI links and spillovers, with a focus on introducing policies to increase FDI links and targeted supplier development programs.

In line with meeting the challenges and opportunities of Industry 4.0, Vietnam should aspire to a business environment commensurate with business needs in the digital age. Instead of “playing catch-up”, this reset should offer a superior investment climate and operating experiences with digital/online solutions compared to regional competitors.

Other recommendations include creating and implementing an integrated national skills development plan to accelerate Vietnam’s transition from low to skilled labor; modernizing investment promotion and moving from reactive to proactive promotion in priority sectors; overhauling current incentives frameworks; opening up important sectors that underpin competitiveness and growth; and introducing strategic outward FDI promotion policies.

Above all, a strong FDI focal point agency with the proper profile, influence, organizational structure and budget is key to ensuring the effective implementation of all these recommendations.

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