2014 may have promised new opportunities in the years to come with remarkable growth in FDI disbursement but the decline in registered FDI capital compared to 2013 must be noted by authorities.
The four largest foreign direct investment (FDI) projects in 2014 had aggregate registered capital of $6.6 billion, which is only a bit more than half of the largest project in 2013, the Nghi Son Oil Refinery, with $12 billion. According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), foreign investors registered nearly $21 billion worth of projects last year, or just 93.5 per cent of 2013’s total. The trend, however, was anticipated by the government, as the former figure was 19 per cent higher than the $17 billion targeted for 2014.
Explaining the decline, Mr. Nguyen Noi, Deputy Chief of FIA, pointed to the absence of giant projects, and while the number of foreign-invested enterprises (FIEs) increased rapidly most were small and medium-sized. The emphasis on setting new records in registered capital, said Mr. Nguyen Dinh Cung, President of the Central Institute for Economic Management (CIEM), underlines that Vietnam should pay more attention to the quality of FDI inflows instead.
According to the FIA there were some notable bright spots in the quality of FDI in 2014, the most remarkable of which was that disbursement increased. FIEs were estimated to have disbursed $12.35 billion as at December 15, up 7.4 per cent compared with the same period of 2013 and 2.9 per cent higher than the plan for 2014. Mr. Nguyen Mai, Chairman of the Vietnam Association for Foreign-Invested Enterprises (VAFIE), said this confirms Vietnam’s appreciation of and focus on the quality of FDI.
Sixty countries and territories invested in Vietnam in 2014. With three new billion-dollar projects, Samsung set the groundwork for South Korea being the leading investor in the country, with total newly registered and additional capital of $7.32 billion, or 36.2 per cent of the total. Hong Kong and Singapore ranked second and third, with total newly registered and additional capital of $3 billion and $2.79 billion, accounting for 14.8 per cent and 13.8 per cent of the total.
The processing and manufacturing sector attracted the interest of most foreign investors, with 774 projects and a total registered capital of $14.49 billion, accounting for 71.6 per cent of the total as at December 15. The real estate sector and the construction sector came second and third, with total investment of $2.54 billion and $1.05 billion, accounting for 12.6 and 5.2 per cent of the total.
The figures clearly show that more and more countries and territories are interested in Vietnam and are investing in a range of sectors. Mr. Mai said that never before had Vietnam has such a great opportunity to attract giant multinationals and turn the country into their main manufacturing bases.
The question that always arises, however, is how does Vietnam benefit? FIEs receive incentives that local businesses can only dream of. The government is willing to discount infrastructure rent by 50 per cent and waive land taxes. Some giant FIEs are even offered corporate income tax exemptions for 16 years. In return they create hundreds of thousands of jobs and invest billion of dollars, but what more?
A report from the Bac Ninh Province Department of Customs revealed that in the first nine months of 2014 the two largest electronics enterprises in the province had exported a total of $15.78 billion worth of goods but imported $18.84 billion in materials and equipment. With such a deficit, some economic experts sarcastically noted that Vietnam is exporting at other countries’ convenience. The Ministry of Industry and Trade (MoIT) has warned that in 2015 Vietnam will not enjoy an overall trade surplus, as it has done for the last three years, but a deficit instead.
Mr. Cung believes that FDI in the last few years and especially in 2014 has not been able to create enough momentum for local businesses to flourish, which should be a feature of good quality FDI. He suggested that in order for the country to seize the opportunities that FDI may bring, Vietnam will have to introduce solutions to lead FDI into high-tech fields and help Vietnamese enterprises gradually master modern technologies and international management methods besides creating favorable conditions for attracting FDI.
Of a similar mind, Mr. Noi recommends the government pass new policies to encourage and expand links between FIEs and the local business community. He emphasized that another value of FDI was to form well-built support industries for Vietnam through active technology transfer and human resources training so that local companies can better participate in the global value chain.
Steps to take
Looking back on the efforts made by local authorities, Vie