FDI: Does it really benefit all of Vietnam?

FDI: Does it really benefit all of Vietnam?

Although foreign direct investment (FDI) has created many jobs and stimulated competitiveness for local businesses over recent years, many citizens have raised concerns that its benefits have not been evenly distributed nationwide.

Though it is generally recognised that FDI has been an important driving force for economic growth in the large metropolitan areas such as Hanoi and HCM City, legitimate questions linger about its quality and whether or not it has been equitably distributed to benefit the rural areas of the nation.

Dr. Nguyen Mai, President of the Vietnam Association of Foreign Invested Enterprises recently said it was time for an objective, scientific assessment of foreign investment and a careful analysis of whether the nation is on the best course.

According to his analysis, at present, 67% of exports over the past year were generated from the country's FDI. Additionally, those exports contributed significantly to the nation’s US$2 billion trade surplus for last year.

He cited Samsung as the prototype of everything that has been good about FDI for the national economy. In 2007, Samsung constructed its first factory in Bac Ninh province with a total investment of US$650 million. Just eight short years later, the group’s investment had increased remarkably to US$11.2 billion.

Most remarkable however— on average Samsung has added value of roughly 30% to its exports.

Through the investment of Samsung, "Bac Ninh and Thai Nguyen provinces have had a life-changing experience," Mai stressed.

Samsung now plans to relocate its largest centres currently in India to Vietnam. At present, some 1,200 software engineers are working for the company and the figure could likely surmount 2,200 by the end of the year.

Another case on point has been that of Thailand’s CP Group. The group constructed its first food processing factory in Dong Nai in 1993. At present, it has completely renovated its facilities into a modern hi tech marvel.

A legitimate question that must be answered is— Without the investment from the CP group; could Vietnam’s livestock industry have developed sufficiently to catch up with the world?

And the answer, of course, is an obvious no; it could not have been achieved.

The arrival of Big C and Metro in Vietnam was also a turning point worthy of recognition of the benefits of FDI. To cope with fierce competition, a number of local businesses were forced, or so they claim, to renovate their operations by setting up thousands of mini supermarkets in urban and rural areas.

Though this strategy has not proven effective and may well turn out to be a losing one, the arrival of Big C and Metro was a shot across the bow to local inefficient businesses that did not serve the public well, such as OceanMart. It was a clear message that they needed to rethink their strategy or get out of the business.

This forcing of OceanMart out of the business was a good thing for the nation and now if succeeding VinMart can’t compete nationally head on with businesses at the level of Big C and Metro they too well deserve to go by the wayside and that would be in the best interest of the nation.

There is no room for second fiddle companies that don’t have the capacity to compete in a regional or global marketplace in Vietnam and choose alternatively to attempt to run the small local Vietnamese traditional market or retailer out of business.

The theory that that VinMart was forced to open up thousands of mini supermarkets in an attempt to drive locals small retailers and Vietnamese traditional markets of business has been and always will be repulsive and repugnant and should be condemned by all of the Vietnam business community.

If these companies cannot compete head on with national competitors then they should deserve to and should close their doors and get out of the way for those that can. They have come to symbolise all that is bad about the consequences of FDI.

However, on the brighter side it forced them to rethink their competitive strategies on the home turf and attempt to improve, however feeble their competitive capacity may be, by renovating technologies and business methods.

Regarding positive signs of FDI for the national economy, Dr. Pham Viet Dung from the Communist Review has said that since the Law on Foreign Investment was officially issued in 1987 Vietnam has attracted over US$268 billion for 17,434 FDI projects.

Lack of linkage and co-ordination between FDI and domestic businesses

Apart from the positive impacts on the national economy, FDI has also revealed negative impacts, said Dr. Mai. The biggest hindrance of FDI in Vietnam has been that the lack of linkage and synchronization between FDI and developing support industries.

As one prime example, in Samsung’s projects, just seven out of the 93 suppliers for the company have been Vietnamese enterprises.

To best cope with the situation, Dr. Mai emphad the need to provide a preferential credit source for the development of the support industry.

Dr. Dung, who shares the same views as Dr. Mai has said that tax evasion by foreign invested enterprises, has also been a significant problem. According to the Ministry of Finance up to 20-30% of foreign invested enterprises for two and three consecutive years, even five years have reported consecutive losses.

Despite these losses these businesses continued to expand production, which would lead any reasonable person to question why, stressed Dr. Dung and naturally lead to the proposition that the companies could have been cooking the books and not paying taxes on their true profits or losses.

Dr. Thien also pointed out some shortcomings in FDI inflows in Vietnam. The rate of investment in Vietnam compared to GDP ranks the highest in the world, making up 60% while the rate in China and Thailand is just 20% and 30% respectively.

The problem has been that such a huge FDI inflow should boost Vietnam’s economy rapidly. However, these capital sources have proved ineffective in upgrading the national economy as a whole, said Mr. Thien.

Careful selection of high quality FDI projects

Dr. Mai suggested that provinces and cities should pay due attention to orientations to attract FDI, and make a careful selection of FDI projects and investors. He emphad the need to establish relationship between FDI and domestic businesses to urged local businesses to further get involved in the global value chain.

In addition, provinces and cities should attach higher importance to businesses operating in Vietnam and create a more favourable environment to attract the world’s leading multinational groups from the US, Japan, EU and the Republic of Korea, he concluded.

vietnamnet