FDI projects generate little added value
FDI projects generate little added value
Though foreign direct investment (FDI) is undeniably a major driver for Vietnam’s economic growth, enterprises in the sector mainly make products under outsourcing contracts, thus creating little added value.
According to a report on Vietnam’s international integration results of the National Assembly Standing Committee’s supervision group, since Vietnam joined the World Trade Organization (WTO) in 2007, capital mobilization has kept rising and there has been a right shift in the investment structure, with a decline in State funding and a surge in private and FDI sector activities.
The FDI sector made up 21.7% of last year’s total investments, above 14.9% in 2005 and 16.2% in 2006, or one year before Vietnam became a WTO member.
The 2007-2009 period saw a boom in FDI. Registered FDI capital was US$21.35 billion in 2007, 1.78 times higher than in 2006, and US$71.7 billion in 2008, 3.36 times higher than in 2007.
However, FDI approvals fell in 2009-2011 due to the impact of the world’s economic downturn before bouncing back since 2012 with US$21.9 billion registered last year.
The industries with high pledged FDI by the end of last year were processing-manufacturing with US$141.4 billion and real estate with US$48.3 billion.
FDI disbursements were quite high between 2007 and 2014 with US$8.03 billion disbursed in 2007, US$11.5 billion in 2008, US$10 billion in 2009, US$11 billion in each of 2010 and 2011, US$10.05 billion in 2012, US$11.5 billion in 2013 and US$12.5 billion in 2014.
The FDI sector made up 24.3% of total development investments in the economy in 2007, 30.9% in 2008, 25.6% in 2009, 25.8% in 2010, 24.5% in 2011, 21.6% in 2012, 21.9% in 2013 and 21.7% last year. These percentages were higher than the average of 16% in 2001-2006.
Since 2007, the FDI sector’s contribution to the country’s GDP has soared thanks to its increasing exports. The sector was responsible for 17.66% of GDP in 2007, 18.68% in 2008, 18.33% in 2009, 17.69% in 2010, 18.05% in 2011, 18.09% in 2012, 19.55% in 2013 and 20.09% last year.
According to a report of the Government, from 2007 to last year, the FDI sector exported US$56.06 billion worth of goods a year, equivalent to 61% of the country’s total export value. Meanwhile, the respective figures in the 2001-2006 period were US$13.48 billion and 53.7%.
Last year, the combined export revenue of FDI enterprises reached US$93.96 billion, 62.5% of the nation’s total, and had a trade surplus of US$9.74 billion. Besides, the sector generated around two million direct jobs and millions of indirect jobs.
The sector accounted for 26.6% of Vietnam’s workforce, 19.1% of total capital for business and trade, 25% of net revenue and 42.4% of pre-tax profits in 2013.
However, the group said the quality of FDI is still a concern as most enterprises in the sector make products under outsourcing contracts with foreign partners and the sector’s contribution to improving technologies in Vietnam is insignificant.
As FDI companies play an important role in Vietnam’s economy, experts are concerned that their withdrawal of capital from Vietnam would affect economic growth.
At the 2015 Spring Economic Forum held last April, an expert of the Vietnam Institute of Economics said industrial growth of Bac Ninh Province dropped significantly last year (down 4.9%) when Samsung Vietnam changed its investment policy.
