FDI criteria to boost project effectiveness

FDI criteria to boost project effectiveness

Applying criteria evaluating the impact of foreign investment on economic development is expected to help select high-quality projects while removing ineffective ones.

The indicators will provide a basis for selecting high-quality foreign-led ventures, Photo: Tuan Anh

On February 18, Prime Minister Pham Minh Chinh issued Decision No.315/QD-TTg on the evaluation of foreign direct investment (FDI) efficiency in Vietnam. The decision covers a set of 42 evaluation criteria, divided into 29 economic, eight social, and five environmental indicators.

“Offering a framework of criteria to evaluate foreign ventures is an important requirement. They provide a basis for selecting high-quality foreign-led projects to match with the government’s direction, to collect tax for the state budget,” said Ngo Cong Thanh, vice chairman of the Institute of International Investment Studies.

Vietnam had previously set out the requirement to attract and selectively cooperate with foreign investment, taking quality, efficiency, technology, and environmental protection as the main evaluation criteria.

Priority is given to projects with advanced and clean technology, modern management, high added value, spillover effects, and connection to global production and supply chains.

“In recent times, Vietnam has issued many legal documents, including provisions on conditions and criteria for selecting foreign-invested projects to facilitate localities to consider investment policies before deciding to grant registration certificates to foreign investors. However, these criteria are scattered in many different legal documents, so when applied in practice, there are ineffective projects,” said Thanh.

In a report sent to the government on business performance, the Ministry of Finance reported that 56 per cent of nearly 29,000 foreign-invested enterprises (FIEs) in Vietnam reported losses in 2023, an increase of 21 per cent compared to the previous year.

The number of enterprises with accumulated losses also exceeded 18,000, of which more than 5,000 companies had negative equity.

The main reason was the decrease in revenue, reaching only $376.4 million, down 4.3 per cent, while after-tax profit decreased by nearly 16 per cent. This caused the budget contribution of FIEs to also fall by 2 per cent, to $7.7 billion.

“However, many FIEs reported losses for many consecutive years but still expanded their investment scale. In addition, many enterprises have large capital, high revenue and pre-tax profit but their budget contribution is modest,” the MoF’s report noted.

The MoF assessed that in the past year, the foreign-invested capital inflow reports consecutive increases in both registered capital and disbursed capital. However, most of these resources are focused on small and medium-sized investment projects.

Industrial production projects mainly import components and equipment for assembly. These projects have low added value and average technology to take advantage of tax incentives, land and cheap labour. Meanwhile, the processing, manufacturing, retail and real estate industries - sectors that contribute greatly to budget revenue - have lost their role as growth drivers when they all decline.

“The government must strengthen supervision and inspection against transfer pricing and tax evasion and re-evaluate the effectiveness of FDI attraction policies,” the MoF noted. “At the same time, it is necessary to complete infrastructure and improve the investment environment to engage large corporations, avoiding the situation where FIEs continuously report losses but still expand their scale.

VIR