Monday, 18 Dec 2017
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INVESTMENT

Vietnam needs to make efforts to improve FDI quality

Updated at Thursday, 23 Nov 2017, 07:39
The Hanoitimes - Vietnam attracted 24,397 foreign direct investment (FDI) projects worth 312.9 billion USD from 128 countries and territories in the first 10 months of this year.
However, experts said that the projects’ influence on the economy is still modest, necessitating a change in mindset to lure investment. FDI has been poured into 18 out of 21 sectors and all 63 localities nationwide.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, the FDI sector’s contributions to GDP rose rapidly to 19 percent in 2016 from only 2 percent in 1992.



 
Exports from the sector accounted for 71.5 percent of the country’s total in 2016, up from 64 percent in 2012. Its contributions to State budget collection also rose from 1.8 billion USD in the 1994-2000 to 14.2 billion USD in 2011-2010. In 2016, the sector paid about 7.1 billion USD to the State budget, accounting for 20 percent of domestic collection and 15 percent of the country’s total income.

However, along with positive contributions, the FDI sector has also faced many problems, as attracting high technology has been difficult.

Wim Douw, a senior expert for trade and competitiveness policy at the World Bank, said that Vietnam’s FDI attraction over past years has depended largely on low-cost labour resources and investment incentives, while the quality of the investment has stayed low.

But the country’s advantages are fading, while the fourth industrial revolution is changing the world rapidly, he said, stressing that Vietnam should change mindset in calling for investment.

Le Duy Thanh, Vice Chairman of the People’s Committee of Vinh Phuc province stressed that Vietnam should prioritise environmentally friendly projects with modern technology and a strong effect on domestic growth.
 
Currently, the Ministry of Planning and Investment is building a draft strategy on FDI attraction for 2018-2022, which is expected to tackle problems in the field, driving investment quality upwards.



 
The Vietnamese economy urgently needs to find new drivers for growth in the period from 2018-20 to achieve rapid but sustainable development. The economy was growing but uncertainty about the future lingers, given the challenges posed by trade liberalisation, technological change, the impacts of climate change and constraints on fiscal and monetary policies.

The policies for attracting FDI must aim at promoting the domestic sector and establishing value chains to prevent the development of two sectors in one economy, or even two economies in one country. In addition, there is a lack of indicators to evaluate growth quality, as statistical figures still lacked reliability.

Tran Dinh Thien, Director of the Vietnam Institute of Economics, said Vietnam should not chase growth targets every single year but rather focus on the growth quality of a whole period. “The new period will need new drivers,” Thien said. “We need comprehensive changes in thinking and methods.”

Targets should be based on the international commitments and technology advancements, he added. Thien added that the most important goal is building a transparent Government.

According to Sebastian Eckardt, the World Bank’s Lead Economist for Vietnam, the Vietnamese economy was experiencing a cyclical uptick in growth accompanied by macroeconomic stability. But it also faces emerging structural headwinds, including slower labour force growth, weaker investment and lower productivity growth.

Vietnam should take advantage of cyclical uptick to strengthen macroeconomic resilience and enhance structural reforms to boost productivity growth and lift potential growth, he said.

Eckardt said that it was critical to enhance the business environment, deepen State-owned enterprise reforms and develop effective factor markets to modernise institutions and create a level playing field, including for the domestic private sector. Besides, investing in people and innovation is important to meet the demands of a modern industrial and increasingly knowledge-based economy, he said.
Anh Kiet - Minh Ngoc
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