Vietnam urged to curb negative impacts of FDI inflow

By Dang Khoa   August 15, 2018 | 08:08 pm PT
Vietnam urged to curb negative impacts of FDI inflow
A worker works on a steel structure at a construction site of a new residential apartment in Hanoi. Photo by Reuters/Kham
Vietnam should consider the unhealthy implications of the large role that FDI plays in the national economy, economists say.

In an interview with VnExpress International, Head of the Vietnam Association of Foreign Investment Enterprises (VAFIE), Nguyen Mai, said he is worried about the quality of FDI inflow.

Thus far, FDI has mostly targeted business fields like real estate and manufacturing industries with low added value.

Foreign investors have engaged in very little technology transfer to benefit Vietnam, others noted.

"Technology transfer between foreign investors and local firms has not met our expectations," said lawmaker Hoang Quang Ham.

Furthermore, Vietnam’s hope for stronger links between FDI firms and local counterparts, enabling greater global supply chain participation, has also not materialized.

Vu Tien Loc, Chairman of Vietnam Chamber of Commerce and Industry (VCCI), put it this way. He said Vietnamese companies were still “lonely” and “unable to tie the knot” with FDI businesses.

Both sides of the equation have been blaming each other for the status-quo.

While local enterprises complain about FDI firms’ unwillingness to cooperate and “guide” them on joining global supply chains and sharing mutual benefits, the latter blames the lack of cooperation on the former’s limited capacity, Loc told VnExpress.

Legislator Tran Hoang Ngan said: "The government should establish strict criteria to attract FDI, with a focus on environment protection, and choose foreign investors that do not have bad reputations."

Economists also said Vietnam should reduce the reliance on FDI and boost development of local private firms. In the long run, economic development cannot rely on foreign firms because they will just leave for other markets when they feel Vietnam no longer has competitive advantages.

The focus should therefore be on strengthening domestic firms, they said.

“Pushing domestic production is better for Vietnam in the long run,” economist Le Dang Doanh stressed.

According to international norms, FDI should account for only five percent of gross capital formation, but in Vietnam, it now makes up 25 percent, which may pose risks to the economy.

In the first 7 months of this year, FDI pledges for new projects, increased capital and stake acquisitions rose 4.6 percent from a year earlier to $22.94 billion, according to the Ministry of Planning and Investment. The disbursed FDI hit $9.85 billion, up 8.8 percent year-on-year.

In 2017, Vietnam's total FDI was around $36 billion with the manufacturing, distribution and real estate industries attracting a lot of overseas investors. A record high disbursement rate of $17.5 billion was also seen.

Also last year, Japan surpassed South Korea to become Vietnam’s top FDI partner.

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