Phan Huu Thang, former director of the Foreign Investment Agency under the Ministry of Planning and Investment
80% of gain and 20% of loss from FDI
The “gain” is major and the “loss”, though minor, needs thorough analysis, said Thang, who mentioned foreign firms like Vedan and Formosa who took advantage of the loose FDI control to dump industrial waste water into the river and the sea, causing environmental incidents. Other issues arisen from FDI including tax evasion and transfer pricing have not found effective solutions so far, Thang added.
The former director of the Foreign Investment Agency pointed out that benefiting from FDI and taking advantage of its multiplying effect have been left to much desire. There is the lack of linkage between domestic and foreign enterprises, poorly developed support industry and the contribution of FDI to the national budget has been below the expectation.
Thang remembered that Vietnam initiated FDI attraction policies in 1987, roughly 12 years after finishing a devastating war. The economy was weak by then. Human resources were poorly trained and unable to deal with issues arising during the transition to the market economy.
Vietnamese FDI’s attraction targeted foreign partners with capital, technology and market potential. However, this target has not been translated into detailed and concrete actions, Thang pointed out.
Low and outdated technologies
The veteran FDI expert said that as a developing country, Vietnam needs a lot of capital to deal with many economic demands: jobs creation, deployment of high technologies, social security, as well as other issues such as national defense, environment, etc.
He added that in the first period of implementation, Vietnam valued the foreign capital and used them for the highest socio-economic priorities. But over the last 15 years, Vietnam has attached special importance to high-tech through policies and specific actions by the government.
However, the attraction of investment in high-tech has not lived up to expectation. Many manufacturing sectors still rely on labor intensive jobs which put out products of low quality and value. Without high-tech, we are unable to climb in the global value chain, Thang stressed.
The formulation Vietnamese FDI attraction policies now need fresh initiatives to avoid lagging behind in the world competition. “You have to look back into your shortcomings yesterday and find out the root cause, then you will see the entire solution,” Thang suggested.
Fast changes in the global economy led by science technology are posing big challenges to FDI attraction which requires thorough analysis to understand the shortcomings in management, policy making, human resources and then prescribe remediable solutions, Thang said.
Driving the FDI forward
For each stage of development, Vietnam adjusts its policy to attract FDI suitable to the situation and the integration pace in the region and the world. The Vietnamese position in the world has changed so the FDI policies have to be changed as well, Thang stressed.
The approach “the more investors, the merrier” needs to be changed in the strategy of attracting foreign capital in Vietnam. “We need to learn to turn down projects which could possibly be detrimental to the environment, or low tech projects,” Thang pointed out.
The former director of the Foreign Investment Agency added that now Vietnam needs to be more selective in terms of licensing FDI projects, focusing on high-tech and less labor intensive. The new FDI attraction strategy has to take into account the national security, self-development and public employment restructuring.
He stressed that as the Industry 4.0 is so much talked about these days, it is necessary to implement Industry 4.0 with the objectives clearly defined. How to attract foreign investment in Industry 4.0 technologies? How to manage its implementation? These questions need a detailed and suitable plan.
“We must aim at clean and high tech projects, finding consensus on FDI master plan which species areas of priorities to attract FDI. Investment projects should be licensed in accordance with Vietnam’s development targets. What sectors could be operated by Vietnamese businesses should be left to Vietnamese. Only those areas not operable by Vietnamese businesses could be handed to foreign investors,” Thang suggested.
He concluded that FDI investment should not be drawn in at all costs, instead we must give precise instructions to the provinces so as to reduce any negative side of foreign capital. Besides, organization of apparatus and personnel is key to attract foreign capital. Each and every partner must be carefully evaluated. Some investors register huge capital but Vietnam only benefits a tiny part of it. Those investment projects should be discarded.