Experts says the benefits of large FDI flows are limited by low technology transfer

Over the past 30 years, the inflow of FDI into Vietnam has had a major impact on the national economy. According to the Foreign Investment Agency (FIA), 124 countries and territories had invested in Vietnam as of August 20, 2017, with a total registered capital of over US$300 billion. The figure for first eight months of 2017 was US$23 billion, a 45 per cent Y-o-Y increase.

From the host country perspective, one of the main benefits of attracting FDI is the transfer of more advanced technology. However, Prof. Dr. Sc. Vo Dai Luoc, General Director of Vietnam Asia – Pacific Economic Center, said that after 30 years of FDI attraction, Vietnam’s has benefited only modestly from technology transfer. From 2006 to 2015, there were only 600 technology transfer contracts out of nearly 14,000 FDI projects, accounting for a mere four per cent of all projects.

As explained by Ph.D Do Thien Anh Tuan, Lecturer of the Fulbright Economics Teaching Program, this situation is not the fault of FDI investors nor Vietnamese enterprises. The problem is that the policies and the environment of FDI attraction have not been designed to encourage and promote technology transfer activities.

FDI in Vietnam consists mainly of labor and energy intensive projects. Indeed, the problem of environmental pollution has attracted more public attention in recent years. The press has reported a lot about the environmental destruction related to some FDI enterprises, such as Vedan Vietnam Enterprise Corp., Ltd in Dong Nai province, and Tung Kuang Industrial Joint Stock Company in Hai Duong province.

Vietnam has only attracted about 100 among 500 leading transnational corporations in the world, compared to China attracting 400 enterprises. Moreover, despite the investments of such well-known multinationals as Nokia and Samsung, the production in Vietnam is limited to last stage activities such as packaging and testing, which do not require a high-quality labor force or advanced technology.

According to Kenichi Ohno, a well-known expert on the subject of Vietnam's economic development, Vietnam should create policies to encourage higher value-added manufacturing projects, rather than mining, real estate nor infrastructure projects, as these projects tend to deliver greater overall benefits to the economy.

Experts say one problem with Vietnam's current approach to FDI is that the initial FDI attraction policies were applied at the central level and then transferred to the local level. As localities try to pursue high FDI inflows, investment attraction is urgently needed to just fill industrial parks or supplement capital to meet the capital expenditure target.

The tendency to pursue FDI from all sources subsequently leads to other problems, such as FDI enterprises withdrawing from the projects before they reach the implementation stage or declining to transfer technology. Moreover, many FDI firms in active in Vietnam do not have the best technology to begin with, and come to Vietnam using outdated methods and equipment.