FDI sector still keeps Vietnam's economy growth on a string

By An Chi - Aug 25, 2018 | 11:06 AM GMT+7

TheLEADERDespite the significant contribution of FDI to the growth of Vietnam's economy, there are still many opposing views from experts concerning about the over reliance of Vietnam on foreign enterprises.

FDI sector still keeps Vietnam's economy growth on a string
Samsung's plant in Vietnam

According to Dr. Nguyen Duc Thanh, Founder and Director of the Vietnam Institute for Economic and Policy Research (VEPR), Vietnam’s economy is showing very optimistic growth in recent years, of which the manufacturing and processing industry is considered as the main driver of the growth.

However, the added value created in this sector mostly derives from the FDI sector, which indicates a rising reliance of Vietnam’s economic growth on FDI.

“Economic growth depends too much on the external factors posing many risks to the economy of Vietnam,” said Dr. Thanh.

Sharing the same perspective, according to Economist Pham Chi Lan, Vietnam’s economy currently relies heavily on foreign enterprises. For instance, Samsung alone accounts for 25 per cent of Vietnam’s exports.

In spite of the large FDI flow into Vietnam, their tax contribution is extremely limited, based on the opinion of Economist Pham Chi Lan.

Moreover, some FDI enterprises enjoy enormous tax incentives, income tax exemption and reduction periods. In addition, many foreign enterprises use the method of pricing transfer to avoid tax.

According to Economist Pham Chi Lan, internal factor is mostly important for a sustainable economic growth.

Nevertheless, regarding the role of FDI enterprises in the economy, Professor Nguyen Mai, Chairman of Vietnam's Association of Foreign Invested Enteprises (VAFIE) argued that many inadequate and unfair notions about FDI enterprises still exist.

FDI sector still have strong influence over Vietnam's economy growth
Professor Nguyen Mai, Chairman of Vietnam's Association of Foreign Invested Enteprises (VAFIE)

He affirmed that the role and contribution of foreign enterprises to Vietnam's economy are undeniable. In reality, many activities of FDI enterprises have had positive influence on domestic enterprises through demand for auxiliary services.

Furthermore, with the increasing trend of Merger and Acquisition (M&A), domestic enterprises have the advantages of learning advanced management experience and transferring technology from foreign enterprises.

Nevertheless, according to Professor Mai, Vietnam should also be cautious about the quality of many FDI projects. Specifically, it is advisable to restrict the licensing of projects with low investment capital, as this is the part that can be undertaken by domestic firms.

In addition, regarding the attraction of FDI, economic efficiency as well as environment factor should be taken under careful consideration.

According to figures from the Ministry of Planning and Investment, foreign direct investment (FDI) in Vietnam reached $35.88 billion in 2017, an increase of 44 per cent over the same period of 2016, and the highest growth in the last 10 years. FDI disbursement also reached $17.5 billion, the highest increase ever.

It is apparent that foreign direct investment (FDI) has been contributing significantly to the growth of Vietnam’s economy in the recent years.