Four biggest failures in FDI attraction in Vietnam

The Ministry of Planning and Investment is conducting activities to evaluate the results of 30 years of attracting foreign direct investment (FDI).

Phan Huu Thang empasized that Vietnam has achieved some good results after 30 years of attracting FDI.

Firstly, Vietnam has overcome the weaknesses and failures of a post-war economy. FDI has added a large amount of foreign capital (accounting for 25% of the total social investment capital annually) with high quality of technology and management experience.

This source of capital has helped Vietnam transform successfully from an agriculture-based economy into a more industrialized and modernized one with higher production capacity as well as new industries and industrial products.

Secondly, many large and modern industrial parks have been created, which has created direct and indirect jobs for millions of workers.

In the first seven months of 2017, FDI inflows into Vietnam reached US$9.05 billion, increased 5.8% over the same period of 2016 and registered capital was US$21.93 billion, up 52% over the same period of 2016. The export volume of FDI enterprises grew at a high rate.

However, there are still a number of failures in attracting foreign investment into Vietnam during the past 3 decades.

The first failure was the Formosa marine environment disaster. This can be considered as Vietnam's biggest failure in attracting and managing FDI. Although Vietnam have overcome this initial step, the consequences are still very large.

Meanwhile, this is not the first lesson. Previously, the Vedan incident that discharged wastewater untreated into the Thi Vai River also caused enormous environmental impacts.

According to Phan Huu Thang, the second failure is the limited linkage between domestic and foreign invested enterprises. This is reflected in the low participation rate of Vietnamese enterprises in the global supply chain. Although Vietnam's supporting industry development strategy was set 2O years ago,it is still not practical.

The third failure is the overwhelming trend of foreign-invested enterprises in terms of markets, products and exports. Vietnam's economy is increasingly reliant on the foreign-invested sector.

According to a report published by the Vietnam Institute for Economics and Policy Research (VEPR), the sign of dependence on the FDI sector in export activities is becoming increasingly apparent. If in 2009, FDI exports accounted for only 32.9% of Vietnam total exports, it rose to 70.2% in 2016 and 72.4% in the first half of 2017. As a result, domestic sectors are becoming more and more weak during the process of international integration.

The fourth failure is the imbalance in the ratio of strategic investors in Vietnam. There is a lack of European investors among the major economies in Vietnam. This is the potential risks affecting security and defense in the future.

According to Phan Huu Thang, Vietnam needs to seek solutions to attract and use FDI more affectively.

Vietnam have to select projects based on qualified investment partners, high quality capital and environmental standards, etc. At the same time, Vietnam should give to partners from Europe, America and Japan.

Moreover, Vietnam should take into account the problem of changing investment and cooperation way to achieve the important objectives when attracting foreign investment.

In addition, the planning of investment projects should be based on local practices and national economic development planning. At the same time, the level of management agencies and policy system should be improved to select good quality FDI projects to invest in Vietnam in the future.

Sincerely thank you!