Ph.D. Bui Trinh says economic benefits of FDI have been less than advertised

By Thu Phuong - Dec 21, 2017 | 07:01 AM GMT+7

TheLEADERAlthough the Foreign Direct Investment (FDI) segment has significantly contributed to the development of Vietnam economy, many of its drawbacks must be taken into consideration.

Ph.D. Bui Trinh says economic benefits of FDI have been less than advertised
Ph.d Bui Trinh

Over the past 30 years, FDI has significantly contributed to the socio-economic development of Vietnam.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, by November 20, 2017, Vietnam had attracted more than US$316.9 billion of registered FDI, US$170.8 billion of which has been disbursed. This source of investment capital has accounted for nearly 25 per cent of the total investment in the whole society this year.

However,the actual impact of FDI on Vietnam’s economy is a controversial subject.

TheLEADER had a talk with economic expert Bui Trinh on this issue.

What do you think about the contribution of FDI sector to Vietnam’s economy?

Ph.D. Bui Trinh: The development of FDI sector will influence three factors including people’s income, export, and indirect tax.

Firstly, the impact of this sector on job creation for Vietnamese people and their income is not as much as expected.

It can be seen that Vietnamese employees are mainly cheap labor while the key managers in FDI enterprises are foreigners whose salaries are included in the added value of the economy as they reside in Vietnam more than one year.

Meanwhile, the income of a foreigner is equal to the total income of up to 8-10 Vietnamese people.

On the other hand, the number of Vietnamese workers at FDI enterprises accounts for only three per cent of the total labor force of the country.

Secondly, local content ratio in Vietnamese exports of FDI products is low. Besides, most of FDI enterprises reported losses or the slight profit, leading to the low amount of business income tax Vietnamese government gains.

In 2016, the total amount of FDI sector’s business income tax exempted or reduced was VND35,300 billion (roughly US$1.556 billion). In many FDI enterprises, the total tax deduction since they put their business into operation is equivalent to their investment capital.

Finally, FDI enterprises enjoy the tax incentives when importing the input materials for the processing manufacture as they export directly.

This tax, essentially, is paid by Vietnamese people when using their products. Using FDI enterprises’ processing products actually is the use of imported goods in another form while domestic businesses are not entitled to tax incentives when selling goods within the country.

Also, there has not been any solution to the situation of a price transfer within FDI enterprises. In order to address this problem, countries all over the world must firmly collaborate.

How about the influence of FDI on Vietnam’s GDP growth?

Ph.D. Bui Trinh: The average growth rates of all domestic economic sectors in Vietnam in the 2005-2016 period were lower than the average growth rate of GDP. Only the FDI sector’s growth rate was higher than the average level. Therefore, it is reasonable to conclude that the growth rate of Vietnam economy is strongly depending on the FDI sector.

Meanwhile, the internal strength of the national economy has not been enhanced and the productivity has also not improved, which may detrimentally impact on the economic growth.

What should Vietnam do to develop its economy sustainably?

Ph.D. Bui Trinh: Although the added value of FDI sector is included in Vietnam’s GDP, Vietnam, essentially, just takes a little interest while these FDI enterprises are enjoying high tax incentives compared to domestic ones.

Therefore, it is time for Vietnamese economy itself to develop instead of depending too much on foreign investments. Vietnam needs a strategy to attract more efficient FDI in the coming time.

Domestic enterprises should be seen as the key sector of the economy; especially, the private sector must be the driving force. Besides, agriculture should be also promoted.

In order to gain these goals, Vietnam must have large institutional reform for economic growth, renew the growth model and restructure some areas. Only by creating favorable conditions for Vietnamese enterprises to develop and reach out to the world can Vietnam’s economy grow sustainably.

Thank you very much!