FDI projects are more "stunted"

VCN- GDP growth in the first quarter was very positive thanks to the growth of the FDI sector, but the FDI attraction in the first months of 2018 is lower than that of 2017. There are   some concerns with this result, the number of new projects attracted is not small, but the average capital per project is tending to go down.
fdi projects are more stunted
Hanbaram wind power project with total investment of 150 million USD invested by Singapore in Ninh Thuan. Photo: S.T.

Project scale decreases

On the results of attracting foreign investment in the first quarter of 2018, according to the Foreign Investment Agency, Ministry of Planning and Investment, in the first three months of 2018, the total registered capital of new, increasing and contributing capital, buying shares of foreign investors is $ 5.8 billion, down 25% over the same period in 2017. It is worth noting that in the past three months, Vietnam has not attracted any billion dollar projects. At the top of the list of licensed large projects in the first quarter were two projects of increasing capital, of which the Hai Phong LG Innitek factory project adjusted to increase investment capital by $ 501 million; The project of Regina Miracle International Vietnam Co Ltd., in Hai Phong province increased its capital by USD 260 million. The remaining three projects in the list of five largest FDI projects in 2018: Hanbaram wind power project with a total investment of 150 million USD invested by Singapore in Ninh Thuan with the goal of producing electricity from renewable energy is a new investment attracting project, the remaining two projects are also increasing capital projects. There are a project of Kefico, Vietnam Co Ltd., in Hai Duong province to increase investment capital of USD 120 million and a project by Vina Cell Technology Company in Bac Giang province to increase investment capital by USD 100 million. The down trend in the first quarter 2018 is different from the same period last year. In the first quarter of 2017, Vietnam attracted USD 7.71 billion, an increase of 77.6% over the same period of 2016. Significant contribution to this achievement was the SamSung Display project in Vietnam which adjusted for additional investment capital, $ 2.5 billion in Bac Ninh.

According to the Foreign Investment Agency’s data, in the first 3 months of 2018, 618 new projects were granted investment certificates with total registered capital of US $ 2.12 billion, equaling 72.7% of the same period last year 2017. Regarding the number of FDI attractions and the impression of FDI in economic growth in the first quarter, Prof. Nguyen Mai, former Vice Minister of Planning and Investment, pointed out that the GDP Statistics published by the Ministry of Planning and Investment without mentioning the registered capital for each project. According to Prof. Nguyen Mai, if the average FDI capital in a registered FDI project is $ 10.43 million in 2014, the figure will be $ 3.5 million by 2018/project. Thus, the average registered capital of a foreign investment project is getting smaller and 2018 is just 30% of that in 2014, many of which are $ 1-2 million. With this capital scale, according to Prof. Nguyen Mai, domestic private enterprises can absolutely do them.

Agreeing with the statement of Professor Nguyen Mai, Mr Nguyen Van Toan, Vice Chairman of the Association of Foreign Investment Enterprises (VAFIE), supposed that the cause of this problem is due to not utilizing businesses, big investors coming into Viet Nam to expand its supporting industries and improve its transparency. He also thought that with small projects, it should be left to Vietnamese enterprises to do because of the fact that Vietnamese enterprises can do well, this should be paid attention to in the coming time. Mr Toan also stressed that in the first three months of the year, the number of projects attracted more investors but the average capital was low, and because we are only in the first quarter, we can’t say much. In the first quarter there are no big projects so the overall FDI attraction is lower than in 2017, but only a few "billion" projects will accelerate FDI attraction.

Do not promote mass commercialization

Concerning small projects, they may not ensure the technology, the environment, Mr Nguyen Van Toan said, and that this issue must be studied in detail on each project, because the Japanese projects investing in growing vegetables in Dalat has very small scale but high technology. Explaining part of the cause of many small FDI projects in Vietnam, taking the evidence from the Korean investors, Mr. Nguyen Van Toan said that Samsung is currently the largest investor, but if the average share of capital on each project is relatively low, because Korean enterprises invest in Vietnam on a broad spectrum, spread across many fields and according to the "cranes model" of large enterprises led by small businesses.

In addition to concerns about low registered capital, FDI attraction in the first quarter also showed positive signs. According to Mr Nguyen Van Toan, a positive signal from the FDI sector is the increase of disbursement of FDI capital. It is estimated that foreign direct investment projects have disbursed $ 3.88 billion, an increase of 7.2% over the same period in 2017. This shows that the investment environment has improved and the increasing FDI capital source into production and business will contribute to boosting growth.

According to Prof. Nguyen Mai, if we want to improve FDI attraction, we must change our minds in attracting foreign investment. "We need to change fundamentally on the direction of foreign investment, because we can not continue to attract to invest in the way of "you go, I consider what you have and accept ". We have to attract investment in the way of "finding the investors for projects that Vietnam has not yet done, needing FDI ", which means "we must promote investment with the target, without promoting investment in mass".

In addition, it is necessary to change the policy of attracting investment, not only the tax incentives as they are currently, but only the preferential tax when the enterprise has completed its investment potential, which means that the preferential tax is associated with investment effects. "We need to improve the quality of FDI, linking FDI and private enterprises to participate more and more effectively in the global value chain. If we can do that, growth will be very fast. The typical model is that Samsung currently has 225 suppliers, of which 25 are tier 1 suppliers and by 2020 is striving to have 54 tier 1 suppliers. We must also require other investors to follow this model," Prof. Nguyen Mai said.

Evaluation on attracting FDI in the coming time, many comment that the CPTPP agreement is signed and likely to bring many good signals to attract more investment capital. Of the 11 countries participating in the CPTPP, there are three Southeast Asian countries, namely Vietnam, Singapore and Malaysia. Thailand is also in the mood to join the organization and the United States is also likely to return, but if they return they will have conditions because they account for 60% of GDP in the whole group. If the US returns, Vietnam will be very profitable because Vietnam's textile and garment export market is very large, especially when tariff lines are reduced. Experts also recommend that in 2018 as well as in the coming time, Vietnam should be better in selection of attracting FDI when CPTPP is available.

By Hoai Anh/Quynh Lan

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