The limitation of FDI is the spread

The spread effect of FDI on the domestic economy is still limited and not as expected. Picture: H.A

A big contribution to the economic development

According to the Organizers, the first period after the Law on Foreign Investment in Vietnam was approved, from 1988 to 1990, the FDI has no significant impact on the socio-economic situation in our country. So far, after nearly 30 years "welcome" FDI, our country has more than 23,000 FDI projects with a total registered capital of over $US 300 billion, of which the total implemented capital is over $US 160 billion.

FDI has contributed to supplement the investment capital for development, job creation; increase budget revenue; promote technology transfer and international integration process of our country. Notably, the FDI sector now accounts for 72% of export turnover.

Speaking at the seminar, Mr. Nguyen Anh Tuan, Vice Chairman of the Association of Foreign Investment Enterprises, said that for 30 years, FDI enterprises have contributed significantly to supplement the capital for the economy, about 20-25% of GDP, creating 3.7 million direct labor, contributing over 15% to the State budget revenues.

The presence of FDI enterprises helps to promote domestic enterprises to improve their management ability and competitiveness as well as enhance the process of international integration.

Taking an example of the Vinh Phuc’s success, Prof. Dr. Nguyen Mai, Chairman of the Association of Foreign Investment Enterprises (VAFIE), said that in 1997 (when Vinh Phuc province was re-established after the separation of Vinh Phu province), the state budget revenues of Vinh Phuc province were about 100 billion vnd, but by 2016, the province's revenue reached 33,000 billion vnd, 330 times higher than its newly-established period. In particular, FDI plays an important role.

FDI not only contributed to the budget but it also changed the face of the city and the countryside of the province. In the North, in addition to Vinh Phuc, there are also Bac Ninh and Thai Nguyen provinces that have changed very rapidly in recent years thanks to the large contribution of FDI.

Confirming FDI has a great impact on the development of Vinh Phuc, Mr. Le Duy Thanh, Vice Chairman of Vinh Phuc People's Committee said that the FDI sector contributed to the domestic revenue of the province in the period 1997-2000 is 47, 6% and from 2001 to 2005 was 69%, 83.71% from 2006 to 2010 and 84.65% from 2011 to now. FDI accounted for 95% of the province's exports. Currently, products that are produced in Vinh Phuc are exported to more than 20 countries in the world.

The biggest limitation is the spread

Recognizing the undeniable contributions of the FDI sector, however, at the seminar, many experts emphasized that besides the successes, FDI activities have also revealed the limitations such as not suitable with the development plannings of the branch and economic zone, some machinery and equipment have been imported, causing serious environmental pollution, transfer pricing doubts...

Emphasizing the role and impact of FDI on the economy, Mr. Nguyen Anh Tuan also said that there are many concerns that this influence is very significant, making the economy of Vietnam depend on FDI. “Some experts say that in Vietnam, it is forming two economies in a country”, Mr. Nguyen Anh Tuan said.

In a general assessment, the spread effect of FDI on the domestic economy is limited and not as expected.

About the limitation of FDI, Prof. Nguyen Mai said that the main disadvantage of FDI now is the spread effect. He affirmed that in Vietnam, the spread effect was not as expected, as Vietnamese enterprises still have limited in participating in the global supply chain.

Prof. Nguyen Mia said, in the export to the US of ASEAN, if in 2010, Vietnam was only at the sixth position in the ASEAN, then in 2014, it claimed the top, accounted for 22% of total exports to the United States of the group. Vietnam accounts for 4% of the world's total export turnover, with the leading export products of pepper, coffee, textiles, and has now become the mobile manufacturing base for smartphones and tablets.

However, according to economists, there are 21% of companies participating in the global supply chain, while Thailand has 30%, in Malaysia has 46%. So far, we are far from the countries around us in this respect.

According to Prof. Nguyen Mai, the global value chain has two stages: top value-added and low value added.

In the Vietnam’s textile industry, the last stage with high added value is the consumption stage, FDI enterprises occupy almost all. Vietnamese enterprises take the low value-added stages of sewing. Thus, the overall value added of the textile industry is only 15% of turnover.

The footwear industry is in the similar situation. Vietnamese enterprises only produce, the stage of consumption, marketing still belongs to foreign enterprises.

According to Prof. Nguyen Mai, there are 4 responsibilities that we need to take consideration of the spread.

The first belongs to Vietnamese enterprises. Accordingly, in order to get the success, we need some factors such as confidence. Vietnamese enterprises are still lack of confidence, meanwhile, if they want to be successful, they must be confident.

The second, they must be active to participate in the global chain, must have a development strategy and adapt to the requirements of foreign enterprises.

The third is always to innovate, improve the level to meet the requirements.

The fourth, in the context of opening the door, the Government should enhance the role of the association that can link domestic and foreign enterprises together.