FDI Attraction Needs a New Thinking

FDI Attraction Needs a New Thinking

After 30 years of attracting foreign direct investment (FDI), since the Law on Foreign Investment came into effect in 1987, although the FDI inflows into Vietnam was large, its impact on the economy was still limited. Experts said that Vietnam needs to apply new thinking in attracting FDI.

By the end of 10/2017, Vietnam attracted 24,397 FDI projects with a total registered capital of US $ 312.9 billion, from 128 countries and territories in the world. FDI invested in 18/21 sectors and fields of Vietnam and spread throughout 63/63 provinces and cities across the country.

According to the representative of the Foreign Investment Agency (Ministry of Planning and Investment), the contribution of the FDI to GDP has grown rapidly over the years, from 2% in 1992 to 19% in 2016. The FDI sector exports also increased sharply, with 64% in 2012, 70.5% in 2015 and $ 126.28 billion in FDI in 2016, accounting for 71.5% export turnover of Vietnam. FDI also contributes significantly to budget revenue with a budget contribution of $ 14.2 billion between 2001 and 2010, from $ 1.8 billion in the period 1994-2000. By 2016, the FDI sector contributes about US$ 7.1 billion, accounting for 20% of domestic revenue and 15% of total national budget revenue.

At present, 58.2% of FDI capital is concentrated in the processing and manufacturing industry, creating over 50% of industrial production value, contributing to forming some key industries of the economy such as telecommunications, petroleum, gas, electronics, information technology, steel, cement ... FDI contributes to creating jobs, improving the quality of human resources and changing the structure of labor.

In addition to positive contributions, the FDI sector still has some limits such as the target of attracting high technology, technology and technology transfer not as expected. Wim Douw, senior expert in trade and competition investment policy at the World Bank, said that the attraction of Vietnam's investment in the past time was based mainly on advantage of the cheap labor and large investment incentives, the quality of FDI has not been paid much attention. However, the advantages of cheap labor in Vietnam are losing.

In the changing global and regional context, countries are deeply integrated into the world economy and the 4th Industrial Revolution is fast and dynamic, Vietnam needs to change its thinking about investment attraction. "Instead of attraction by relying on incentives and cheap labor, Vietnam needs to attract FDI based on skills, technology, and production chain." Instead of attracting at all cost and ways, each province should focus  on filtering projects with modern and environmentally friendly technologies, which have strong impact on all over the domestic economy, " said Le Duy Thanh, vice chairman of Vinh Phuc Provincial People's Committee. .

MPI is drafting FDI Attraction Strategy for the period 2018-2022. The draft is expected to end the shortcomings after 30 years of FDI attraction, driving FDI inflow into a new phase, of which the quality of capital flows is focused.

Source: Ministry of Trade and Industrial

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