It is urgent to assist domestic businesses to become a strong pillar of the Vietnamese economy, an economy whose growth has been largely fostered by foreign direct investment (FDI) in recent years, experts said.
Since the Law on Foreign Investment was issued in 1987, FDI inflow into Vietnam has strongly affected the country’s economy.
FDI makes up about 22%-25% of the nation’s total investment and contributes 14% of the State budget, said Director of the Ministry of Planning and Investment (MPI)’s Foreign Investment Agency Do Nhat Hoang.
The sector’s contributions to national GDP have also increased over the years, reaching approximately 20% in 2014, he said, noting that it creates jobs for more than 2 million people and another 3-4 million indirectly.
During the first quarter of 2015, FDI businesses’ exports (including crude oil) hit US$25.1 billion and accounted for 70.3% of Vietnam’s total export value, he added.
Despite these positive economic impacts on the economy, experts pointed to existing problems in Vietnam’s FDI activities.
According to the MPI’s National Centre for Socio-Economic Information and Forecast, many FDI projects operate in natural resource exploitation, polluting industries and real estate, all of which are undesirable investment fields.
For many years, a number of FDI firms have claimed losses with the intent to use transfer pricing and evade taxes. Following several years of reported “losses”, some of those firms have come to dominate the manufacturing of numerous products such as fizzy drinks, detergents and animal feed, manipulating the domestic market and lowering domestic companies’ competitiveness, the centre said.
Meanwhile, the 25% FDI proportion of the total investment is relatively high and indicates weakness in domestic investment, said Deputy Director of the Ministry of Trade and Investment’s Industry and Trade Information Centre Le Quoc Phuong.
Vietnam’s considerable dependence on FDI can also be seen through 70% of total exports and over 60% of the national industrial production coming from the FDI sector, he added.
Vice President of the Central Institute for Economic Management Vo Tri Thanh said if relevant support is effectively provided, private businesses could become an important pillar of the economy, helping reduce dependence on the FDI sector.
Concurring, Hoang said domestic firms, especially small- and medium-sized enterprises, should form the foundation of the Vietnamese economy. The State should put a greater focus on these companies and offer them optimal policies, incentives and capital and technology assistance.
Deputy Director of the MPI’s Department for Economic Zone Management Vu Quoc Huy suggested domestic businesses learn from the technology, management and promotion experience of FDI firms to improve their capacity. State agencies also need to act as a bridge between the two groups and raise the role of FDI companies, especially large-scale firms, in aiding domestic enterprises.