FDI businesses urged to create high value added products

In the first quarter of this year, Vietnam’s export turnover reached US$29.76 billion, up 19.7 percent on last year’s period. Of that figure, FDI enterprises earned US$17.25 billion, accounting for 58.5 percent of the country’s total exports (excluding crude oil).

Key exports include telephones and spare parts, electronics, computers, footwear, garments and textiles. However, to produce US$17.25 billion worth of exports, FDI enterprises have to import US$16.60 billion in input components while their export turnover was actually only US$1.19 billion.

Le Thi Minh Thuy, Deputy Head of the Department of Statistics, Trade and Services under the General Statistics Office (GSO) says  despite great contributions to national income from the foreign invested sector, its real profits come mainly from outsourcing.

Samsung Vietnam raked in US$6 billion from exporting telephones and components in 2011 and US$12.6 billion in 2012. During the above mentioned period, these types of goods were Vietnam’s biggest export turnover for the first time, with total earnings of nearly US$4.5 billion, 90 percent higher than the same period last year.

The US$3.2 billion project complex in Thai Nguyen province is forecast to record an annual US$20 billion in exports to Samsung.

Vice President of the Vietnam Association of Foreign Investment Enterprises, Nguyen Van Toan says that it is not necessary to export huge volumes; the most important thing is to export hi-tech and high value added products.

In the past, industrial projects by Intel and Foxcon have imported almost all input components from foreign nations, with support from the Vietnamese Government. Although these projects have enormous amounts of investment capital and generate many jobs, they have failed to create value added products and reduce import surpluses to make a positive impact on domestic businesses.

Most FDI businesses choose to invest in Vietnam to take advantage of the  low-cost labour force and the government’s preferential land lease and corporate income tax policies, which has resulted in the production of low value added products.

Kyshiro Ichikawa, leader of the Support Industry Task Force under the Japan-Vietnam Joint Initiative, says that weak support industries and a low rate of localization are the main reasons FDI enterprises have not added value to the  national economy.

According to statistics from the Japan Business Association in Vietnam, the localization rate in Vietnam was only 22.4 percent, much lower than other nations in the region.

Ichikawa states that support industries play an important role in developing the national economy. In the future, Vietnam should amend its policies to develop essential support industries and implement strict requirements for foreign investors in order to promote the nation’s industrialization and modernization.

The country’s export growth has been primarily attributed to foreign investors, which has reduced local businesses’ share of the export market.

According to economists, Vietnam must develop its own support industries, improve the localization rate to replace imported goods, and enhance the status of local support industries, enabling them to become the main suppliers of components for FDI businesses operating in the country.