Beware of foreign direct investment traps: experts

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Need to be highly selective about foreign investment dawns on Vietnam

People work on the assembly line at a Piaggio scooter and motorcycle factory in the northern province of Vinh Phuc

After more than two decades, the hype about wonders wrought by foreign direct investment is being replaced, at least partially, by the sober reality of their actual impacts.

Now, experts are saying that a strong inflow of foreign direct investment (FDI) is not necessarily a blessing if the technological gains are not worth the environmental risks.

Bui Tat Thang of the Development Strategy Institute in Hanoi said the biggest disappointment with FDI projects is the very little technology transfer that has benefited Vietnam.

Foreign investors tend to keep their technologies secret while local authorities are not fully aware of the importance of technology transfer and have not demanded it, he said at a conference in Hanoi last week.

Thang also warned that not all foreign investors are financially strong. Some of them actually disbursed only a small portion of their registered capital, trying to raise funds from the domestic market to cover the rest, he said, adding that such practices would give a wrong impression about the contribution of their projects to the economy.

The lack of technology transfer is a setback, but experts have been pointing out that the situation could actually be worse, that Vietnam becomes a dumping ground for outdated technologies.

Nguyen Xuan Trung of the Vietnamese Academy of Social Sciences said the country needs to be cautious with FDI projects that can have negative impacts on the environment.

"China late last year decided to eliminate thousands of companies using obsolete technologies with low efficiency. It's likely that these companies, together with their equipment and production lines, will try to move to Vietnam," Trung said.

There might be traps in FDI inflows into the country, said Invest Consult Group General Director, Nguyen Tran Bat.

"Just as you may buy bad and fake goods at a market, you may attract the wrong projects," he said.

The decentralization has given cities and provinces too much authority in licensing new projects, but their assessment practices are not effective enough to prevent low-quality projects, Bat said. He called for setting up an agency for each region of the country to review FDI projects before licenses are granted.

Over the past 25 years, FDI inflows have continued to rise. Vietnam targets FDI of US$15-16 billion this year, up from $11 billion in 2011. Pledges fell 54.5 percent in the first two months from a year earlier, to $1.23 billion.

More than 13,600 FDI projects have been licensed so far, and most of them are currently operational. Together they have created two million jobs, as well as several million indirect jobs.

But not all the foreign-invested companies have good environmental track records. Several have been caught polluting over the last few years, including MSG makers Vedan Vietnam, Miwon Vietnam and hog farming company San Miguel Pure Foods.

Meanwhile, the country has not been very successful in its efforts to attract big companies with modern technologies, even though several top manufacturers in the world including Intel Corp., Samsung Electronics Co., Canon Inc., and Piaggio have established a presence here.

Dau Tu, a newspaper published by the Ministry of Planning and Investment, last week quoted experts as saying the main target for Vietnam should be large transnational corporations.

Economist Nguyen Mai said the country has focused on attracting capital from small and medium investors, but the strategy needs to change.

"We still need FDI from small- and medium-sized enterprises in supporting industries, but the priority should be FDI from countries with advanced technologies and top transnational corporations in the world," Mai said.

To catch the attention of these large investors, the government has to offer attractive incentives and maintain stable policies, he said.

Minister of Planning and Investment Bui Quang Vinh has said there will be "breakthroughs" in the FDI sector soon. The country will continue to welcome investors, but it will no longer try to attract investment at all costs, he said.

There will be "filters" and only investors in select sectors that the country plans to develop will be chosen, Vinh said, noting the goal is to attain high technology.

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