Foreign firms should be support cast for domestic players: economist

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Two workers assemble chairs at a furniture factory in southern Vietnam

Foreign firms should underpin the development of local firms instead of playing the leading role in the economy, economist Bui Kien Thanh tells Vietweek.

The government should amend its policies to help bolster the competitiveness of domestic private firms, which get less support than their foreign competitors, he says.

There is an opinion that in the current tough economic situation the development of foreign firms will hamper the recovery of the domestic private sector. What do you think about it?

Bui Kien Thanh: In the domestic market, foreign invested firms compete fiercely with local ones. With the advent of foreign consumer goods producers like Pepsi, Coca Cola, and Colgate Palmolive, many local firms in the fields have disappeared from the market as they failed to compete with foreign rivals. Many Vietnamese firms with good brand names have been bought by foreign ones in the past two years when they faced financial difficulties.

In 2013 Vietnam achieved exports of over US$130 billion, of which over two thirds were by foreign firms. The exports by local firms are too small compared with that of foreign players. This is a warning, revealing that Vietnamese firms’ development is too weak and they have failed to expand their international market.

Local enterprises are less competitive than foreign invested ones because of their limited ability in market expansion and high interest rates. If the issues are not resolved soon, they will be overwhelmed by foreign firms.

We have to reconsider whether our firms are ready to compete with foreign investors when we open the door to them under upcoming free trade agreements like the Trans-Pacific Strategic Economic Partnership Agreement (TPP). Whether we facilitate our firms’ business so that they can compete well? We have to seriously analyze the situation of foreign invested firms to know which projects are useful to the economy, and which are harmful. In many provinces, authorities attract FDI whatever the cost, ignoring their harmful effects.

We have to be more selective in licensing FDI projects to make sure that they support Vietnamese products in terms of technology and market for their stronger development.

Bui Kien Thanh             

Foreign firms are exempt from corporate tax, and get thousands of square meters of land free in industrial parks for many years. Local firms find it hard to get even 100 sq.m for their workshops.

Foreign companies thrive while local firms struggle to survive. Do foreign firms get more incentives?

Foreign firms have advantages that Vietnamese ones do not have: they can borrow at interest rates of just 1-2 percent from banks in their countries like the US and Japan. Meanwhile, local companies find it hard to get bank loans despite high interest rates of over 10 percent. Foreign firms are capable of strongly expanding their markets. They hire Vietnamese firms to execute their outsourcing contracts. Local firms are unable to develop markets to boost exports.

Foreign firms also receive more incentives than local private ones. Many provinces, which want to compete with others in attracting FDI, offer them too many incentives but don’t know whether the projects are useful.

They are exempt from corporate tax, and get thousands of square meters of land free in industrial parks for many years. On the other hand local firms find it hard to get even 100 sq.m for their workshops. Authorities should reconsider the issue. Why do we cause difficulties for our firms? FDI should support development of our products instead of overwhelming Vietnamese firms. Our firms are being crushed by foreign firms.

There is an opinion that Vietnam’s economic growth this year will rely on foreign invested firms. What is your opinion?

We should not rely on the development of foreign invested firms. They should support local enterprises’ development in terms of technology and science. The government should have a reasonable monetary policy, which facilitates local firms’ growth and helps them compete in the market. The government should not let local firms with good products, good markets, and good management be in a position where they cannot compete with foreign firms only because they cannot get bank loans. The government should implement a monetary policy which ensures enough money flows for the economy’s development.

Private firms should play the leading role in the economy. State-owned enterprises should work to serve the development of private firms, while foreign invested firms should support it.

State-owned enterprises should not compete with private ones in doing business for profits. They should be in sectors which private ones cannot.

How will the recent increases in input costs, like that of electricity and gasoline prices, affect economic growth this year?

The government cannot continue to subsidize some goods like coal, electricity, and running water. Their prices should be determined by the market. The issue is that the government should ensure adequate money flows for the development of the economy.

Economic growth this year will continue to rely on foreign investment since local firms are not developed, Cao Sy Kiem, chairman of the Vietnam Small and Medium-Sized Enterprise Association, said.

Foreign invested firms achieved high exports, he said. “It is very good considering Vietnamese firms have yet to develop.”

But it would not have a positive affect on the economy in the long term, he warned, pointing out that what foreign investors bring to the table is not big.

Meanwhile, the growth of foreign firms would have an adverse effect on the development opportunities for local ones, he said.

Vietnam should develop long-term strategies to improve the competitiveness of local firms, who cannot yet compete with their foreign rivals due to their lack of technology and capital, he said.

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