It's FDI quality that matters, not quantity: analysts

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Prime Minister Nguyen Tan Dung (L-3) at the ground-breaking ceremony of the Nghi Son refinery complex on October 23, 2013. An additional $2.8 billion was pledged to the project last year, pushing the total investment to $9 billion. Photo:

As Vietnam's foreign direct investment continues to grow robustly, analysts' concerns have shifted from attracting foreign investors to improving the quality of FDI projects.

Inbound investments last year hit US$21.6 billion, following pledges totaling $16.3 billion in 2012.

This represented the second straight year FDI exceeded the country's target.

News website Saigon Times quoted Phan Huu Thang, former head of the Foreign Investment Agency (FIA), as saying last year's figure was much greater than what FDI authorities had expected during the tough economic times.

The National Financial Supervisory Commission said the increasing investments were due to improvement in domestic stability and brighter global prosperity prospects with the World Bank forecasting global economic growth at 3 percent and 3.3 percent in 2014-15 compared to 2.2 percent last year.

Analysts also said the inflows of FDI reflected foreign investors' preparation for free trade agreements that Vietnam is currently negotiating. The country is among 12 participants in the US-led Trans-Pacific Partnership, which is expected to come to an end soon.

However, experts said the growth is not sustainable.

Of the estimated 1,750 new and ongoing projects receiving additional investments last year, seven investments made up over half of the $21.6 billion registered. This indicated that the strong growth was not thanks to diverse investments but rather a few major projects.

Thang of FIA said there was a correlation between foreign investment quality and the domestic business environment, in which he said there were still bottlenecks.

Last year the government assigned local governments to complete 60 plans to boost FDI and improving its quality by this year end.

But he said the progress was slowing, without elaborating.

At a recent conference to discuss inbound investments in Ho Chi Minh City, the European Chamber of Commerce in Vietnam questioned the feasibility of the government's goal to reduce projects using labor-intensive operations and increase those adopting high technology.

It said the country's small pool of high-skilled workers is not ready.

High piracy rates and unsteady access to electricity also discourage investors from bringing in high technologies, according to the European Chamber of Commerce in Vietnam.

Official data show that 14 percent of foreign-owned businesses in Vietnam use outdated technology, more than twofold the number that have developed hi-tech operations.

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