Vietnam overdoing the warm welcome for foreign investors: experts

TN News

Email Print

Workers at a Samsung plant in Vietnam. Photo by Mai Phuong

Vietnam is wasting its resources by being too wholehearted in welcoming foreign investors who bring little in return, experts say.

They say easy regulations have allowed large-pocketed foreign firms to hold the upper hand excavating resources, confining Vietnamese partners to assembly tasks, and finally enjoying a huge slice of the economic cake.

Dr. Tran Dinh Thien, director of Vietnam Institute of Economics, said the Vietnamese economy has grown fast, but still did not climb up in world ranking as most of the money actually flowed into overseas pockets.

Figures from the General Statistics Office showed that foreign investors accounted for 60 percent of US$108 billion in export revenues during the first ten months this year.

They earned 63 percent of export revenues last year, when Vietnam achieved a trade surplus for the first time in two decades.

Expert suggest the dominance of foreign firms since 2010, until which they were more or less on par with Vietnamese counterparts, indicate that local firms have been worse hit by the economic crisis.

"The outdated economic structure is stuck in assembly mode, resource abuse and the lack of modern supporting industries," Thien said.

He said the economy has turned into one that depends heavily on foreign investment, and this was not a healthy sign.

Unfair players

Vo Dai Luoc, director of Vietnam Asia-Pacific Economic Center, said only 5 percent of foreign investors in Vietnam ever educated local workforce on their cutting-edge technologies, while others only revealed "traditional if not outdated tricks." 

Luoc said the country has tried on fill up its industrial zones at any cost, and were too friendly in inviting in foreign investors. He said the economy has lost more and gained little with this approach. 

"The dependence of the economy is a bitter truth. We are causing harm to ourselves with our easy policies."

For their little contribution in expertise, many foreign companies are benefiting from Vietnamese cheap resources, including labor, he said.

They receive tax and land use preferences, some of them out of reach for local companies. They can avoid paying taxes by announcing losses, and they can be left to do that for ten to 20 years, while local firms will be "hunted down" if they do the same, Luoc said.

As the central bank tries to increase foreign currency reserves, foreign investors in Vietnam have enjoyed the same deposit rate of 7 percent like locals, while most other countries offer foreign partners lower rates, as little as 1-2 percent.

"So the investors here already benefited from doing nothing," Luoc said.

That's not to mention the environmental damage foreign investors have caused for which no full estimation has been done, he said.

Luoc said the country needs to adjust its FDI attraction policies, like making foreign investors commit to delivering new technologies and accepting limited privileges, and at the same time improving treatment of local investors and talents.

"We need a countering force of domestic investors along with foreign investors to build a strong economy."

Many economists shared Luoc's view that Vietnamese firms need to become stronger and compete with the foreign-invested ones.

Dinh Tuan Minh told Saigon Tiep Thi that there is no need for the presence of foreign companies to trigger panic, since they cannot take over the local economy unless the domestic counterparts are too weak.

Minh said Vietnamese companies on average are not very competitive as state-owned companies are given all the privileges; as a result, private firms have to struggle with a lack of funds and expertise.

He said foreign companies can actually help increase local firms' competitiveness, pushing weak ones out of the game.

"We need to play with them to be strong like them."

Economist Le Dang Doanh said that as a member of the global economy, Vietnam should not and cannot shun foreign investors, so it just has to learn to manage them better.

"It's like bringing a tiger home," and that can carry harm or benefit depending on the ability of the host to deal with the guests.

"If you know how to cheer it up, and tame it, you can have a luxury pet, but if you fail to control it the right way, you can be killed."

Luoc said Vietnam needs to apply bankruptcy and environment laws of the investors' countries for them, with most of those from developed countries having proper legal frameworks, instead of spending time building faulty ones at home.

Businesses have said that the lack of support from home is one reason that has seen economy stay an assembler for so many years.

TMA, Vietnam's leading software company formed in 2001, is still working for foreign investors.

Its general director Nguyen Huu Le said it could not afford the cost of marketing, given the small size of the market, and Vietnamese copyright laws don't work well. 

"So processing is a safer choice," Le said.

Its counterpart FPT, Vietnam's largest listed telecom and technology company, last month reported a 14 percent year-on-year increase in 10-month revenues, but its director said the company was getting "bare bones" from its operations.

Nguyen Huu Thai Hoa, strategy director of the company, said IBM and Oracle pocket 60 percent of what the company makes.

Thus it is taking steps to switch from processing mode to manufacturing, Hoa said.

Tran Luong Son, general director of Hanoi-based VietSoftware, said the government spent a lot of money building software parks across the country, but only a couple of them still work on software construction. "It's not that the government never supported us, but the help has gone off track."

Vietnam's workforce, meanwhile, are not only stuck in their assembly positions, they are getting worse pay packages, observers say. 

Le Quang Hung, chairman of Saigon Garment Manufacturing JSC, said wages have increased 20-30 percent the past decade, but prices have more than doubled. "[Companies] need to use a lot of labor, but still rarely make profit."

Hung said 70 percent of businesses in the industry, which is among Vietnam's top exporters, are just assemblers, while the rest of manufacturers depend largely on material imports.

Dr. Dao Duy Huan, lecturer at Ho Chi Minh City University of Finance and Marketing, said if Vietnam is to realize its goal of being an industrialized nation by 2020, it needs to be independent in four factors labor, resources, capital and technology, and then it needs effective policies to put them to work.

He said suitable incentives were needed for encouraging scientific and technological advances. Stronger copyright protection is also necessary for the country to advance on its path, he added.

Like us on Facebook and scroll down to share your comment

More Business News