Vietnam's rising FDI not necessarily a good thing, analysts fear

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Workers at a Japanese-owned factory making spare electronic parts in Ho Chi Minh City

Experts worry that Vietnam's lax policies on licensing foreign direct investment are creating quantity not quality as the funding source continues to play a larger role in the still-developing economy. 

FDI this year hit US$21.6 billion, up as much as 54.5 percent from last year.

Analysts have acknowledged the increase as a highlight in an otherwise gloomy economy. Growth was estimated at 5.42 percent in 2013, lower than the country's target of 5.5 percent.

In a report released earlier this quarter, global accounting firm Ernst & Young said rising FDI would be among the factors that could push growth in excess of 6 percent from 2015.

But analysts at a recent investment conference in Ho Chi Minh City said they were concerned about the quality of FDI projects.

Vietnam has no clear strategy in attracting foreign investment and it has been been doing so at any cost, they said, adding that the destruction of the environment and the depletion of resources were the major results of the rudderless investment attraction policies.

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Bui Quang Tuyen, the deputy minister of natural resources and environment, said many foreign investors focus on exploiting cheap natural resources at low prices and little else. 

Analysts are also concerned that 14 percent of foreign-owned businesses in Vietnam use outdated technology, more than twofold the number that have adopted high-tech methods and equipment.

Worse still, local tax authorities have detected a number of foreign-owned companies evading taxes by importing outdated technologies into the country with high book values, resulting in less profits subjected to tax.

The Dong Nai Province's Taxation Department recently found that the fabric producer Hualon Corp, a Malaysian-Taiwanese joint venture, imported an old production line that it said was worth US$16-million, some 40 times the actual price.

The firm had received corporate tax exemptions for years by repeatedly reporting losses.

Many foreign corporations, including leading global beverage company Coca-Cola, are under suspicion of evading taxes. The beverage giant has reported high sales in Vietnam since 1994 without paying any income tax.

Still the FDI sector remains the best performer in the country with this year's trade surplus mounting to $14 billion compared to a deficit of $13.1 billion made by the state-owned and domestic private sector.

But analysts said the FDI sector's economic effectiveness for the country's overall growth was "not high" because its exports carry little to no added value, the General Statistic Office said.

Economist Dinh The Hien said foreign businesses' contribution is not worth the damage caused to the country's resources and environment.

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