A worker on an assembly line at a Samsung plant in northern Vietnam
The benefits of foreign direct investment (FDI) in Vietnam have been limited by an ailing local support industry that fails to add value to products.
The FDI sector, in the first nine months of this year, reaped export turnovers of US$58.4 billion (excluding crude oil), accounting for 60.6 percent of the country’s total export revenues, and increasing 27 percent over the same period last year, according to the Ministry of Industry and Trade.
However, the sector’s import spending in the nine months was also large, at $54.5 billion, accounting for 56.4 percent of the country’s total import revenues, said the ministry.
Nguyen Van Toan, vice chairman of the Association of Foreign Enterprises said: “High export growth is not a success, as the sector spends a lot on importing to produce exports. The heavy dependence on imports has reduced added value.”
“The most important thing to us is products’ high added value, not export earnings,” he said.
The dependence on imported materials can be reduced only when Vietnam’s supporting industries are improved, said Nguyen Mai, former vice minister of the Planning and Investment. However, the issue, despite being a major concern for foreign investors, has not yet been solved over the past many years, he said.
Hirotaka Yasuzumi, managing director of the Japan External Trade Organization (JETRO), said Japanese firms, Vietnam's biggest investors in the first half of the year, find it difficult to expand their business in the country where the use of locally made parts is less than 30 percent. The number is 53 percent for Thailand and 60 percent for China.
The heavy dependence on imported materials has hindered Vietnam in luring high technology projects. Most foreign invested projects in the country operate under the outsourcing and assembling models, which brings low added values, Mai said.
South Korean electronics giant Samsung gains value addition of 10-15 percent only, he cited.
He said the problem was that the government has not offered specific policies to support the development of supporting industries. In addition, unqualified personnel and the indifference of foreign investors, which is caused by the small scale of the local market, are other problems.
“We need to define which supporting industries we will boost in the coming years, and build specific policies to develop them. We should aim to gradually increase value addition in the foreign-invested sector.”
Vietnam has recently seen an increase in the number of foreign firms investing in supporting industries accompanying major foreign companies. Samsung is an example. It wants to start construction of a $1.2-billion plant in October to manufacture electronic components for handheld devices.
Foreign supporting companies are in the early phase of investment, but they could help Vietnam’s supporting industry soon.
Vietnam attracted $15 billion in FDI in the nine months of this year, up 36 percent from a year ago, according to the Ministry of Planning and Investment.
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By Ngan Anh, Thanh Nien News (The story can be found in the October 11 issue of our print edition, Vietweek)