Foreign investors make Vietnam's economy bigger, but not stronger: legislators

By Bao Van, Thanh Nien News

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Traffic drives past commercial buildings in Hanoi, Vietnam. Photo: Bloomberg Traffic drives past commercial buildings in Hanoi, Vietnam. Photo: Bloomberg
Foreign investors have contributed a lot to Vietnam's economy, but at the same time they have done very little to help the country in terms of technology, legislators said Wednesday. 
Nguyen Van Giau, chairman of the National Assembly’s Economic Committee said that the foreign direct investment (FDI) sector has accounted for 65-67 percent of Vietnam’s total export revenues in recent years.
In 2014, the sector saw a trade surplus of $6.1 billion, creating an ample foreign currency supply for the country, and making contribution to macroeconomic stabilization, Giau told other legislators at the opening session of the national legislature on Wednesday. 
Vietnam saw a total FDI disbursement of $4.2 billion between January and April, up 5 percent from the same period last year, according to the Ministry of Planning and Investment. However, new pledges in the first four months fell 17.1 percent from a year ago to $2.68 billion, with most of the funds going to processing industries and property projects.
“The sector has not contributed much in raising Vietnam’s technology level. There are concerns that the economy will suffer badly if foreign investors leave the market,” Giau said.
Many economists have consistently warned about the undue dependence on foreign investors. According to international norms, they say, FDI inflows should account for only 5 percent of gross fixed capital formation, but in Vietnam, the ratio is 25 percent. 
“The development of an economy cannot rely on foreign firms. They may leave Vietnam for other markets when the country no longer has anything to offer,” said economist Pham Chi Lan.
Economists have urged the government to take stock of all negative and positive impacts that the FDI sector may have on Vietnam.
The country has offered many incentives to foreign investors but received little technology transfer from them. Foreign investors tend to keep their technologies secret while local authorities do not demand for them, economists said.
Unstable growth
Vietnam's economy grew 6.03 percent between January and March, the highest increase over the past five years, Deputy Prime Minister Nguyen Xuan Phuc said while presenting a report at the session.
Inflation inched up 0.04 percent in the first four months of the year. The banking system’s liquidity has been improved, while bad debts have decreased, he said.
However, export growth has slowed down. Vietnam posted an export growth of 8.2 percent for the first quarter, compared to 18.5 percent seen in the same period last year.
The economic restructuring has been slowly implemented, while enterprises have still faced many difficulties in market expansion and competitiveness, he said.
Assessing the issue, Giau said Vietnam's economic growth is not really stable. The economy in the first quarter was mostly driven by processing industries and the exploitation of oil and mineral resources. 
Meanwhile, the growth in the agriculture, forestry and fishery sector remained low, at only 2.14 percent in the first quarter.
There are concerns about the expanding trade deficit as well, Giau said. The deficit hit $3 billion, or 6 percent of the total export revenues in the first four months, higher than the 5 percent target set by legislators. 
The deficit may expand further this year amid lackluster demand in overseas markets and the weakening of many currencies, he said.
Meanwhile, the privatization of state-owned enterprises and the disinvestment from non-core sectors have remained slow, so Vietnam will find it hard to fulfill its privatization target set for 2014 and 2015, Giau said.
As many as 143 state-owned companies sold shares in 2014, compared to the goal of privatizing 200 companies.
Giau said the country could reach the economic growth target of 6.2 percent this year, but the government should accelerate the restructuring of the agriculture sector, improve the business environment and tackle bad debt issues. 

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