Better FDI, not just more, should focus on tech-transfer

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Honda motorcycles are prepared for delivery to customers in downtown Hanoi. Honda is among the foreign investors who are continuing to increase investment in Vietnam.

Job generation should not be focus of foreign direct investment (FDI), Nguyen Mai, former vice chairman of the State Commission for Cooperation and Investment, tells Thanh Nien Weekly in an interview.

Thanh Nien Weekly: As FDI inflows continue to shrink, the government is cautiously considering requests by big investors for preferential treatment. What are your thoughts on this issue?

Nguyen Mai: Registered FDI has dropped since early this year compared to the same period last year, but disbursed capital this year is equal to that of last year"¦ In 2008, registered FDI reached US$72 billion, while disbursed capital was only $12 billion.

Disbursed FDI is estimated at $10-11 billion this year, equal to the amount dispersed annually in 2009 and 2010. In the current context, in which credit is tightened, many projects are delayed due to capital shortages. Thus, $10-11 billion in disbursed FDI is a heartening achievement.

Relating to your question, there are now two investors, namely Samsung and Nokia, asking the government to offer tax breaks for their planned factories in Vietnam. The requests by Samsung have been met, and the manufacturer has announced a plan to increase its investment in a factory in Vietnam to $1.5 billion in 2020 from the current $650 million. The factory could be one of the top-ranking factories in Asia.

More capital is less important than the fact that foreign companies are establishing research centers in Vietnam and using local engineers to manufacture products here.

Regarding the case of Nokia, which is seeking status as a high-tech producer, the government has not yet made any decision, but I think we should not consider Nokia, a major global mobile phone producer, a normal manufacturer.

To attract its investment, Vietnam should consider Nokia a high-tech producer, and give it incentive policies. We should not worry about requirements on tax incentives.

If it shifted its investment to Thailand, we could lose everything. The Ministry of Planning and Investment has asked that Nokia be dealt with in this way, and I think the prime minister may approve it.

Most of our foreign investors now are small- and medium-sized firms. There are 500 major groups in the world. However, only 30-40 of them, which operate in the oil, electronic, and auto fields, have invested in Vietnam, much lower compared to figures from Thailand, Malaysia and China. Some 400 major global groups opened their representative offices and factories in China.

We should shift our policy from luring investment to upgrading investment quality and focusing on both small- and medium-sized enterprises and big foreign firms, especially in the education and healthcare sectors.

We have to consider how to increase FDI in a way that can help us to deal with our country's big issues, such as improving technology and human resources, and developing supporting industries.

However, if we are too complacent in overseeing the licensing of projects, couldn't there be investment traps?

Right! We should not lure FDI at all costs.

FDI projects used to have higher quality. Without FDI, our oil industry could not develop. Foreign investors also contributed to the development of the automobile and tourism industries.

However, when localities were authorized to license FDI projects, some of them offered investors tax incentives and/or cut land prices by more than allowed by the government. Some provinces have also not been careful in assessing projects. However, we should not treat foreign investors too strictly.

Some foreign investors have complained about our investment policies. Should we worry about this and adjust our policy?

Some investors still complain about our complicated administrative procedures. However, they admit that Vietnam's investment environment has become more transparent. According to a recent survey by the Vietnam Chamber of Commerce and Industry, 70 percent of investors said they want to continue their business in Vietnam, and only about 10 percent said they want to shift to other markets such as China and Cambodia.

State agencies should be quick to deal with problems that investors complain about, but should be careful to consider which complaints have truth to them, which don't.

Assessing a project before licensing it is a very important process. What should this assessment focus on?

There are four issues that we should focus on.

First is the quality of a project. We should consider projects based on development plans of each sector and provinces as well as the state's modernization and industrialization strategy.

Second, we should attach importance to environmentally friendly projects, and not license those which could cause pollution.  

Third, we should focus more on technology transfer. For example, in paper production, many producers applied new technology that could help reduce energy use by 40 percent and emissions by 49 percent. So, there's no reason not to ask investors in the field to apply the technology to production in Vietnam. It is very dangerous if agencies assessing projects before licensing them do not know anything about technology.

Finally, we used to overrate FDI projects' ability to generate jobs. In fact, foreign invested projects have created only 2.2 million jobs in our country over the past 25 years, while we need to generate 1.3 million jobs each year.

We should not consider job generation a criterion in licensing an FDI project. It's more important that big investors, such as Intel, Nokia and Samsung, help us develop high-quality human resources.

How do you forecast Vietnam's potential to attract FDI?

With an average annual income per capita of $1,160 in 2010, and an anticipated income of $3,200 in 2020, Vietnam, which is expected to have a population of 100 million nine years from now, is a potential market for FDI attraction. We will also have human resource advantages if we focus more on education and training.

The government's anti-inflation fight is highly appreciated, so the state's macroeconomic management capacity has increased. Vietnam has better security compared to other countries in the region. FDI is expected to increase by 15-20 percent in the next one or two years.

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