Workers in a shirt production line at the Garment Export & Import Company in Ho Chi Minh City
It is wrong to think that foreign investors have lost their belief in the potential of the Vietnamese market, former deputy Minister of Investment and Planning, Nguyen Mai, tells Vietweek.
Vietweek: It is said that just 5 percent of foreign invested companies in Vietnam apply advanced technology in production, that 80 percent use medium-level technology, and the rest are of low technology. What do you think about this situation?
Nguyen Mai: We should not think that hi-tech only means the use of modern machines. It is also a technical measure. Nobody thinks that we use high technology in garment production, as it is a labor intensive industry. In fact, fashion design is a hi-tech endeavor because it is based on human intelligence and creativity.
Advanced technology involves technical measures that need not always be transferred to us by foreign investors. We should research and develop technology by ourselves.
Coca Cola has never transferred its formula. We have to think about why and for what purpose we try to attract FDI.
Many investors have established their research and development centers in Vietnam. This is a big opportunity to our country, as each center would employ 1,000-2,000 local scientists and engineers. After 2-3 years of working, the outstanding scientists can use the experience to develop Vietnamese technology. This is very important.
Now, Vietnam seems to be less attractive for FDI compared to some other ASEAN countries like Indonesia, Malaysia and Thailand.
Vietnam used to be in the list of top 20 countries in attracting FDI between 1997 and 1998. However, now we have fallen out of the list. Among ASEAN countries, Indonesia is still on the list.
There are two criteria offered by UN Conference on Trade and Development to assess countries' FDI attraction the ratio between FDI and GDP, and the potential index. Regarding the first, Vietnam ranked second among ASEAN countries after Singapore between 2011 and 2012. However, it ranked behind Indonesia, the Philippines, Malaysia and Thailand in terms of the potential index, which relates to transport facilities, information technology development and human resource training.
The world economic forum in Davos last year also downgraded Vietnam's business environment. This is a concern.
We often announce FDI registered capital of billion of dollars, but we never talk about the projects' effectiveness.
However, we can only correct our mistakes when we correctly assess ourselves.
Is it true that we do not offer specific incentives that are based on specific project criteria including capital amount, jobs generated and products' added value? And does this discourage investors in hi-tech fields?
We now offer mainly tax incentives to foreign investors, while other countries offer them tax incentives as well as other financial and non-financial incentives. We are now studying the feasibility of offering other financial and non-financial incentives to investors.
The financial incentive is very important because investors are getting it in other countries and it can prove a decisive factor.
Intel was able to receive financial support of some $70-80 million from Ho Chi Minh City for its factory construction when invested in Vietnam.
Non-financial incentives include those relating to investors' trade rights and foreign currency exchange.
Now, Vietnam only offers foreign investors tax incentives or land rent reductions.
We have not built specific criteria for tax breaks investors, and the current criteria have become outdated. For example, we had decided to offer incentives to labor intensive projects, but the criteria should not be applied in all localities now. We should change the regulation. Foreign invested projects in the garment and footwear sectors in big cities like Hanoi, HCMC and Hai Phong should not receive the incentives. We should offer the incentives in under-developed localities like Lai Chau, Dien Bien and Son La. We should offer incentives to encourage big investors pour investment into hi-tech fields.
Many localities want to attract FDI, but they do not carefully calculate how much the projects would contribute to the state budget, and how much they would benefit the local residents. We often announce FDI registered capital of billions of dollars, but we never talk about the projects' effectiveness.
What do foreign investors complain most about Vietnam?
The first complaint is about overlapping regulations. It is very unsettling when a country has an unsystematic legal system.
Second complaint is that the laws are not transparent and strictly implemented. For example, it is very difficult to know what the procedures are when constructing a house in Vietnam, but in other countries, the information is easily available on the Internet.
Complicated administrative procedures are another complaint. The Prime Minister himself has said that it would be very hard to attract more FDI unless we quickly reform administrative procedures.
Is Vietnam, with all these barriers, still attractive to foreign investors, especially in hi-tech fields?
Some people have warned that Vietnam will no longer attract big foreign investors. However, I am not so pessimistic. Samsung has invested some $1.5 billion in a factory in Vietnam, generating jobs for 30,000-40,000 people. Samsung Vietnam recorded export revenues of $5.3 billion in the first three months of this year, equal to 15 percent of the country's total export earnings. Another foreign investor also plans to pour billions of dollars into a refinery project in Vietnam's central region.
We cannot feel secure with our investment environment and should improve it, but it is wrong to think that foreign investors have lost their belief in the Vietnamese market, that they no longer consider Vietnam a potential market.
Japanese investors are looking opportunities to do business in Vietnam. And if we improve our business environment, we can attract more investors from the EU and the United States. I think disbursed FDI could be kept at $10-11 billion each year.
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