German Chancellor Angela Merkel (C) visits the US$35 million German-owned B. Braun medical plant outside Hanoi in October 2011. The company has invested in one of the largest medical technology projects in Vietnam.
Vietnam should offer more financial and non-financial incentives to attract more foreign investment into its hi-tech sector, Nguyen Mai, former vice chairman of the State Cooperation and Investment Committee, tells Vietweek.
Vietweek: Vietnam is encouraging investment in the hi-tech sector, but FDI inflow has been limited. Why?
Nguyen Mai: Over the past decade, our policy in FDI attraction has not changed much. In fact, we still place priority on labor intensive projects. Our incentives for hi-tech projects have not met the requirements of investors. In November, the government is expected to consider a report by the Ministry of Planning and Investment on the issue, and make new policies, including offering incentives to investors. Investors in the hi-tech sector will have different requirements compared to those in such fields as textiles and garments and footwear. Most hi-tech investors are from developed economies like the US, EU, and members of the Organization for Economic Cooperation and Development, who have stricter requirements on legal transparency and the guarantee of intellectual property rights.
We have not yet fully met the requirements of hi-tech investors, especially the big ones. Thus, the government should reconsider our current policies to meet these requirements.
Can you explain? How should we change our policies to lure more hi-tech investors?
The number of investors in the field is still small, but their investment capital is rather high. For example, Intel has poured US$1 billion into a factory in Vietnam, much higher than other projects with a registered capital of less than $100 million.
We should renovate our economic development model and restructure the economy, orienting it toward greater focus on hi-tech sector growth accompanied by highly qualified human resources, ensuring higher added value and economic competitiveness.
This will lead to a shift in the FDI inflow (increasing it in the hi-tech sector). We should select projects that bring in what our country needs, projects that help improve our science and technology capabilities. FDI into science and technology cannot change if our policies for the sector do not change. This is a very important point.
Will our workforce be able to participate in hi-tech projects?
Obviously, this cannot happen in one or two days. However, we have a good foundation for the development of hi-tech projects after 25 years of opening doors to foreign investors. For example, Vietnam now is one of the ASEAN countries seeing rapid development in the information technology field. We also have a base of qualified IT engineers. They might not fully meet the requirements of foreign investors yet, but the ability of IT engineers now is much better than 10 years ago. This is true of other sectors as well. We have much better conditions now for the development of hi-tech projects.
If they undergo training for three to six months, our engineers will be able to meet investors' requirements.
"We have a good foundation for the development of hi-tech projects after 25 years of opening doors to foreign investors"
What is your forecast for FDI inflows in the coming time?
Now, many experts pessimistically assess this situation. But I'm optimistic. For me, it is important that there is interest from Japanese and US investors.
Japanese investors have said they will pour more capital into Southeast Asian countries, including Vietnam. They consider Vietnam a market with good potential. In the first 10 months of this year, Japanese-backed investment accounted for more than 40 percent of the total registered FDI in the country. Many big groups as well as small- and medium-sized enterprises from Japan have invested in Vietnam.
In the coming time, they will pour investments into the supporting industry, which we need to improve to facilitate development of our country's industrial sectors.
Regarding the US, their investment in Vietnam is not large. Over the past 10 years, there has been more than a fivefold increase in bilateral trade, but investment has increased only by 20 percent or so.
We have not received big US investments because our business environment is not attractive enough for US investors, who require a transparent legal system and government commitments that are strictly implemented from the central to the grassroots levels. Timing is especially important. Our site clearance often takes longer than scheduled, and prevents them from starting their projects as planned.
The US wants to upgrade relations with Vietnam to one of strategic partnership, so we must pay heed to the needs of a big partner.
We still appreciate other partners like EU, South Korea, and Taiwan, but we should put priority on big partners, and study policies to meet their requirements so that they can make bigger investments in Vietnam.
Should we reduce taxes to attract more foreign investors into the hi-tech sector?
Obviously, yes. Tax incentives are necessary to attract more investment into the hi-tech sector. Now, Intel does not have to pay taxes. Over 3,200 Vietnamese workers are employed by Intel. Many of them will become good engineers, so the benefits they bring to our country may be bigger than taxes we can collect from the firm.
We should also offer investors financial and non-financial incentives, including access to land usage, and also more intellectual property protection.
Can we benefit from real technology transfer when foreign investors do business in Vietnam?
No, we cannot. Technology transfer has never been easy. Coca Cola is an example. It has never transferred its recipe to anyone. We should have good engineers to access investors' technology, and develop it further in the country. Other countries have done this.
We should have policies to encourage highly qualified employees of foreign investors to work for Vietnamese firms, serving the development of our country. This is the way to achieve technology transfer. I know many Vietnamese firms have done this to have experienced staff and shorten the time taken for technology transfer.
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