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Workforce Skill Deficit Affects FDI Capital Attraction

07/02/2012 - 20 Lượt xem

Vietnam once attracted US$64 billion per year of Foreign Direct Investment (FDI)

In 2008, FDI investment capital in Vietnam peaked at 1,171 projects, raising total registered capital to US$64 billion, three times higher than US$20.3 billion in 2007.

However, this situation has begun to change. In 2009, registered FDI capital in Vietnam stood at only US$21.48 billion, equivalent to 30 percent of 2008's figure. In 2010, the Ministry of Planning and Investment (MoPI) set a target to increase investment attraction by 10 percent compared with 2009 to US$23.6 billion, but only some US$18.1 billion or 76.9 percent of the target was registered.

In 2011, despite an FDI capital attraction target of US$20-21 billion, Vietnam only attracted US$12.69 billion by the end of November, said Do Nhat Hoang the director general of Foreign Investment Agency (FIA) - MoPI, equivalent to 84 percent of the same period last year.

In 2012, according to FIA, Vietnam aims to attract about US$17 billion of FDI capital, which is US$3-4 billion lower than the 2011 target.

Reasons for decreased FDI

There are many reasons for the decline in FDI capital in Vietnam in recent years.

Do Nhat Hoang explained that FDI projects have been more closely monitored before being granted investment certificates in order to avoid increases in investments such as real estate and golf projects in recent times. As a result, the amount of registered capital has declined and disbursed capital has sharply increased at the same time, showing the effectiveness of FDI capital in Vietnam.

In addition, some opinions suggested that the volatility of world economy such as the financial and debt crises, natural disaster in Japan and floods in Thailand also shrank global FDI flows and affected investment attraction in Vietnam. However, other analysts have suggested that Vietnam has failed to develop a proper FDI attraction strategy and some of its advantages such as its booming population, low labor costs and abundant natural resources are no longer attractive to investors.

In summary, there are many reasons for the recent pause in FDI capital. However, this article will focus on minor aspect- the impact of the low level of qualified staff to FDI capital attraction, which according to many experts will affect FDI attraction in Vietnam in the future.

In the "2010 Vietnam Competitiveness report," Professor Michael Porter from the US Harvard University said that was time for Vietnam to change its views on comparative advantages instead of relying on its available advantages. In fact, the labor capacity of Vietnam is still lower than that of other countries in the region such as Republic of Korea, Thailand, China and Singapore and this is probably the reason that makes it less attractive to foreign investors.

Qualified labor and FDI capital attraction

Doctor Edmund Malesky, the head of the 2010 Provincial Competitiveness Index (PCI) Research Group said according to the opinions of 1,155 FDI enterprises from 47 countries and territories which are operating in Vietnam (accounting for 20 percent of FDI enterprises in the country), 10 factors most affecting foreign investors were labor costs, tax preferences, land use and rental, political stability, labor quality, material costs, intermediate services, consumer purchasing power, availability of material sources, domestic market scale, availability of industrial zones and macro-economic stability.

Nevertheless, over the past period, some Vietnamese advantages including the labor force have worried foreign investors. According to the 2010 PCI Research Group, 40 percent of foreign enterprises said they had to train Vietnamese laborers on the spot before working and it cost eight percent of the enterprise's total business expenses. However, only 65 percent of trained laborers continued working for enterprises, which means Vietnamese labor costs are not low as they expected earlier and only 18 percent of FDI enterprises had a good impression of the quality of Vietnamese unskilled workers.

To improve foreign investment attraction in the coming time, apart from investment preferential policies, Vietnam needs to focus more on investment promotion work. Particularly in the fields of high technology, Vietnam has to improve the vocational training quality as well as qualification of unskilled workers, said FDI enterprises.

Experts from the Center Institute for Economic Management (CIEM), MoPI said that Vietnamese low qualified laborers not only discouraged foreign investors from coming to Vietnam but they also limited their own incomes. Furthermore, this drives foreign investors to invest only in labor-intensive projects, which have little social value and they will take full use of the cheap labor forces. If so, the Government's target to attract high tech FDI projects to turn Vietnam into a modern industrial country by 2020 will fail.

According to experts from the World Bank, in the context of an unstable world economy, many countries throughout the globe are trying to improve their competitiveness to attract FDI capital sources.

Therefore, it will be difficult for Vietnam to draw foreign investors if it fails to improve its investment environment and the quality of the laborers. Consequently, now it's time that Vietnam made a change in the laborer's qualification and it's also the way to increase the amount and quality of foreign investment capital./.

Source: VEN