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FDI attraction: Vietnam will lag behind if it does not change (11/9)
11/09/2012 - 14 Lượt xem
Why Foreign Direct Investment (FDI) flows into Vietnam declined continuously in recent years? This question was raised at the Finance-Banking Investment Forum which was held by the Ministry of Planning and Investment, the Ministry of Industry and Trade and the National Assembly Economic Committee on August 28.
Le Xuan Quang, Deputy Director of the Foreign Investment Agency under the Ministry of Planning and Investment, said that for the past 25 years Vietnam has attracted
more than 14,000 FDI projects with total registered capital of US$206
billion, of which about US$96 billion has been disbursed.
Regarding the situation of FDI attraction in recent years, Le Xuan Quang said in 2008 Vietnam attracted US$64 billion and this was an important milestone. However, FDI flows into the country decreased continuously and did not reach annual targets in the last three years.
In 2009, registered FDI in Vietnam totaled US$21.48 billion, equal to 30 percent of that in 2008. In 2010, Vietnam attracted just US$18.1 billion although its yearly target was over US$23 billion, 10 percent higher than the result of 2009. Last year, the Ministry of Planning and Investment set a target of US$20-21 billion, but the actual result was a mere US$14.7 billion. This year, Vietnam attracted just US$8.47 billion in the first eight months and therefore it is afraid that the US$15-17 billion target set for the whole year cannot come true.
Why FDI flows into Vietnam declined in recent years? In the opinion of Le Xuan Quang, there are three main reasons leading to this situation. Firstly, the global economic recession, especially in two major economies, the US and the EU, has affected FDI flows into Vietnam. Secondly, competition between Vietnam and other countries in the region in attracting FDI has increased. Thirdly, Vietnam's FDI absorption capability remains limited - this is the most important reason. To make this reason clear, Le Xuan Quang said, even when Vietnam attracted nearly US$70 billion, it was capable to disburse just US$10-11 billion annually. In his opinion, there are three main factors that restrict the Vietnamese economy's FDI absorption capability. These include poor infrastructure, unqualified human resources and underdeveloped support industries.
Some other problems also have an adverse impact on the Vietnamese investment environment. Specifically, the assessment and granting of licenses for FDI projects still reveal many problems; businesses in industrial zones still have to cope with the lack of human resources and worker strikes. The Ministry of Planning and Investment and localities remain inactive in reporting updated information on the FDI situation.
As a foreign investor in Vietnam, Ajay Bhagat, the managing director of Dutchply Industries in India and the Vietdutch International
Joint Stock Company in Vietnam, which specialize in manufacturing
plywood, planks and wood products for export, said a very big problem
of concern for foreign investors in Vietnam is difficult access to loan capital here in the country. Difficulties derive from the facts that bank workers in Vietnam do not speak English, banking transactions are costly and interest rates are high. Banks in Vietnam require a high collateral value that is equal to 150 percent of the loan - this requirement is too high for a new foreign business in Vietnam. Ajay Bhagat said to create favorable conditions for foreign businesses to operate in Vietnam, the State Bank of Vietnam must apply appropriate policies to reform the domestic banking system and should not apply rigid regulations.
Planning and Investment Minister Bui Quang Vinh admitted Vietnam's limitations in terms of infrastructure, human resources and institutional weaknesses. He emphasized that if the country does not take an honest look at these weaknesses, Vietnam will continue to lag behind in attracting FDI.
What will Vietnam do to improve its investment environment? In the short term, Le Xuan Quang said in 2012 Vietnam will strive to realize the FDI attraction
target of US$15 billion and disburse US$11 billion (US$8 billion of FDI
and US$3 billion of reciprocal capital of domestic businesses and investors).
To realize the above targets, the Ministry of Planning and Investment has proposed a number of solutions, focusing on FDI disbursement. The quality of FDI investigation in localities must be improved so that licenses can be granted to the most suitable projects. The dissemination of information on the investment environment in Vietnam must be intensified.
In the long term, Vietnam has boosted FDI attraction in the field of support industries while at the same time gradually improving the infrastructure and institutions and renovating investment promotion activities. Vietnam will work out a plan for human resources development to 2020 so that trained workers will account for 70 percent of Vietnam's workforce by 2020./.
Source: VEN
Source: VEN
