Foreign direct investment (FDI) has undoubtedly played a major role in the country's economic growth but it is a mixed blessing, according to economists.
It is the Government's hope that FDI will help develop the industrial and agricultural sectors by bringing in modern technologies but foreign investors have chosen to focus on services.
At a recent review of 20 years of FDI flows, economists pointed out that while the money invested has risen sharply, the quality of investments – based on criteria like technology transfer, improving workers' skills, and modernisation – has not made much progress.
Nguyen Mai, chairman of the Foreign Business Association, spoke about an unusual situation that is developing.
In the early years, foreign investors mostly entered into joint ventures with local businesses, investing just 70-75 percent of the capital. But now many of them are starting 100-percent-owned businesses.
"Although the situation has not been studied enough to understand the consequences, I think it is high time to consider this," he said.
Pham Chi Lan, a senior economist, pointed out that many foreign companies falsely report losses to evade tax.
She cited the example of the automobile industry. Last year, during the global financial crisis, 60 percent of foreign companies announced losses. The rates in 2007 and 2008 were 70 and 61.3 percent, respectively.
Another economist, Bui Kien Thanh, said many FDI enterprises set up factories and hire workers at very low cost in Vietnam , imported raw materials and produced goods for export at very competitive prices.
"For a pair of shoes, they cite a price of 10-15 USD on the invoice and pay little or no tax claiming very low profitability. But when the shoe reaches a third nation, they sell it at a much higher price," he said.
Since 1996, the Government has provided incentives for foreign investment in agriculture, forestry, and aquaculture. In 2005, the Government conferred special status on these sectors.
But all this has failed to attract foreign investors. While investment in these sectors declined, investment in services skyrocketed.
In 2008, almost a quarter of FDI was in real estate.
"Cash flows into services significantly increased but it did not have much impact on technology transfer and labour skills," Phung Xuan Nha, a researcher said.
Around 10 percent of businesses still use technology from the 1970s, 30 percent from the 1980s, and 50 percent from the 1990s, he said.
"Quality should be the first criterion for FDI in modernised economies," Mai said.
Tran Dinh Thien, head of the Vietnam Economics Institute, said: " Vietnam has for too long exported minerals. Foreign businesses are also allowed to do so. This must stop."
In the last three years, Da Nang has cancelled licences it issued for four FDI projects, including a golf course to be built at a cost of 12 million USD.
The central province of Quang Nam is completing the formalities to cancel the licence issued for a gigantic tourism project with an investment of 10 billion USD by two US-based companies, TANO Capital and Global C&D, because they did not pay the deposits despite getting a licence as long ago as September./.
It is the Government's hope that FDI will help develop the industrial and agricultural sectors by bringing in modern technologies but foreign investors have chosen to focus on services.
At a recent review of 20 years of FDI flows, economists pointed out that while the money invested has risen sharply, the quality of investments – based on criteria like technology transfer, improving workers' skills, and modernisation – has not made much progress.
Nguyen Mai, chairman of the Foreign Business Association, spoke about an unusual situation that is developing.
In the early years, foreign investors mostly entered into joint ventures with local businesses, investing just 70-75 percent of the capital. But now many of them are starting 100-percent-owned businesses.
"Although the situation has not been studied enough to understand the consequences, I think it is high time to consider this," he said.
Pham Chi Lan, a senior economist, pointed out that many foreign companies falsely report losses to evade tax.
She cited the example of the automobile industry. Last year, during the global financial crisis, 60 percent of foreign companies announced losses. The rates in 2007 and 2008 were 70 and 61.3 percent, respectively.
Another economist, Bui Kien Thanh, said many FDI enterprises set up factories and hire workers at very low cost in Vietnam , imported raw materials and produced goods for export at very competitive prices.
"For a pair of shoes, they cite a price of 10-15 USD on the invoice and pay little or no tax claiming very low profitability. But when the shoe reaches a third nation, they sell it at a much higher price," he said.
Since 1996, the Government has provided incentives for foreign investment in agriculture, forestry, and aquaculture. In 2005, the Government conferred special status on these sectors.
But all this has failed to attract foreign investors. While investment in these sectors declined, investment in services skyrocketed.
In 2008, almost a quarter of FDI was in real estate.
"Cash flows into services significantly increased but it did not have much impact on technology transfer and labour skills," Phung Xuan Nha, a researcher said.
Around 10 percent of businesses still use technology from the 1970s, 30 percent from the 1980s, and 50 percent from the 1990s, he said.
"Quality should be the first criterion for FDI in modernised economies," Mai said.
Tran Dinh Thien, head of the Vietnam Economics Institute, said: " Vietnam has for too long exported minerals. Foreign businesses are also allowed to do so. This must stop."
In the last three years, Da Nang has cancelled licences it issued for four FDI projects, including a golf course to be built at a cost of 12 million USD.
The central province of Quang Nam is completing the formalities to cancel the licence issued for a gigantic tourism project with an investment of 10 billion USD by two US-based companies, TANO Capital and Global C&D, because they did not pay the deposits despite getting a licence as long ago as September./.
