Foreign direct investment (FDI) has undoubtedly played a major role inthe country's economic growth but it is a mixed blessing, according toeconomists.
It is the Government's hope that FDI will help develop the industrialand agricultural sectors by bringing in modern technologies but foreigninvestors have chosen to focus on services.
At arecent review of 20 years of FDI flows, economists pointed out thatwhile 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 jointventures with local businesses, investing just 70-75 percent of thecapital. But now many of them are starting 100-percent-owned businesses.
"Although the situation has not been studied enoughto understand the consequences, I think it is high time to considerthis," 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, duringthe global financial crisis, 60 percent of foreign companies announcedlosses. 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 lowcost in Vietnam , imported raw materials and produced goods forexport at very competitive prices.
"For a pair ofshoes, they cite a price of 10-15 USD on the invoice and pay little orno tax claiming very low profitability. But when the shoe reaches athird nation, they sell it at a much higher price," he said.
Since 1996, the Government has provided incentives for foreigninvestment in agriculture, forestry, and aquaculture. In 2005, theGovernment conferred special status on these sectors.
But all this has failed to attract foreign investors. While investmentin 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 havemuch impact on technology transfer and labour skills," Phung Xuan Nha, aresearcher said.
Around 10 percent of businessesstill use technology from the 1970s, 30 percent from the 1980s, and 50percent 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 arealso allowed to do so. This must stop."
In the lastthree years, Da Nang has cancelled licences it issued for four FDIprojects, including a golf course to be built at a cost of 12 millionUSD.
The central province of Quang Nam is completingthe formalities to cancel the licence issued for a gigantic tourismproject with an investment of 10 billion USD by two US-based companies,TANO Capital and Global C&D, because they did not pay the depositsdespite getting a licence as long ago as September./.
It is the Government's hope that FDI will help develop the industrialand agricultural sectors by bringing in modern technologies but foreigninvestors have chosen to focus on services.
At arecent review of 20 years of FDI flows, economists pointed out thatwhile 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 jointventures with local businesses, investing just 70-75 percent of thecapital. But now many of them are starting 100-percent-owned businesses.
"Although the situation has not been studied enoughto understand the consequences, I think it is high time to considerthis," 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, duringthe global financial crisis, 60 percent of foreign companies announcedlosses. 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 lowcost in Vietnam , imported raw materials and produced goods forexport at very competitive prices.
"For a pair ofshoes, they cite a price of 10-15 USD on the invoice and pay little orno tax claiming very low profitability. But when the shoe reaches athird nation, they sell it at a much higher price," he said.
Since 1996, the Government has provided incentives for foreigninvestment in agriculture, forestry, and aquaculture. In 2005, theGovernment conferred special status on these sectors.
But all this has failed to attract foreign investors. While investmentin 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 havemuch impact on technology transfer and labour skills," Phung Xuan Nha, aresearcher said.
Around 10 percent of businessesstill use technology from the 1970s, 30 percent from the 1980s, and 50percent 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 arealso allowed to do so. This must stop."
In the lastthree years, Da Nang has cancelled licences it issued for four FDIprojects, including a golf course to be built at a cost of 12 millionUSD.
The central province of Quang Nam is completingthe formalities to cancel the licence issued for a gigantic tourismproject with an investment of 10 billion USD by two US-based companies,TANO Capital and Global C&D, because they did not pay the depositsdespite getting a licence as long ago as September./.
