Foreign-invested enterprises are more likely to contribute to capital formation, tax revenues and job creation when compared to State-owned enterprises and the domestic private sector, according to a new report rolled out by the UN Industrial Development Organisation (UNIDO).

UNIDO's Vietnam Industrial Investment Report 2011 released also at a Mar. 11 workshop hosted by the Foreign Investment Agency said foreign-invested enterprises (FIEs) are better able to establish themselves in both high-technology industries, such as computers, electronics and optical products and low-tech industries, such as leather goods manufacturing.

The report was based on a survey of 1,494 enterprises operating in industry and construction, with FIEs accounting for 58 percent of respondents.

FIEs on average generate more employment, grow at higher rates, operate at higher rates of capacity utilisation, and are more profitable, the report said. Most manufacturing firms in Vietnam are labour-intensive and that has had a positive impact on employment generation.

The report faulted FIEs, however, for a heavy reliance on imported raw materials and for engaging in the production of low value-added products geared primarily to export markets.

Since 2008, investment from the foreign-invested sector has outpaced investment from the domestic private sector. The rate of disbursements has become less volatile and been on a relatively stable upward trend since 2006, the report said, suggesting that the gap between registered and disbursed foreign investment might be decreasing over time.

WTO accession was expected to have a significant impact on international trade patterns, particularly in terms of diversifying export products and expanding export markets. However, overall exports remain underpinned and led by the foreign-invested sector, with a concentration in labour-intensive manufacturing.

The majority of export firms remain heavily dependent on imported inputs, with FIEs complaining of a general shortage of input suppliers that meet the requirements and demands of enterprises. This seems to be a common challenge to the entire Vietnamese economy.

UNIDO's survey findings also seemed to suggest that the growth impact of FDI was less positive due to the probable incidence of transfer pricing.

At the workshop, UNIDO experts suggested that, to help improve the quality of foreign investment, the role of the Foreign Investment Agency, an agency of the Ministry of Planning and Investment, should be enhanced to include investment promotion and monitoring.

Investment promotion needs to focus on attracting more support industries to Vietnam in a bid to enable more industrial subcontracting and increase the local content of manufactured goods.

UNIDO experts said that existing investors are crucial in promoting new foreign investment into Vietnam . Support services therefore serve a dual objective of triggering re-investment by existing investors and encouraging their role as ambassadors to promoting new investment.

They also said that the country needs to reassess its economic growth model, in terms of a thorough analysis of the relationship between export generation, employment creation, added value and productive efficiency in manufacturing industries.

Policymakers needs to undertake an in-depth evaluation of the performance of FIEs operating in industrial zones and the economic benefits generated by incentive schemes provided to these enterprises, while they also needs to re-assess the economic benefits of investment incentives granted to FIEs, seeking to target manufacturing sectors with high added-value potential./.