The most puzzling characteristic of picture the foreign direct investment (FDI) in 2010 is the decrease in the registered capital volume and the increase in the implemented capital. However, it is still unclear if this is a reason for celebration or a reason to worry.
“Ba Ria-Vung Tau is the typical example when talking about foreign direct investment (FDI) in Vietnam,” Head of the Vietnam Economics Institute Tran Dinh Thien started the story.
Thien related that he came to see the leaders of Ba Ria-Vung Tau province and found out that 18 steel projects in the locality were licensed. “I asked them why so many steel projects were licensed, and if all the projects are listed in the national steel development plan”.
“The answer was that the Ministry of Industry and Trade only allows 6-7 projects only. However, there are still many investment projects. The problem is that industrial zones also have the right to license projects,” he added.
The decentralization in licensing investment projects (Local authorities also have the right to grant licenses) has led to the establishment of a series of steel projects, Thien concluded.
“It is impossible to reduce the number of steel projects as licenses have been granted already,” he said
In the first six months of the year, Ba Ria-Vung Tau localities had to revoke licenses granted to four foreign invested projects. In late August 2010, Dat Do district proposed that provincial authorities revoke the licenses of seven projects, and Xuyen Moc District has also made the same proposal.
Also relating the revocation of the project license, Ninh Thuan province’s authorities are considering revoking investment licenses granted before to Ca Na steel complex project. Phu Yen province has also announced it is considering revoking the license of Nam Tuy Hoa Creative City.
“In recent years, we have paid more attention to the figures of disbursed capital, but we have not paid attention to the socio-economic efficiency of the projects and how they help transform the economic structure,” said Nguyen Tuan Anh, Deputy Director of the Enterprise Renovation Department under the government’s office.
“A lot of foreign invested and joint ventures report losses, but they have still been expanding their business and trying to purchase stakes from Vietnamese partners,” he said, adding that it is necessary to review the efficiency of foreign investment.
When answering questions before the National Assembly on November 23, Minister of Finance Vu Van Ninh also admitted that the ministry has discovered that many out of the 127 enterprises which reported losses, took “virtual loss” and made “actual profit”.
“Our investment policies have led to the price transfer of foreign invested enterprises,” said Nguyen Dinh Cung, Deputy Head of the Central Institute for Economic Management CIEM.
Over the last 20 years, Vietnam has witnessed three benefits of the FDI situation: the increase in investment capital, the increase in the number of projects, and the increase in the number of jobs created by foreign projects.
“This shows that foreign investment projects are pouring into fields that use many workers,” Cung said.
However, experts have warned that though FDI is helping boost exports and create jobs, it does not help much in increasing the prosperity of the nation. The investment has only helped create jobs with modest pays.
“Vietnam needs to apply a new strategy if it wants to attract high quality FDI and create more value than just creating jobs with modest salaries,” experts said.