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High inflow of FDI: good or bad news?
The total new investment capital in past six months was four times higher than in the same period last year, according to the Ministry of Planning and Investment. The problem is to make a careful choice of projects to prevent some areas from being too overloaded with foreign direct investment (FDI) projects.
Vietnam’s FDI attraction currently ranks 6th in the world and third in Asia, after China and India.
Terlier Herve, head of a project to research on the impact of FDI on Vietnam, says that the abundant flow of FDI into Vietnam has encountered a number of difficulties arising from inadequately trained labour, weak management and improper investment in infrastructure.
Seven challenges
What is the quality of foreign investment in Vietnam? Will the country take any risk by attracting a large amount of FDI capital?
Pham Chi Lan, an economic expert says that in addition to such common risks as domestic businesses going bankrupt if they do not operate effectively, disparity in the level of economic development between regions, and instability in the country making foreign investors move to other countries, Vietnam currently faces 7 big challenges.
Firstly, some businesses have exaggerated their FDI projects’ profit margins.
Secondly, FDI projects usually require huge supplies of energy and a cheap labour force. Foreign investors have offered preferential treatment for energy. Furthermore, some projects have exploited Vietnam’s natural resources without giving any commitment. Some FDI projects have been granted large areas of land by the Vietnamese Government and some investors have mortgaged the land to borrow capital.
Thirdly, some projects can cause serious environment pollution such as golf courses, footwear and steel production.
Fourthly, other projects do not match with Vietnam’s development plan.
Fifthly, when investors withdraw from projects, which use technologies from the country, Vietnam becomes a dumping ground for technological garbage.
Sixthly, foreign investors apply for investment licenses and then “sell” them to other partners.
Seventhly, investors can use their prestige to get loans from domestic banks. But domestic businesses are unable to access capital sources.
FDI – the same old story
It is very good to attract high level of FDI. However, Vietnam should reconsider this as it just cares about growth rates rather than the efficiency of investment.
In the first half of this year, foreign investors mainly focused on real estate. 15 out of 19 licensed projects invested in resorts, luxury hotels, offices and apartments.
Chief economist Le Dang Doanh warns that Vietnam should cut down on real estate projects as they do not create a great number of jobs. In addition, after these projects are complete investors buy foreign currencies to transfer overseas, affecting domestic monetary regulations.
Mrs Lan affirms that despite being frequently mentioned, there remain snags in the use of foreign investment to iron out as soon as possible.
Economic experts say that the Government must identify the real demand in each area to devise plans for future development.
Nguyen Thi Thu Trang from the Vietnam Chamber of Commerce and Industry emphasises that the problem now is not how to attract FDI but to consider which kinds of investment are suitable for the country. Currently, it seems Vietnam has had its fill of FDI in some areas and is beginning to feel the pinch due to scattered investments here and there
VNA
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