Attracting FDI: Bravery and wisdom

30 years – undeniable role

Until now, when reviewing old stories, Professor-Dr. Nguyen Mai, former Deputy Chairman of the State Committee for Cooperation and Investment, repeatedly mentioned that after Vietnam implemented the Doi Moi reform process, the first bill passed by the National Assembly was the Law on Foreign Investment in Vietnam (December 29, 1987). And this bill has "untied" and "opened the door" for FDI capital flows into Vietnam, initially hesitantly and mainly in the form of cooperation contracts, then joint ventures, then the first, second and now third waves, with the total registered FDI capital as of January 20, 2015 being over 251.8 billion USD (17,579 projects).

"Although there are still shortcomings related to transfer pricing, environmental protection, lack of connection with domestic enterprises, or weak technology transfer..., the FDI sector has made a great contribution to the socio-economic development of Vietnam", Professor-Dr. Nguyen Mai said and once again emphasized that without FDI, some industries and services in Vietnam would hardly be able to achieve their current level of development.

That is the telecommunications and information technology industry, with the business cooperation between VNPT and Telstra (Australia) since 1992, thereby paving the way for modern technology and the rapid development of this industry in Vietnam. As the oil and gas industry, when the joint venture Vietsovpetro was established and until today it still makes a great contribution to Vietnam's economy and society.... And recently the electronics industry, after Samsung poured more than 11.2 billion USD into Vietnam, leading Nokia (now Microsoft), LG... to also want to turn Vietnam into a new global production base.

Professor-Doctor of Science. Nguyen Mai also mentioned repeatedly that with the arrival of foreign investors, an entire swampy area in Ho Chi Minh City has turned into modern Phu My Hung Urban Area, or outside of Hanoi, Ciputra Urban Area. "The vision of foreign investors has also partly changed the face of Vietnamese urban areas," Mr. Mai said and continued to cite figures such as contributing 25% of social investment capital, 45% of industrial production value, 65% of export value, 19% of GDP, 20% of budget revenue to confirm the great contributions of the FDI sector.

Do not want to repeat the "bullet points" and numbers, because when summarizing 25 years of attracting FDI, there have been relatively complete assessments of the pros and cons of FDI, Dr. Tran Du Lich, an economic expert, emphasized that the emergence of the FDI sector has created a "counterweight" for domestic enterprises to improve their competitiveness. Although it may not be as expected, along with valuable resources, the FDI sector has also helped improve corporate governance, "creating a business style of the market economy that we are just starting to enter". These contributions are often immeasurable, but those involved understand them very well.

“If there was no FDI, if there were really only domestic enterprises, exploiting coal and minerals for sale, what would we have?”. Asking such a question, Mr. Nguyen Hoai Bac, Chairman and General Director of Canada Home Deco, an overseas Vietnamese investing in Vietnam, seemed to want to further affirm the role of the FDI sector in Vietnam's economy and society.

Internal force or external force?

But the huge contributions of the FDI sector, especially in recent difficult economic years, have made many economic experts worried. Some people worry about the risk of gradually losing the domestic market to FDI enterprises, others fear the risk of "FDIization" of the economy...

It is true that looking at the current "balance of forces", the FDI sector is superior. Contributing up to 65% of Vietnam's export turnover is really too high. Minister of Planning and Investment Bui Quang Vinh himself also admitted this. The Minister said that in terms of attracting FDI, it was a success, but if looking at the health of the economy, the weakness of the domestic business sector is undeniable. But weak domestic enterprises cannot absorb the technological quintessence brought by FDI enterprises. Domestic enterprises are weak, Vietnam cannot have an autonomous economy...

"If we want to be self-reliant, we must have strong enough domestic businesses and brands capable of reaching foreign markets. Even though Samsung products are labeled 'made in Vietnam' and exported around the world, everyone understands that they are Korean products. For Vietnam, it must be Phu Quoc fish sauce, Trung Nguyen coffee...", Minister Bui Quang Vinh pondered.

External forces are important, internal forces are decisive. But when internal strength is still weak, we need to call for FDI. "That is the rule of world economic development, the inevitable movement of capital and labor, so why reject it?" It was still Mr. Bac who asked the question.

As for Ms. Pham Chi Lan, although she admits that in a difficult economic context, the contribution of the FDI sector is good, she is afraid that if she forgets to develop domestic enterprises, at some point it will limit the effectiveness of attracting FDI. Even if external resources are turned into a decision, the economy will be dependent on FDI.

Frankly, Ms. Lan said, we cannot just borrow foreign resources, because that is not the long-term development path for countries. "For any country, internal strength is decisive. Therefore, if internal strength is weak, appropriate remedies must be used to make it stronger. Attracting FDI must still be based on the strength of both sides, cooperation and progress, and cannot just be one-way."

That is actually Vietnam's perspective. Minister Bui Quang Vinh has repeatedly affirmed that even when foreign investors enter Vietnam, they want Vietnam to have a strong enough domestic business system to act as a "counterweight" to support them in the development process.

Also understanding that Vietnam's economy is still subject to many constraints and dependencies, so in the long term it is necessary to take care of the private sector and turn this sector into the strongest growth engine of the economy, so Minister Bui Quang Vinh said that in 2015 there will be many policies to remove difficulties and promote private enterprises to develop. "With good growth in this area, we will have a self-reliant economy," the Minister said.

Bravery and wisdom

Having clearly defined the roles of external and internal forces, Dr. Tran Dinh Thien, Director of the Vietnam Institute of Economics, said that the wisest approach for Vietnam today is not to deny the FDI sector but to have policies to attract the domestic private sector to develop in parallel. "We have not been able to do that and that is a mistake. In the current era, FDI capital is extremely important, without FDI, Vietnam will not be able to rise to a high level of development," Mr. Thien said.

For this expert, if we only pay attention to FDI as the main force to increase national output and increase GDP, it will be dangerous. Because the main mission of FDI set during this period is to pull Vietnam's economy to a different level.

Referring to the story of Samsung, when it was investing heavily in Vietnam, Dr. Tran Dinh Thien frankly said that if this investor were to continue to approach Vietnam in a way that takes advantage of abundant, cheap labor, it would not be good for the Vietnamese economy. That, having invited Samsung in, how can we "connect" Vietnamese businesses into their global value chain? That the time has come, Vietnam can no longer simply process and assemble like the past 30 years.

Expectations about redirecting policies to attract FDI are also being discussed by Professor-TSKH. Nguyen Mai posed. This expert believes that, in a long-term vision, Vietnam must also have a clear strategy for attracting FDI. It is no longer a matter of focusing on single projects, but of attracting large corporations so that they create "industry axes" - creating a backbone for the national economy. "If only ten companies like Samsung come in, each exporting 30 billion USD, we will have a large export turnover. In addition, we can also develop supporting industries. For each field that we want to develop, such as petrochemicals, electronics..., let's try to attract such a strategic partner," Mr. Nguyen Mai said.

Meanwhile, not talking about big names, Harvard University Professor David Dapice, when sharing about his experience in attracting FDI, cited the case of Mexico wanting Nissan to set up a factory in their country and successfully convincing Nissan by pledging to invite level 2 and level 3 supporting businesses for Nissan to come along, to emphasize that Vietnam needs to have a sober look at attracting FDI.

"To use FDI capital effectively, it depends greatly on the bravery and wisdom of the Vietnamese Government", this professor said and again mentioned the lesson of Mexico, that this country understands that it cannot immediately build a supporting industry to serve Nissan's production requirements, so it chooses an intermediate solution, accepting to go from the lowest step in the supply chain.

We have also begun to accept that. Vietnam has the courage to say no to FDI projects that are no longer suitable, use outdated technology, and pollute the environment. So now, after 30 years of attracting FDI, we need to be wise to "lead" the FDI sector to serve our own socio-economic development goals and strategies.