FDI volume rose strongly

Vietnam’s investment environment is now much more attractive than before. Inflows of FDI into the country have increased dramatically since its official entry to the World Trade Organisation (WTO) in early 2007. According to the Overseas Investment Agency under the Ministry of Planning and Investment (MPI), FDI reached US$31 billion in the first half of this year, up four times compared to the same period last year. Among 487 new projects, 19 projects were capitalised with US$28 billion.

Many foreign investors have expressed keen interest in Vietnam’s investment environment as labour costs and land rents, which are much lower than in neighbouring countries in the region. Economists, however, warn that foreign investors are simply focused on making a huge profit for themselves.

How to improve product quality and productivity?

The sharp increase in FDI in recent years is a good signal; however it also poses a number of challenges. In fact, there is a big gap between registered and disbursed capital. For instance, only US$5 billion of FDI capital has been disbursed from the registered US$31 billion.

Vietnam expects foreign investors to help improve both management and professional skills. However the results are not achievable. Foreign investors mainly take advantage of using cheap labour in assembly work, instead of investing in manufacturing, thus hindering the implementation of a strategy to localise the automobile industry. For instance, Hanoi has 16 automobile assembly plants but 90 percent of spare parts have to be imported. The recent closure of Sony Vietnam showed that it only cared much about using cheap labour instead of improving the products. Now it’s high time for Vietnam to implement drastic measures to narrow the gap between the quality and volume of FDI capital.

The Director of the Financial Science Institute, Quach Duc Phap says that Vietnam should convince investors to transfer new technologies and management skills for the long-term benefit of operating in the country.

The Overseas Investment Agency also says that Vietnam should effectively implement programmes to train highly qualified personnel to meet foreign investors’ demands. If this is achieved the gap between the “quality” and “volume” of FDI capital will be bridged.