Though Vietnam is one of the attractive FDI destination regionally and globally, the amount of US and EU enterprises investing in Vietnam is quite humble.
Lack of information, it is difficult to monitor and support US and EU Enterprises
Up to this time, economic expert Le Huu Quang Huy is still concerned with the question: "Why is the quantity of projects with advanced and modern technology, European technology only accounts for about 5% of total FDI projects in Vietnam? European investors' capital percentage in total FDI in Vietnam currently accounts for only about 8.2%. The percentage of the investors’ capital from the Americas is lower, accounting for only about 4.5%.
“It is a very low figure, not only in the terms of percentage but also in the concerns of US and EU investors with Vietnam. Moreover, the percentage is not only very low against FDI capital from the US and EU in the world and the investment in ASEAN countries", said Mr. Huy.
Mr. Huy used to be the Economic Counselor of the Vietnamese Embassy in Japan, and the Head of the Foreign Investment Project Management Department (Ministry of Planning and Investment), Mr. Huy clearly understands that the requirement to attract more quality projects, the US and EU investors... have been prior for many years.
As Mr. Huy is a member of the 2021 Foreign Investment Report Compiling Council, released at the end of May 2022, he has opportunities to travel to many localities and try to find out the answers to the above difficult situation. “It must be frankly acknowledged that although there have been many positive changes, transparency and consistency in the implementation of the investment policies, in the selection of the investment projects in many localities is still a barrier for the big investors, especially the investors from the US and EU", analyzed Mr. Huy.
Citing the story of an American investor who had to change his mind when the local authorities whom he linked with made the requests and procedures other than the regulations, regretted Mr. Huy. The investor said that because the costs for extra-legal procedures and processes cannot be explained to the parent company. Even though the investors really want to implement the project, they ought to reconsider.
“This is a content in the 2021 Foreign Investment Report that we spent efforts researching, giving the conditions and specific recommendations,” said Mr. Huy.
The experts want to emphasize but not be insufficiently aware of the role and position of FDI in some local governments, affecting the specific actions. Said experts, some local governments take the reason for the industry and locality interest protection to issue the inappropriate regulations, processes, procedures, and documents; make the decisions to limit and discriminate against FDI, increase administrative costs, and increase operating costs after the business license is issued, thereby the investors are worried.
FDI attraction is considered as only attracting capital and high technology in some places, thus the perspective from domestic development needs is not harmonious with the needs of international investors, resulting in imposing, unobjective executive direction, etc.
The above report’s section on limitations in the quality and efficiency of FDI attraction and use is put at the top among the four groups of FDI’s limitations and weaknesses in Vietnam, with obvious consequences that are the risks, challenges of environmental pollution, energy consumption, resource depletion. FDI is mainly concentrated in a few industries with low technology level to take advantage of low labor costs and to get such incentives as outsourcing (textiles, footwear, wood processing), assembly (electronics, automobiles, motorcycles...) and some food processing industries.
The investment rate per hectare of land used in the processing and manufacturing field is not high (average USD 3.7 million/hectare). FDI project scale is mainly small: 58.1% of projects with a capital scale of less than USD 1 million (accounting for only 1.6% of registered capital); 46.2% of projects less than USD 500,000 (accounting for 0.7% of capital). By the end of 2021, there are only 30 FDI projects with a capital scale of 1 billion USD or more.
The current status of above FDI projects directly affects the spillover effects on productivity and quality between FDI sector and other areas where Vietnamese economy has the high expectation.
Questions for monitoring and post-inspection mechanisms
Dr. Ngo Cong Thanh, former Deputy Director of the Department of Planning and Management (Ministry of Planning and Investment) is also worried when he knew that the information system about FDI Enterprises has not been significantly changed for many years.
“We always want to know whether the updated information on active FDI projects and Enterprises when we participate in the field surveys to complete the 2021 Foreign Investment Report, but unfortunately the answer is not complete”, Dr. Thanh discussed with the reporter of Investment Newspaper.
The research team’s survey results in some localities show that the annual realized FDI capital has not been generally calculated by economic sectors, and the Enterprises ongoing have not been updated. In many industrial zones, the time to disburse capital and invest, and build the surveyed FDI Enterprises’ factories is no more than 2 years, but it is not in included in the updated reports.
“The partial cause is that the authorities at all levels attach great importance to the promotion and issuance of investment certificates, but it is clear that there is a laxity in the management of FDI projects after licensing, thus Enterprises’ violations, difficulties, and problems are delayed in handling, "said Mr. Thanh.
Meanwhile, the FDI monitoring system is still inconsistent. FDI investors’ capital contribution and capital utilization supervision are being regulated by many different legal systems, leading to the existence of many supervising subjects. Each subject supervises some contents of economic organizations with FDI capital but the absence of connection and coordination results in low supervision effectiveness and efficiency.
The national information system on FDI has been developed since 2019 in fact, but it is time for a change to ensure the new requirements of e-Government, said Mr. Thanh. “We agree with many proposals that more appropriate institutions in attracting, managing, and using FDI capital should be provided. In order that this proposal can, however, to be realized, an updated, complete, and smoothly operating national information system on FDI with the participation of both Enterprises and localities should be first provided. This is the urgent one required to do,” suggested Mr. Thanh.
Moreover, the lack of updated information from Enterprises greatly affects the effectiveness of proposals, formulation, and implementation of mechanisms and policies as well as efforts to improve the investment-business environment. As one of leading professional services firms in Vietnam, Viettonkin is well-informed with Vietnam market and legal environment. In this way, we are able to help FDI enterprises with their investment process in Vietnam. Under this uncertain situation, foreign investors still can harvest benefits from investment projects with the help from the well-recognized experts in the industries. Let us stand by your sides!
