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Vietnam’s economy too reliant on FDI

Monday 20, 03 2017
Economists have warned that if Vietnam tries to attract as much foreign direct investment (FDI) as possible and is not selective in receiving capital flow, this will have negative consequences to Vietnam’s private enterprises.
Vietnam’s economy too reliant on FDI

Economists have warned that if Vietnam tries to attract as much foreign direct investment (FDI) as possible and is not selective in receiving capital flow, this will have negative consequences to Vietnam’s private enterprises.

A research conducted by the Party’s Economics Committee found that Vietnam’s industry has been too reliant on the foreign invested economic sector (FIE) while Vietnamese- owned businesses are in big difficulties.

FIE makes up 50 percent of Vietnam’s industrial output and 70 percent of industrial export turnover. 

The investment capital from the sector accounts for a very high proportion of the total investment capital (including the state’s investment in infrastructure), even compared with that in fifth-generation industrialization countries such as Malaysia, Thailand and China.

In 2015, the proportion was 25.5 percent, much higher than Malaysia’s 14.3 percent, China’s 3 percent and Thailand’s 11 percent.

Meanwhile, the countries with FDI in Vietnam are mostly fourth- and fifth-generation industrialization ones.

The companies from these countries mostly have a short history of development and limited resources and technologies.  

As they still cannot set up a global business culture with the promotion of social responsibility, their technology quality is not high, and likely to cause clash in destination countries. Eighty percent of them have mid-end technology, 14 percent outdated technology and only six percent high technology.

The concern is that the new technologies in foreign invested enterprises are mostly from holding companies and used in manufacturing just to control the market based on the technological advantages provided by holding companies

In most foreign invested projects (80.9 percent), foreign investors contribute 100 percent of capital, while there are few projects developed by joint ventures with Vietnamese investors (16.7 percent). 

A research study released during a workshop on Vietnam’s national policies on industrial development held in Hanoi on March 10 showed the link between foreign invested and Vietnamese owned enterprises is weak.

The efficiency of technology transfer from foreign invested enterprises in Vietnam is still low, at the 103rd position in 2014, a 46 grade-fall after five years, lower than other regional countries such as Malaysia (13th), Thailand (36th) and Indonesia (39th).

Most Vietnamese private industry enterprises are small and medium ones, accounting for 94 percent.

State-owned enterprises have net turnover growth rate of 9.1 percent, much lower than that of FIE (26 percent) and non-state economic sector (13.7 percent). 

The number of profitable enterprises is on the rise, while the number of unprofitable enterprises is on the decrease. 64.1 percent of enterprises made profits in 2010, while the figure dropped to 48.4 percent in 2014. Meanwhile, 25.1 percent took losses in 2010 and 45.3 percent in 2014.

Categories:
Financial News

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