New vision for foreign direct investment in Vietnam

With the Foreign Investment Law coming in force in 1988, foreign direct investment (FDI) inflows became an important resource in the early days of the Doi Moi reform that helped lift Vietnam from a poor country to a middle-income country and one of the bright spots of growth in the world.

FDI enterprises have made significant contributions to Vietnam’s economic growth in the past 30 years. (Photo: VNA)
FDI enterprises have made significant contributions to Vietnam’s economic growth in the past 30 years. (Photo: VNA)

To date, FDI remains a significant driver for the country’s growth but the situation has changed, requiring Vietnam to deploy a new strategy for attracting FDI. There is no denying that FDI enterprises have made significant contributions to Vietnam’s economic growth in the past 30 years.

In 1995, the sector accounted for just 6.3% of the GDP, with its share rising to nearly 20% of the GDP in 2017. However, the foreign-invested sector is also exposing many drawbacks, namely pollution from low-tech projects, the less-than-expected spillover effect, the small proportion of investment from the countries with original technologies such as the US and the EU, and notably the Formosa environmental disaster in April 2016, which sparked the debate on what Vietnam gains and loses when rolling the red carpet out for foreign-invested enterprises.

In addition to the mainstream view that affirms the major role of FDI in Vietnam’s economic development, there are views that the domestic sector has grown up and can now replace the FDI sector in many industries and that a reconsideration of the FDI sector’s position in the future is needed.

Some state that it is necessary to lower the ratio of FDI to total investment to below 20%, regulate which sectors are not open to foreign enterprises in order to support domestic production and restrict investors by country and territory in a specific area to ensure national security.

The past 30 years were long enough to assert the important role of the FDI sector as well as recognise its weaknesses and drawbacks so that a correct strategy could be devised for the new period.

This is an opportunity for Vietnam to look at the FDI sector with an objective and fair view. In order to enhance the quality of FDI inflows, it is first necessary to refine the economic institutions and the business and investment environment in accordance with modern market practices, while fully respecting the freedom to do business, ownership and the property rights of investors, including those from abroad.

Second, it is necessary to enhance the capacity of domestic enterprises and promote links with foreign-invested companies, while continuing to address investors’ concerns promptly and supervise their pledges, especially in localities with many foreign investment projects and in sensitive areas.

Recently the Prime Minister assigned the Ministry of Planning and Investment to complete a report on FDI attraction in the past 30 years so that the Politburo could issue a new resolution on enhancing the quality of foreign investment until 2030.

It is expected to be an important document to unify the perception on the role of FDI in the economy and organise the attraction and use of FDI in the time head. On that basis, the Government will adopt a specific action plan to make FDI attraction more effective in the future.