The foreign investment has contributed to completing the market economy, improving the business and investment environment, developing external relations, and enhancing international cooperation and integration, as well as raising Vietnam’s prestige and position in the international arena.
30 years of attraction and use of FDI
Over the past 30 years, foreign direct investment (FDI) has played the role as one of the driving forces for the nation’s economic development towards industrialisation and modernisation.
With US$184 billion disbursed over the past 30 years, FDI has contributed important capital to the total social investment. The share of FDI in the total social investment capital increased from 15% in 2005 to 23.7% in 2017. The FDI’s contribution to the country’s GDP surged from 6.3% in 1995 to 19.6% in 2017.
In addition, the State budget revenue from the FDI sector recorded remarkable growth from US$1.8 billion during 1994-2000 period to US$8 billion in 2017. With 58.2% of the total registered capital for the processing and manufacturing industries, the FDI sector has significantly contributed to shifting the economic structure.
Foreign investment activities have also enhanced the expansion of Vietnam's export markets, boosted the shift in exported product structure and gradually helped Vietnam to join global production and value chains.
The above achievements have affirmed that the open-door approach to foreign cooperation was the correct policy deployed by the Vietnamese Party and State, appropriate to the general development trend of the time.
However, the attraction and use of FDI over the past few years has revealed a number of shortcomings and limitations which need to be solved soon. For example, the links and spillover effect of the FDI sector on other sectors of the domestic economy have not been productive; the technology transfer has not achieved the results as expected; the proportion of investment from transnational corporations has been low; and investment from the US and the EU into Vietnam has thus far not matched the potential. Certain FDI projects have not strictly complied with the laws on environmental protection, tax and labour.
Key measures to promote FDI
In order to improve the quality, effectiveness and contribution of FDI to the country’s socio-economic development in the coming period, it is crucial to focus on completing the legal system and policies.
Accordingly, economy institutions need to be developed, while improving the business and investment environment in accordance with modern market standards and integration trends.
Managers should synchronously perfect the legal framework on investment, enterprises, planning, management of foreign workers and tourism, as well as the entrance, exit and residence of foreigners to improve the efficiency of State management over FDI enterprises’ activities.
It is crucial to amend and supplement the existing laws in line with the new Competition Law 2018 to strictly control merger and acquisition (M&A) activities, including those by foreign investors, and the acquisition of foreign investors and FDI businesses for domestic enterprises.
In addition to completing a system of laws and policies and developing a database, the agencies concerned should ask enterprises, particularly FDI enterprises, to disclose their information in order to avoid, restrict and handle their transfer pricing and tax evasion.
The investment incentive policies need to be renovated in line with the target of socio-economic development on the basis of specific criteria for attraction and use of FDI capital.
The improvement of domestic enterprises’ capacity, enhancement of their links and joint ventures with FDI firms, and the development of high quality human resources are urgent tasks to stimulate long-term internal potentials.
The State management mechanism needs to be synchronously and effectively consolidated, creating favourable condition for FDI enterprises to do business and investment activities as well as closely supervising their observance of commitments and conditions.