Solutions to better attract, manage FDI projects

Foreign direct investment (FDI) has brought major economic benefits but new issues have emerged, requiring the Government to introduce new measures to effectively utilise this vital source of capital, the English language version of the Nhan Dan (People) newspaper reported.

Experts say that the Government, ministries, agencies and provincial authorities should strengthen their FDI management, to turn FDI into a true lever to boost economic growth, contributing to national industrialisation and modernisation.

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), as of July 20, Vietnam had 16,813 FDI projects with total registered capital of over 242.4 billion USD, more than half of which had been disbursed.

In general, both economic experts and management officials agreed that FDI had brought great economic benefits to Vietnam , as evidenced by the advent of new technology, strong exports, shifting economic structure and creation of jobs. FDI projects also created a spillover effect to draw smaller manufacturers into the production chain, helped Vietnamese companies gain administrative and management experience from foreign enterprises, and enhanced the effectiveness of international economic cooperation and Vietnam ’s position in the international arena.

However, former FIA Director PhanHuuThang said that among more than 16,000 FDI projects for over the last 26 years, up to over 13,500 are wholly foreign invested while only a modest 2,860 are joint ventures. Thus, technology transfer is very scarce. Even with high-tech projects, technical employees are restricted to their own areas of the workplace. Another issue is that FDI into agriculture and fish farming accounts for a very small proportion and is declining. In previous years, the ratio was as high as 15 percent but has dropped to just 1-2 percent of total registered capital.

According to the MPI, most of FDI projects in Vietnam (about 80 percent) are employing intermediate-level technology. Some even use obsolete technology that consumes excessive energy and is harmful to the environment.

Although FDI attraction is growing steadily, the ratio of added value to production value remains low. Director of the Bac Ninh Department of Industry and Trade, Vu Duc Quyet admitted that exports from FDI enterprises based in the province grew strongly, but the trade surplus was still only around 2 billion USD and the ratio of added value fell from 13.3 percent in 2011 to 8 percent in 2013. Quyet explained that the electronics manufacturing sector, which made up 70 percent of Bac Ninh’s FDI, required a strong auxiliary industry while the whole country and Bac Ninh in particular were unable to meet this requirement.

For example, the Samsung complex in Vietnam needed 300 providers of spare parts of various sizes so the company had to bring other Korean manufacturers to form a value chain and this was out of the control of Vietnamese authorities. General Director of the Samsung complex in Vietnam , Shim Won Hwan was quoted as saying that if Vietnamese manufacturers could meet Samsung’s requirements, the company was ready to place orders because it was more effective than buying parts abroad.

Apparently, there is still a gap and lack of linkage between domestic and FDI enterprises and the FDI sector’s effect on other sectors of the economy is still very limited. Some enterprises poured money into assembly projects with energy-consuming and environmentally harmful equipment and machinery.

The source and quality of workers are also knotty problems to foreign investors, with some large projects unable to proceed due to a lack of trained employees. General Director, Shim Won Hwan said frankly that in Vietnam too much importance is placed on formal qualifications, while there is a serious lack of attention on vocational training, which is in contrast with German, Japan and the Republic of Korea. Samsung was struggling to find enough employees for their expansion in Vietnam . The Vietnamese Government should paid more attention to developing support industry and training high-quality human resources.

According to the BacNinh Taxation Agency, the majority of FDI enterprises comply fully with tax regulations. However, from recent investigations, the Bac Ninh Taxation Agency discovered that Viet Pacific Clothing Company was engaged in transfer pricing and has collected arrears of 14 billionVND (658,000 USD).

Many localities are beginning to adjust their strategies in a bid to remedy shortcomings in the attraction and use of FDI. According to Director of Hai Duong provincial Department of Planning and Investment, Vuong Duc Sang the province has built a list of areas in which the province limits FDI capital, does not encourage FDI or does not provide investment certificates.

The province will not allow FDI in a non-manufacturing sector, projects wasting energy and natural resources, projects using backward technology or projects that are likely to pollute the environment, he noted.

Meanwhile, Director of Dong Nai provincial Department of Planning and Investment, Bo Ngoc Thu said that the province was making every effort to draw FDI capital in the right direction by facilitating investment in support industries, in 'green' industries and in industrial zones.

Regarding transfer pricing of FDI enterprises, General Director of Taxation Department, Bui Van Nam said that management over tax payments from FDI enterprises had been strengthened. From 2013, the Taxation Department ordered tax agencies at all levels to list high-risk enterprises, and to build appropriate plans to inspect and supervise their operations with a focus on tax bill violations, and suspicious banking transactions, among others.

The General Director affirmed that 30 percent of the total 20,000 FDI enterprises revealed dubious signs. Since early this year, the taxation sector has inspected nearly 1,000 FDI enterprises that reported losses and had signs of transfer pricing, collecting around 30 trillionVND (1.41 billion USD) in tax arrears. The move has produced an effect on FDI enterprises, with an obvious reduction of enterprises declaring losses.

To better manage FDI companies, the taxation sector will concentrate on measures to detect and handle tax bill violations, trade fraud related goods origin, commodities with abnormal revenue, enterprises with high tax arrears and high losses, firms temporarily importing materials for re-exporting and so on.

For example, the Department of Industry and Trade of Bac Ninh province required Samsung Group to pledge a profit not less than 2 percent of its total turnover during negotiations before accepting the group's investment in the province. In addition, the province also asked Samsung to invest 0.75 percent of its total revenue in research, development and technology transfer activities.

According to Director Thang, Vietnam should clarify its strategy on attracting FDI, including strategic partners such as Intel and Samsung, as now was not the time to attract FDI at all costs.

He suggested the State enhance the efficiency of FDI management, complete the legal system and reform administrative procedures, among other measures, to lure foreign investment into targeted areas such as support industries, high-tech sector and agricultural, forestry and fisheries sectors.

Source: VNA

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