FDI capital not easy to absorb

SGGP
Several experts suggested that the Government should focus on supporting some potential Vietnamese enterprises in electronics and micro-electromechanical system sector to create opportunities for these enterprises to develop and play the leading role in domestic electronics market, especially household electric and electronic products.

Producing electronic components at Nidec Tosok Company in Ho Chi Minh City. (Photo: SGGP)

Producing electronic components at Nidec Tosok Company in Ho Chi Minh City. (Photo: SGGP)

Especially, digital technology, AI and robotics and biotechnology are new and necessary industries for Vietnam to catch up with the Fourth Industrial Revolution.

Since the beginning of this year, newly-registered capital, additional capital, capital contribution and purchase of shares of foreign investors invested in Vietnam have reached US$31.8 billion, an increase of 3.1 percent over the same period last year. However, on the contrary, many domestic enterprises said that rapid growth of foreign direct investment capital has been increasing competition pressure on them.

According to Mr. Le Hoai Quoc, chairman of the Ho Chi Minh City Automation Association, 11-month FDI capital attraction rose rapidly for a reason which is the increasing movement of factories from neighboring countries into Vietnam. Earlier, some East Asian countries, such as Japan and South Korea chose China and countries in the ASEAN as production bases for export to the US and Japan. However, China has gradually become a consumer market instead of manufacturing. In addition, the prolonged trade war has led to significant shift of investment from China to countries in the ASEAN.

Amid that context, Vietnam’s industrial industry, especially industrial processing and manufacturing industry, will have great development prospects with the opportunity to participate deeply in the global value chains of multinational industrial corporations. Especially, with various signed free trade agreements, Vietnam has many advantages when exporting its goods to major markets in the world. This fact has caused several manufacturers of end-to-end and supporting industry products to strongly move into Vietnam.

However, Mr. Tong Duy Khanh, CEO of Duy Khanh Mechanical Company, said that attracting FDI enterprises to end-to-end product manufacturing has brought many benefits for development of domestic industrial industry. At the present, the supply ratio of domestic products in the global supply chain has reached over 30 percent. However, recently, the massive landing of small and super small sized FDI enterprises has been causing serious impacts to production activities of domestic enterprises. He cited that most of small-scale FDI enterprises are enterprises in the supply chains of end-to-end FDI enterprises or final processing enterprises to take advantage of Vietnamese origin. This, on one hand, causes direct competition with domestic enterprises, and increases the risk of being imposed trade remedies at export markets, on the other hand.

Regarding this matter, the Ministry of Industry and Trade said that trade fraud has happened complicatedly. Some cases of trade fraud were timely uncovered and stopped by authorities, such as exported aluminum and wood. Currently, Vietnamese export goods have been facing 20 lawsuits relating to trade remedies evasion.

Mr. Le Hoai Quoc said that in order to make use of advantages from FDI capital attraction, authorities should have a comprehensive view about actual status of domestic industrial manufacturing. Hereby, authorities will determine key industries that need FDI capital attraction as well as eliminate priority of industries outside the key group. This is also an indirect solution to support the development of domestic enterprises and lower the risk that FDI enterprises invest in Vietnam only to make use of preferential export tariffs that the country has been enjoying.

On the other hand, the Government needs to understand that, currently, labor cost in Vietnam is climbing, to a certain level, it will no longer be a competitive edge. At that time, when preferential policies of the Government have expired, if domestic industrial processing, manufacturing and supporting industry industries do not grow to reduce cost prices, multinational corporations will move their facilities to more attractive countries. Therefore, from now on, there should be appropriate policies to accelerate transfer of technology of multinational corporations in Vietnam to domestic enterprise system and establish soon regional and international-scale enterprises to lead the industrial industry. The Government needs to promulgate support policies soon for mechanical, electric and electronic enterprises. Of which, special attention should be paid to incentive mechanism by supporting investment projects on technological innovations towards automation, application of robots and AI in production, management and administration.

By Ai Van – Translated by Bao Nghi

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