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NEWS UPDATES Asean Affairs   19 April  2012

Foreign investments in Vietnam needs developed standards of evaluation

19 April, 2012

Vietnam needs to develop a set of standards to evaluate the effectiveness of foreign direct investment (FDI) to help policymakers improve the activities, a seminar held in the capital heard yesterday.

Ngo Doan Vinh, former head of the Ministry of Planning and Investment's Development Strategy Institute, said the project would meet requirements of marco-economic analysis.

Vinh said evaluation should include labour productivity, capital utilisation and contribution to the economy.

Statistics from the ministry showed that by the end of last year, Vietnam attracted 13,500 FDI projects with registered capital of US$195.9 billion since the Foreign Investment Law was adopted in 1988. Of the total, disbursement capital made up $88.2 billion, accounting for 43 per cent.

The FDI sector has created jobs for around 2.3 million labourers, contributing to one-third of GDP, 40 per cent of industrial production value and more than 30 per cent of export turnover.

However, the sector has also exposed shortcomings as some had not been suitable with industry development planning, importing backward machines and causing environmental concerns.

The Provincial Competiveness Index (PCI) 2011, launched by the US Agency for International Development (USAID) and the Vietnam Competitiveness Initiative (VNCI), covering more than 1,100 businesses from 47 countries and accounting for 21 per cent of total foreign-invested firms in Vietnam, showed that foreign-invested enterprises in the country were mostly small in scale and operated at low profits.

The majority of foreign-invested firms included subcontractors for multinational companies, thus ranked at the lowest level of product value.
Of the total, only 5 per cent operated in the modern technology sector, 5 per cent in science and technology and 3.5 per cent in financial services.

Chairman of the Vietnam Association of Foreign Invested Enterprises Nguyen Mai said the country has been slow in changing orientation in attracting FDI.

"We have not attracted investors despite a better investment environment," Mai said, adding that it was time to utilise scientific criteria to evaluate the affects of FDI on the country's development as well as improve quality of FDI inflow.

He said some foreign-invested businesses have taken advantage of price transfer mechanisms to report losses and invade corporate income tax to shift revenues and profits to markets where taxes are lower than in Vietnam.

"It needs to be confirmed that FDI is the most important international capital to Vietnam. The government should have a clear message on FDI orientation in terms of quality and socio-economic effectiveness," he said.

Phan Huu Thang, former director of the Foreign Investment Agency, said a effective evaluation would help improve state management.

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