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NEWS UPDATES 4 November 2010

VN advised to change FDI tactics

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If Viet Nam wants to improve the efficiency of foreign direct investment projects, it must change its policies, procedures and targets to attract capital, a conference heard yesterday.

In a conference titled "Foreign Investment and Private Economic Development: Experiences of South Korea and Taiwan", experts said the attraction of foreign direct investment (FDI) always had two sides, as the FDI policies of other countries were aimed at making the most of their investment and minimising the disadvantages, but Vietnam had not succeeded in doing the same.

To improve the quality of FDI capital, Vietnam should measure the efficiency of FDI attraction by focusing on the amount of disbursed capital rather than the registered capital, they said. According to the Foreign Investment Agency under the Ministry of Planning and Investment, the country's registered FDI capital in 2008 reached a record high of nearly US$70 billion but the amount actually used was just $11 billion.

Phan Duc Hieu, deputy head of the Business Environment and Competitiveness Board of the Central Institute for Economics Management (CIEM), said there was always a difference between "registered capital" and "distributed capital".

In Taiwan and South Korea, investors were only permitted to complete investment procedures when they transferred investment capital into the country or territory, meaning the quantity of FDI announced was equal to the amount received, Hieu said.

CIEM deputy head Nguyen Dinh Cung said the regulation helped control the financial capacity of foreign investors.

In Viet Nam, foreign enterprises were simply required to complete procedures in line with the country's laws in order to be considered foreign investors. This gave rise to the distinction between "committed capital" and "disbursed capital".

The financial capacity of foreign investors is currently proved in a report submitted during the investment registration process. However, the quality of the reports has been a controversial issue.

Poor management capacity along with running a race to attract FDI resulted in localities licensing FDI projects on a grand scale without taking into account their long-term social efficiency, Cung said.

In 2009, hospitality and catering services was the most attractive field among foreign investors, luring $8.8 billion in capital. The real estate sector ranked second with $7.6 billion.

Meanwhile, FDI in the processing industry has decreased continuously from 70.4 per cent in total FDI in 2005 to 13.6 per cent in 2009.

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