Topic: The increasing reliance on foreign direct investment sector: A big issue

arising in the development process of international economic integration in

Vietnam.


Introduction

In the context of extensive economic integration, along with stable economic

growth, an attractive investment environment, Vietnam has become a destination

for many foreign investors in recent years. The inward foreign direct investment

(Inward FDI) has contributed significantly to economic growth and to create a

healthy structure for the financial account of Vietnam. Besides, the FDI sector has

been also becoming a major driver of export, improving trade balance and

generating foreign currency income for the economy. Therefore, the Vietnamese

economy's dependence on the FDI sector is increasing and rather worrying.

Main issues and data analysis

With the increase in trade openness, Vietnam’s economy is more connected to the

global economy. The FDI sector is becoming a major factor to contribute these

rewards. Firstly, the FDI sector is the main driver of export growth and improved

trade balance. Details are as follows: (i) The export and import turnover of FDI

enterprises accounts for an increasingly high proportion in total export and import

turnover of the country: In 2019, exports of FDI enterprises reached 179.2 billion

USD, imports reached 144.6 billion USD, accounting for 67.8% and 57.1%

respectively, compared with the country's total import and export turnover (the

respective proportions in 2011 were 49.4% and 45.7%). (ii) The FDI sector is the

main contributor to Vietnam's export growth rate and helps the country's export
growth rate to reach higher than the set target. (iii) FDI enterprises dominate the

main export products in Vietnam's processing industry. Nearly 100% of export

turnover of mobile phones and components; cameras, camcorders and components;

computers, electronic products and components and nearly 90% of machines,

equipment, tools and spare parts; means of transport and spare parts are belonging

to FDI enterprises. Secondly, this sector accounts for a large proportion of the state

budget’s revenue. In 2019, this sector contributed to the state budget 191.4 trillion

dongs, accounting for 13.5% of the total state budget revenue. Thirdly, the FDI

sector has made an important contribution to increasing foreign currency revenues

for the economy; in the period 2011-2020, FDI disbursement averaged over 11.6

billion USD each year. Finally, FDI in Vietnam is the main contributor to the

surplus of financial account and contributes to financing the current account deficit

(2015, 2017).

However, the Vietnamese economy's increasing reliance on FDI sectors involves

several potential risks. Up to now, the investment capital from the FDI sector

accounts for more than 20% of the total social investment capital and tends to

increase significantly (in 2011, the contribution of the FDI sector in GDP was

15.66%, increasing to nearly 20% in 2018). FDI sector’s rapid rise to power means

that the more vulnerable the economy will be to fluctuations in FDI enterprises,

which depend heavily on the international markets. Besides, the process of

attracting FDI to Vietnam is creating an imbalance in domestic enterprises and FDI

enterprises.

Some potential solutions

To minimize the reliance on the FDI sector, some potential solutions are: (i)

Implement preferential policies for FDI enterprises in sectors that encourage use

many supporting industrial products, and domestic materials; (ii) Increase

connections between FDI and domestic enterprises; (iii) enhance the

competitiveness of domestic enterprises through increasing investment in science

and technology development; improve labour productivity.

REFERENCES

Vietnamese

[1] Bộ Chính trị (2019), Nghị quyết 50-NQ/TW ngày 20-8-2019 về định hướng

hoàn thiện thể chế, chính sách, nâng cao chất lượng, hiệu quả hợp tác đầu tư nước

ngoài đến năm 2030.

[2] Bộ Kế hoạch và Đầu tư (2018), Kỷ yếu Hội nghị 30 năm thu hút đầu tư nước

ngoài tại Việt Nam, Tầm nhìn và cơ hội mới trong kỷ nguyên mới.

[3] Cục Đầu tư nước ngoài, Bộ Kế hoạch và Đầu tư, Số liệu FDI qua các năm

2011 - 2019.

[4] Ngân hàng Nhà nước Việt Nam, số liệu cán cân thanh toán quốc tế các năm

2011 – 2019.

[5] Tổng cục Hải quan, số liệu xuất nhập khẩu hàng hóa, các năm 2011 – 2019.

[6] Viện nghiên cứu quản lý kinh tế trung ương (2017), “Đầu tư trực tiếp nước

ngoài: Một số vấn đề về thực trạng và giải pháp”.