08:54 | 20/06/2018 Economy
(VEN) - Foreign direct investment (FDI) in Vietnam has yielded unprecedented results over more than three decades, but the approach used to attract capital has revealed shortcomings in recent years, leading to a decision on a new strategy to lure capital.
According to the Foreign Investment Agency under the Ministry of Planning and Investment, by April 20, 2018, Vietnam had 25,524 valid FDI projects, with total registered capital of US$321.25 billion. In the past 30 years, the FDI sector has become a vital component of the Vietnamese economy, contributing about 25 percent to social investment capital and 20 percent to the gross domestic product (GDP). About 58 percent of total FDI capital has gone to the processing and manufacturing sector, helping Vietnam increase the value of its products and creating a shift in the domestic economic sector. In 2017, the FDI sector made up 72 percent of total export value and generated about 3.5 million direct jobs and five million indirect ones.
However, the FDI sector has not created the spillover effect on the economy that had been anticipated and has not promoted the development of domestic manufacturing to a sufficient degree.
Vietnam has been integrating widely and deeply into the global economy, by joining free trade agreements (FTAs) and establishing comprehensive and/or strategic partnerships with key partners. The world, meanwhile, has also been transforming extensively, especially in interactions between regions and large countries, and under the influence of the fourth industrial revolution (Industry 4.0). The most critical problem for Vietnam is to avoid the low labor cost trap and the middle-income trap, and to create a new and sustainable momentum for productivity-based growth. Therefore, the nation’s primary aim must be to maximize efficiency in attracting FDI, rather than seeking as much as investment as possible, a task that is proving more complicated.
The selection of good quality FDI projects involves a number of issues. For example, it requires clear and scientific planning on the development direction of key sectors. Once the planning is completed, a transparent criteria system is needed to accurately assess the quality of the proposed investment projects. In addition, it is necessary to ensure compliance with the planning in practice.
The draft strategy on FDI attraction in the 2018-2023 period has identified sectors with the most potential for targeted investment. These include manufacturing (high-grade metals, minerals, chemicals, electronic components, plastics and high-tech), services (maintenance, repair, and overhaul along with logistics), agriculture (innovative agricultural products), and travel (high-value tourism services).