FDI attraction to be under strict scrutiny

VietNamNet Bridge – Although Vietnam has attracted large amounts of foreign direct investment (FDI) for more than 20 years, it has yet to master managerial skills and optimally absorb technology transfer from FDI projects.

FDI, global economic, technology transfer

In 2013 Vietnam lured more than US$20 billion in FDI - a desirable figure to many developing countries in the context of the global economic slowdown.

However, many economists are not impressed with this new record, arguing the quality of FDI is the crucial factor.

They say since the Foreign Investment Law was first introduced in 1987, Vietnam has only marginally improved upon its managerial skills and has not reaped major benefits from the transfer of technology from FDI projects as expected, and this is a matter of particular concern.

During the past 20 years, big international giants such as Intel, Samsung, Nokia, Toyota, Mercedes, and Coca Cola, have entered Vietnam to explore and cash in on this emerging market.

In the 1990s many Vietnamese localities rolled out the red carpet to welcome foreign investors as special guests, offering numerous preferential tax and other incentives. As a result, FDI inflows into Vietnam increased year on year.

Also during that time, foreign giants earned huge profits which were then remitted to their countries. Meanwhile, many Vietnamese localities began to pay a steep price for their decision, in which addressing environmental problems is one of common examples.

Obviously foreign businesses weigh the pros and cons of their investment strategies before funnelling their moneys into a country, especially a developing one, trying to earn as much profit as they can.

In turn, investment recipients, including Vietnam, all expect to acquire advanced managerial skills and technology from foreign investors to create a competitive environment for domestic businesses.

An economic expert admits, “We fully expected to experience positive spill-over effects of FDI attraction, but they (effects) have not lived up to our expectations yet.”

Vietnam has licensed many big projects specialising in electronics, automobile and motorcycle manufacturing, but domestic support industries are still in their infancy.

In addition, the country has faced a lack of skilled workers and project managers; foreign investors have even struggled to find competent foremen.

Worker training at FDI factories is also another matter of particular concern. Workers are normally trained in a number of specific skills without general knowledge of production procedures.

Limited technology transfer

There are not enough convincing proofs showing that Vietnam has benefitted from the transfer of technology from FDI projects, let alone low technologies that consume much fuel and cause serious environmental pollution.

Vietnam needs to take into consideration its FDI attraction strategy when its initial expectations are not met.  The country is yet to fully assess spill-over effects of FDI projects on the national economy, in terms of managerial skills and technology transfer.

Myanmar, which has opened its door to foreign investment for just two years, is adamant about attracting FDI. An independent supervisory council comprising foreign experts was established to appraise investment projects and their effects. By doing so, Myanmar cannot repeat the same mistake by other countries.

More than 20 years are long enough to evaluate the effect of a policy. Besides incentives for foreign investors, Vietnam needs to lay down strict criteria of technology transfer and managerial skills to support domestic businesses in the long run.

Source: VOV

FDI, global economic, technology transfer