December 13, 2014
– Some experts have remarked that while foreign-invested enterprises (FIEs) have dominated almost all sectors of the economy, domestic firms are still mired in troubles, or find it difficult to make connections with their foreign business community here.
Samsung Electronics Vietnam Thai Nguyen Co. (SEVT) last month received an investment certificate for the second phase of its hi-tech complex in Thai Nguyen Province with total investment of US$3 billion, following a project worth more than US$1 billion here. “Almost all resources have been allocated to the projects of Samsung,” said Chairman of Thai Nguyen Nguyen Ngoc Long in response to the complaint from local businesses about how the provincial government neglects their hardships.
Long has his reason. “With the SEVT complex, in the near future, Thai Nguyen could become an industrial city which is honored in the map of the world’s leading technology capitals,” says a document of the provincial government.
When implementing the above project, Samsung has boosted its total investment in Vietnam to around US$12 billion. Its two operational factories in Thai Nguyen and Bac Ninh enables Samsung to produce 200 million smart phones each year, accounting for half of its output worldwide.
Before Thai Nguyen, some neighboring provinces such as Bac Ninh, Hai Duong, Vinh Phuc, or even Hai Phong and Quang Ninh, have also made all-out efforts to lure foreign investment. Their most fundamental aim is a quantum jump in budget revenue. For instance, at the time it was separated from Vinh Phu 15 years ago, Vinh Phuc earned only VND100 billion; now, its Me Linh District alone, where the Honda factory is situated, earned VND16 trillion for the State budget last year.
In the first 11 months of 2014, foreign investors’ registered capital amounted to over US$17 billion in Vietnam, down nearly 17% from the same period last year, according to the Foreign Investment Agency (FIA).
The preference for FIEs is sometimes unjustified. For example, Metro, which has been sold to BJC of Thailand, was granted an investment certificate in 1995 and has developed as many as 19 supermarkets across the country. The Metro’s case came as a surprise because not until 2007 when becoming a World Trade Organization (WTO) member did Vietnam pledge to open its retail market, an extremely sensitive issue to any economy. “The licensing for the second retail outlet onwards depends on subjective opinions, not provided by the law, which has resulted in such a big number of establishment,” Minister of Industry and Trade Vu Huy Hoang explained.
However, looking at the overall picture, foreign direct investment (FDI) attraction is not all rosy.
On the one hand, FIEs now have dominated almost all the economic sectors, while domestic firms are still mired in troubles, or find it difficult to make connections with the their foreign business community here. Only a couple of local producers can supply packages for Samsung, whereas the South Korean group has to import more than US$20 billion per year for manufacturing. Truong Dinh Tuyen, an ex-trade minister, cited statistics showing that FIEs account for nearly 68% of the national exports, and 70% of industrial production of the country. “This suggests domestic firms are increasingly on the wane. I’m extremely worried that our businesses are facing more and more difficulties,” Tuyen voiced his concern.
On the other hand, the delegation of the licensing authority in FDI projects to local governments from 2006 has shown adverse effects. That was how Nguyen Mai, an FDI expert, viewed the US$27-billion refinery project in Binh Dinh. This project has boosted the combined capacity of all refinery projects licensed in Vietnam to 42 million tons of oil, whilst the country each year can exploit only 15 million tons of crude oil. To put it differently, a great amount of crude oil will be imported into Vietnam for processing.
Mai said he had fiercely opposed such project in Binh Dinh for three reasons. First, Vietnam does not need to become a center of oil refinery as this activity is harmful to the environment. Second, it is a must to understand why Thai investors are willing to spend US$27 billion here, instead of in their country. Third, what the country gain from oil refinery apart from corporate income tax and personal income tax is almost nothing since crude oil is not taxable.
“They (the government of Binh Dinh) asked what I thought. I was totally against it. But they were blinded by the huge figure of US$27 billion,” Mai said. Oil refinery is just one small example, in addition to a series of steel projects which are consuming much energy and polluting the environment. “Our choice is too bad, which comes as a consequence of decentralization in 2006,” he added.
At the macro level, economist Bui Trinh cited statistics of the General Statistics Office which said FIEs account for a mere 18% of added value over the past 10 years, though their share in exports rises 20% every year. “What dose that mean? Are the statistics inaccurate or is the contribution of FIEs in fact really that small?”
(By Tu Giang)