For over 25 years, foreign-invested sector has now contributed about 18.3 per cent to Vietnam's GDP growth, accounting for 59 per cent of exports, and creating 2 million direct and indirect jobs. These impressive figures partly confirm FDI impacts on Vietnam’s economic restructuring, competitive enhancement, industrialisation and modernisation.

Promoting economic restructuring

The foreign-invested sector is dynamically developing to play an increasingly important role and make significant contributions to Vietnam’s socioeconomic development. Vietnam now has more than 13,500 valid FDI projects. In the past years, FDI has always served as an important source of additional capital for development investment and economic growth. When accumulation is not enough for investment demand, FDI is indeed an important source of additional capital for development investment. In the 2001 - 2005 period, FDI contributed 16 per cent of total investments of the whole society and this proportion increased to 24.8 per cent in the 2006 - 2011 period.

FDI helps restructure economy and enhance industrial production capacity. The economic structure is strongly shifted to positive directions. The proportion of agriculture in the country’s GDP shrank from 80 per cent in 1988 to 22 per cent in 2011 while industry and service made up 78 per cent. The FDI sector’s industrial growth rate is always higher than the country’s average. In 1996, its industrial growth was 21.7 per cent, compared with the country’s 14.2 per cent. The respective rates were 21.8 per cent and 17.5 per cent in 2000, 21.2 per cent and 17.1 per cent in 2005, and 17.2 per cent and 14.7 per cent in 2010.

In addition, the FDI sector contributed significantly to State budgetary revenues and macroeconomic balances. In the five years from 2006 to 2010, payments of the FDI sector reached US$10.5 billion, up over 20 per cent year on year. In 2011, this sector paid US$3.5 billion to the State Budget, excluding crude oil. Especially, the sector has a lot of important contributions and accounts a growing proportion of Vietnam’s export turnover. It made up only 27 per cent of the nation’s total exports (including crude oil) in 1995 but the rate was 59 per cent in 2011.

More importantly, FDI has brought a new business investment method, which has a ripple effect on other economic sectors and stimulates domestic investment resources. Through the cooperation between FDI and domestic enterprises, technology, governance, and business skills have been transferred from FDI companies to domestic partners. On the other hand, FDI enterprises also motivate competition and capacity building of domestic firms to adapt in the context of globalisation. In addition, FDI has expanded the scale in the country, promoted the formation and development of many new industries, services and products. At the same time, FDI plays an important role in introducing and exporting Vietnamese-originated products to international markets; increasing the competitiveness of Vietnamese products; accelerating trade opening; and steadying trade balance of the country.

In need of specific strategies

Over the past 25 years, despite ups and downs in certain times, the FDI sector frankly has significant contributions to Vietnam’s GDP growth. However, Vietnam's economy is facing requirements for enormous change. Unlike the previous time, Vietnam is now a middle-income country with a significant rise in capital absorption capacity. Vietnam also joined the group of low average-income countries, with income per capita at US$1,375. Along with that, the private business sector had up to 600,000 enterprises in 2011.

This fact requires Vietnam to work out a new long-term strategy for FDI attraction, use and management, based on the socioeconomic development from 2011 to 2020. The ultimate goal is to optimise this capital source. This is an inevitable demand because new development trends and characteristics of the Vietnamese economy require basic changes in tasks, responsibilities and positions of FDI capital flows and of Vietnamese enterprises on its economic map.

However, but, how to change FDI flow directions and where to place FDI in the overall investment picture of Vietnam in the coming period and others require thorough studies and specific planning, especially in building policies to select and receive this important capital flow and ensure compliance with market signals and economic goals.

Source: http://vccinews.com