An auto lighting system production line in a Japanese-invested firm in Vietnam (Photo: VNA) Singapore (VNA) - Vietnam’s robust economic performance over the past three decades hasbeen heavily dependent on exports and foreign direct investment (FDI), withforeign invested companies accounting for 67.8 percent of the country’s totalexport turnover in 2019, according to the Institute of Southeast Asian Studies (ISEAS) of Singapore.
An article by Le Hong Hiep published on September 2 on the development of Vietnam'seconomy says that Vietnam’s impressive foreign trade and FDIperformance over the past 30 years has turned the country into one of the mostopen economies in the world. In 2017, for example, Vietnam’s trade-to-GDP ratiowas 200.4 percent, which was the sixth highest in the world. In Asia, Vietnamwas only behind Hong Kong (375.1 percent)and Singapore (322.4 percent).
Similarly, FDI is also playing an important role in Vietnam’s economicdevelopment. In 2019, the net annual FDI inflow of Vietnam was equivalent to6.3 percent of its GDP, which was the fourth highest in Southeast Asia, afterSingapore (28.3 percent), Cambodia (13.7 percent), and Laos (7.4 percent).
“Vietnam’s opennessto trade and FDI originated from a combination of economic and strategicconsiderations. Vietnam considers international economic integration as a keymeasure to promote socio-economic development and to achieve the CommunistParty of Vietnam’s (CPV) goal of national modernization and industrialization. Inother words, Vietnam considers foreign trade and investment as key tools totransform and upgrade its economy,” said the article.
At the same time, Vietnam also has strategic interests in pursuing open traderegimes, especially FTAs with key economies, and attracting FDI.
Vietnamese strategists believe that by integrating Vietnam deeply into theglobal economy and strengthening economic ties with the major powers, Vietnamcan align its economic interests with its partners.
The article said Vietnam generally benefits from foreign trade and FDI becausethey create jobs and upgrade skills for the workforce, contribute to taxrevenue, and boost workers’ income. Nevertheless, Vietnam’s excessive relianceon exports and FDI has been seen as a potential problem for the country. Whileforeign invested companies accounted for only 20.3 percent of Vietnam’s GDP, theycontributed a whopping 67.8 percent to the country’s total export turnover in2019.
However, Vietnam’s over-reliance on exports and FDI has generatedconcerns among policy makers and experts, it said.
The Vietnamese government also appears to be well aware of the problem andcertain remedial measures have been adopted. This is reflected in a remark byPrime Minister Nguyen Xuan Phuc at a meeting with local entrepreneurs in June2019: “We have to build a self-reliant economy in the context of internationalintegration. Hence, we must have a (strong) team of corporations of different typesof ownership, including native private enterprises”.
Vietnam’s FDI policy has long been favouring foreigninvestors. But recently, in dealing with domestic investors, especially privateenterprises, the government has stressed four key principles: equality, being protected,being incentivized, and being given opportunities.
Another measure isto encourage private enterprises to expand their businesses, especially intothe manufacturing and high-tech sectors, to strengthen Vietnam’s domesticindustrial base. The government’s support for Vingroup, the country’s largestprivate conglomerate, to expand into automobile, electronic and high-techindustries is a case in point. If successful, such “national champions” willnot only boost Vietnam’s GDP growth, but also generate more exports for thecountry. After all, foreign investors may come and go, while local businesseswill always stay, and their success and long-term commitments will be the keyto Vietnam’s self-reliance and long-term economic prosperity.
Finally, Vietnamesebusinesses are also encouraged and assisted to work with foreign firms toparticipate in the global value chain. This is an important measure as itenables Vietnamese firms to grow up and play a bigger role in the economy inthe long run. However, it is also a serious challenge as after more than 30years, the expected spill-over effect from FDI is still limited. Samsung, forexample, sources most of its components for its mobile phone factories fromforeign suppliers. Among suppliers who accounted for 80 percent of SamsungElectronics’ transaction volume and agreed to be disclosed, 28 are based inVietnam but all of them are foreign companies.
To address this issue, the VietnameseMinistry of Industry and Trade is working closely with Samsung to increase thenumber of qualified local suppliers for Samsung. As of 2019, the number oftier-one Vietnamese suppliers for Samsung had increased to 42.
“If all the three above measures are implemented successfully, Vietnam’seconomy will become more resilient and its export-led, FDI-driven growth modelcan be claimed a success,” the article concluded./.
An article by Le Hong Hiep published on September 2 on the development of Vietnam'seconomy says that Vietnam’s impressive foreign trade and FDIperformance over the past 30 years has turned the country into one of the mostopen economies in the world. In 2017, for example, Vietnam’s trade-to-GDP ratiowas 200.4 percent, which was the sixth highest in the world. In Asia, Vietnamwas only behind Hong Kong (375.1 percent)and Singapore (322.4 percent).
Similarly, FDI is also playing an important role in Vietnam’s economicdevelopment. In 2019, the net annual FDI inflow of Vietnam was equivalent to6.3 percent of its GDP, which was the fourth highest in Southeast Asia, afterSingapore (28.3 percent), Cambodia (13.7 percent), and Laos (7.4 percent).
“Vietnam’s opennessto trade and FDI originated from a combination of economic and strategicconsiderations. Vietnam considers international economic integration as a keymeasure to promote socio-economic development and to achieve the CommunistParty of Vietnam’s (CPV) goal of national modernization and industrialization. Inother words, Vietnam considers foreign trade and investment as key tools totransform and upgrade its economy,” said the article.
At the same time, Vietnam also has strategic interests in pursuing open traderegimes, especially FTAs with key economies, and attracting FDI.
Vietnamese strategists believe that by integrating Vietnam deeply into theglobal economy and strengthening economic ties with the major powers, Vietnamcan align its economic interests with its partners.
The article said Vietnam generally benefits from foreign trade and FDI becausethey create jobs and upgrade skills for the workforce, contribute to taxrevenue, and boost workers’ income. Nevertheless, Vietnam’s excessive relianceon exports and FDI has been seen as a potential problem for the country. Whileforeign invested companies accounted for only 20.3 percent of Vietnam’s GDP, theycontributed a whopping 67.8 percent to the country’s total export turnover in2019.
However, Vietnam’s over-reliance on exports and FDI has generatedconcerns among policy makers and experts, it said.
The Vietnamese government also appears to be well aware of the problem andcertain remedial measures have been adopted. This is reflected in a remark byPrime Minister Nguyen Xuan Phuc at a meeting with local entrepreneurs in June2019: “We have to build a self-reliant economy in the context of internationalintegration. Hence, we must have a (strong) team of corporations of different typesof ownership, including native private enterprises”.
Vietnam’s FDI policy has long been favouring foreigninvestors. But recently, in dealing with domestic investors, especially privateenterprises, the government has stressed four key principles: equality, being protected,being incentivized, and being given opportunities.
Another measure isto encourage private enterprises to expand their businesses, especially intothe manufacturing and high-tech sectors, to strengthen Vietnam’s domesticindustrial base. The government’s support for Vingroup, the country’s largestprivate conglomerate, to expand into automobile, electronic and high-techindustries is a case in point. If successful, such “national champions” willnot only boost Vietnam’s GDP growth, but also generate more exports for thecountry. After all, foreign investors may come and go, while local businesseswill always stay, and their success and long-term commitments will be the keyto Vietnam’s self-reliance and long-term economic prosperity.
Finally, Vietnamesebusinesses are also encouraged and assisted to work with foreign firms toparticipate in the global value chain. This is an important measure as itenables Vietnamese firms to grow up and play a bigger role in the economy inthe long run. However, it is also a serious challenge as after more than 30years, the expected spill-over effect from FDI is still limited. Samsung, forexample, sources most of its components for its mobile phone factories fromforeign suppliers. Among suppliers who accounted for 80 percent of SamsungElectronics’ transaction volume and agreed to be disclosed, 28 are based inVietnam but all of them are foreign companies.
To address this issue, the VietnameseMinistry of Industry and Trade is working closely with Samsung to increase thenumber of qualified local suppliers for Samsung. As of 2019, the number oftier-one Vietnamese suppliers for Samsung had increased to 42.
“If all the three above measures are implemented successfully, Vietnam’seconomy will become more resilient and its export-led, FDI-driven growth modelcan be claimed a success,” the article concluded./.
VNA
