New generation FDI attraction strategy under urgent need
After three decades of attracting foreign direct investment (FDI), it is high time for the government to come up with a new strategy to lure and optimize the capital inflow.
During a recent National Assembly (NA) meeting, NA deputy Truong Trong Nghia of Ho Chi Minh City suggested that the government and the Ministry of Planning and Investment (MPI) should rapidly map out the strategy to help the country catch up with new trends.
Vietnam’s FDI attraction strategy is mainly based on incentives and cheap labor
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However, after three decades, both the world and Vietnam have seen many changes and a new FDI attraction strategy should be launched to help the country seize opportunities from the changes, he said, stressing that Vietnam has ample opportunities to develop faster thanks to FDI inflows in the course of the fourth industrial revolution. The country could keep up with regional economies, even regarding income and labor productivity, if having the effective strategy.
Vietnam’s current FDI attraction strategy is heavily related to land and tax incentives, and cheap labor, which should be adjusted, Nghia said, suggesting that the strategy should pay attention to localities which have common potentials, and could learn from other countries, including neighboring China.
The new FDI strategy must help the country change its economic structure, shifting to a new and effective economic growth model, he said.
In fact, the MPI, with supports from the World Bank (WB), is also mapping out Vietnam’s new-generation FDI attraction strategy for 2018-2030.
WB experts suggested that Vietnam should review the current investment incentive framework and the rebalancing of profit-based incentives with efficiency-based incentives to maximize the spillover effects and added value of the investment source. Accordingly, it is necessary to transfer from the Investment Law to the Tax Law and Customs Law, with the support of an effective monitoring and evaluation system.
Vietnam should shift from attracting appropriate investors for Vietnamese products to develop suitable products (including business environment and appropriate investment conditions) for the kind of investment that Vietnam needs in the future.
Regarding the priority areas for investment, WB experts said that the country has a number of new priority areas such as automobiles, motorbikes and supporting industries, machinery, industrial equipment, logistics, high-value agricultural products, environmental technology, renewable energy and information technology application services. In addition, it is also important to continue the growth of the services sector, for example, financial and education services.
As the country pursues priority fields for FDI in the coming period, it must not forget the basic types of FDI which have already seen success in attracting foreign investment, the experts said.
Currently, Vietnam is heavily dependent on short-term tax exemptions, partial tariff exemptions, preferential tariffs and import tax exemptions to attract FDI. However, these mechanisms are no longer considered innovative and limit the potential for positive spillover effects.
Although Vietnam is attracting investment efficiently from Japan and the Republic of Korea, in the long term, the country must attract more investors from other parts of the world such as Europe and the United States to diversify its FDI capital resources.
According to the WB’s experts, Vietnam should also remove entry-barriers and maximize the impact of incentives in attracting investments. Reforms are also needed to more effectively anchor existing investors and motivate them to expand their activities in Vietnam.
The nation needs to maximize the absorption potential of local companies by strengthening linkages with global value chains.
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