Special edition

While Vietnam is targeting  sustainable development, it also needs to change its foreign direct investment (FDI) policy. Vice Minister of Planning and Investment Dang Huy Dong talks about the change.

Dang Huy Dong

Although Vietnam has been considered an attractive place for investment, it is said that the quality of FDI remains poor and is threatening the country’s sustainable development. Could you explain the country’s policy for FDI attraction to ensure sustainable development?

In recent years we have seen several environment pollution cases at foreign-invested enterprises and some investors are delaying implementing commitments, which wastes land. But it is not fair to say FDI is polluting the local environment. Saying so means we are negating all achievements of FDI enterprises in contributing to the economy over the past 20 years. We have had a reasonable FDI attraction policy during the last 20 years. However, this is time for us to change the policy to ensure sustainable development.

In the past, we had advantages of an abundant and low-cost workforce, favourable geographical position and abundant land for industry. But the advantages of abundant workforce and land are not unlimited. Thus, it is not sustainable if we continue calling for labour-intensive projects and ones requiring large areas of land. In the future, our orientation is to attract FDI projects selectively. The question is how to select? Our selection is based on advanced and environmentally-friendly technology. We will also prioritise less energy and labour intensive projects.

That is a policy to ensure our sustainable development. In addition, we will encourage foreign investors to establish industrial clusters incorporated with supporting services. The industrial clusters will improve added value of the industrial sector and bolster the supporting industry. Industrial clusters also contribute to reducing the trade deficit because we will reduce importing materials and equipment for domestic production. Furthermore, when enterprises operating in a common field gather in an industrial cluster, they will reduce logistics costs and improve their competitiveness in the global market, especially when Vietnam is joining a global supply chain.

So how does Vietnam ensure it is on the right track to lure FDI?

I think we have to change the investment legal framework. The current legal framework is appropriate to the past, but not at present and in the future. Currently we are giving poor quality investors the same incentives as quality investors. After we implement a decentralisation policy, many provincial authorities consider FDI attraction as economic and political achievements. I think, the political achievement is underlined. Therefore, some investors, who do not have enough ability, had chances to bring projects here. In the near future, we are considering adjusting some policies and legal frameworks for FDI attraction to ensure higher quality FDI inflows. In fact, we have already applied special incentive policies to investors who can bring benefit to Vietnam and meet our expectations.

Many international organisations and foreign investors have said Vietnam’s most attractive aspects are the expansion of the local market and an abundant low-cost workforce. Do you think intensive labour projects which have outdated production technologies will continue flocking to Vietnam, especially in the context that labour costs in China are rising?

We are witnessing a big change in global FDI flows as China steps into a higher ladder of production. China has started selecting and excluding labour intensive projects and outdated technologies by raising the minimum salary of workers.

That means a series of investors will have to find other places to relocate their labour intensive factories. Many of them are eyeing Vietnam. This is an opportunity, but also a challenge for our country. We can take this chance to lure more FDI projects, but we cannot attract everything without selection. Labour intensive projects usually offer low technologies and will not be welcomed here. In fact, we have been seeing an improvement in FDI quality in recent years. Investors are investing more and more in hi-tech electronic, software and clean energy projects. That proves foreign investors are considering Vietnam as a more important part of the global supply chain. Even though Vietnam still lacks a skilled workforce, the appearance of hi-tech projects shows that investors appreciate improving quality workforce here. Transnational firms like Intel, General Electrics, Samsung Electrics, and the newcomer First Solar have already invested into Vietnam. The investments not only focus on local market but also serve rising global demand. Given the investments of those transnational firms, we think we are on the right track. In the next few years, we will continue luring investment from transnational firms that will bring hi-tech production, less energy intensive and environmentally-friendly projects.

Some transnational firms like HP, Samsung Electronics, Robert Bosch and Nokia have been in the process of setting up research and development centres (R&D) in Vietnam. How will the movements influence Vietnam’s sustainable development?

This is a really good sign for Vietnam. The establishment of those R&D centres will push R&D operations in Vietnam.

Those will be a driving force for improving quality of human resource and also setting up an orientation for education and training system in the country. Although the number of R&D centres in the country remains small, they are the first step to attract more R&D operations from other firms.

Based on that, we can develop new technology and products right here instead of outsourcing.