Vietnam's New Position on World Investment Map

The FDI sector dominates Vietnam's import and export value. Photo: deepc.vn

After the Foreign Investment Law was passed by the National Assembly in 1987, FDI capital continuously flowed into Vietnam.

Important link

In 1988, Vietnam's economy opened a new chapter thanks to the issuance of the first FDI investment license in Ba Ria-Vung Tau.

From US$2 million in 1988, FDI capital poured into Vietnam reached US$524 billion recorded at the end of 2022. With more than 36,000 active FDI projects, Vietnam has proven its ability to attract and manage foreign investment management.

Abundant FDI capital gives Vietnam a new image on the trade map.

FDI enterprises are not only an important link, but also create leverage for Vietnam to participate deeply in the global value chain. This is shown when the FDI sector always leads Vietnam's exports.

The proportion of the FDI sector in total export turnover has increased rapidly, from 30% in 1997 - when Vietnam joined ASEAN to 65% in the 2011-2015 period, about 71% in the 2016-2020 period (according to Ministry of Planning and Investment).

In addition, statistics from the General Department of Customs show that the total import and export value of FDI enterprises in 2022 reached US$506.83 billion, an increase of 9.3% compared to 2021.

Of which, goods exports of FDI enterprises reached US$273.63 billion, an increase of 11.6% compared to 2021 and accounting for 73.7% of the country's total export value.

On the contrary, the import value of FDI enterprises in 2022 reached US$233.2 billion, an increase of 6.7% compared to 2021, accounting for 65% of the total import value of the country. The trade balance of goods of FDI enterprises in 2022 reached a surplus of US$40.42 billion.

The FDI sector dominates Vietnam's import and export value. This demonstrates the strong development of FDI enterprises in the S-shaped country and the important contribution of these enterprises to the Vietnamese economy.

Enhancing role of FDI sector

However, one of the biggest limitations in this journey is the lack of connection between FDI enterprises and domestic enterprises. Vietnamese businesses have not been able to participate in the ecosystem and value chain of leading chain enterprises and FDI enterprises.

Vietnam mainly participates in the links with the lowest added value in the global value chain, most of which are labor intensive and have low technical requirements. Many domestic enterprises have not met the requirements to become suppliers to FDI enterprises.

Prof. Nguyen Quoc Viet, deputy director of the Institute for Economics and Policy Research (VEPR), School of Economics, Vietnam National University.

In FDI projects, foreign investors form joint ventures with domestic enterprises only accounts for 13%, the rest are all 100% foreign capital.

In the context of Vietnam's economy facing "headwinds" from the world, the issue of linkage between domestic enterprises and FDI enterprises needs to be paid more attention.

In particular, the National Assembly recently passed a resolution on applying additional corporate income tax according to regulations to prevent global tax base erosion.

There will be more than 100 FDI enterprises operating in Vietnam subject to this tax impact. The issue of institutional change will change the investment "taste" and investment strategies of businesses in Vietnam. Therefore, preferential FDI policies are needed in the new context.

To attract and promote links between Vietnamese enterprises and FDI enterprises, attention should be paid to improving competitiveness and labor productivity for domestic enterprises.

Creating connections between regions is becoming an important measure to promote the development of industrial clusters, opening up new opportunities for Vietnam's economic development.

Vietnam needs to promote the transfer of advanced technology and focus on perfecting support policies to promote export growth, associated with production and supply connections between domestic enterprises and foreign enterprises.

With new solutions and policies, Vietnam will have more opportunities to promote new growth sources from innovation factors, building a self-reliant economy in the context of value chain linkages.

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