Vietnam is losing its advantages over other regional countries in attracting foreign direct investment (FDI), said a senior state official.

Previous advantages in cheap labor, abundant and cheap natural resources and preferential policies are wearing off over time, Bui Quang Vinh, Minister of Planning and Investment, told a recent TV program aired by the national broadcaster, Vietnam Television (VTV).

“Thailand and Indonesia are two very attractive markets in Asia and opened doors to foreign investors before Vietnam did,” Vinh said on, “The people ask, Ministers reply” TV program on Sunday night.

As a result, there are over 7,000 Japanese firms operating in Thailand, while the number of Japanese companies investing in Vietnam stands at only 1,500, he said. 

Strategic change

Over the last three years, newly registered FDI in Vietnam has not fallen much, but if compared with the 2009 peak, there is a real gap.

However, this is not the whole picture, as in reality, the disbursement of those FDI inflows remained stable. The rate reached around $11 billion annually in the 2005-2013 period, and it reached $5.7 billion in the first half of this year, quite an encouraging sign.

“Currently, we have become wiser so that our policies are focusing on closing the gap between registered and disbursed foreign capitals, a strategic move.”

“Vietnam was fertile ground for foreign investment due to cheap labor, abundant resources and many incentives 20 years ago.”

“Cheap labor is no longer an advantage because Vietnam's economy is growing, per capita incomes are increasing, and so are minimum wages, which scares away many potential FDI firms.”

“As the advantages are disappearing, we have to tighten our grip to choose high-tech projects, those with more added value and fewer environmentally unfriendly factors. As a result, the number of newly registered FDI projects has gone down recently.”

Indispensable part

FDI capital often occupies a quarter of the total social investment of Vietnam, and FDI enterprises are also a major contributing force to increasing exports and reducing the country’s trade deficit.

Over 60 percent of export earnings come from the FDI sector, which creates 2 million jobs directly, a figure which is expected to rise to 3 million in the near future.

“FDI firms also bring to Vietnam new technologies and management models which enable structural changes in the economy towards industrialization and modernization.”

As a result, attracting foreign direct investment is still an important strategy for Vietnam.   The country will continue to offer more investment incentives for the foreseeable future because without incentives, FDI firms will have no motivation to move in.

These preferential policies will need to harmonize the benefits for both those FDI firms and Vietnam’s national interests.

Regarding the fact that a series of FDI projects have had their licenses revoked due to slow progress without paying any compensation to thousands of local families which were displaced to make rooms for them, Vinh said finding proper sanctions to penalize involved firms is difficult.

“We did a study, and found that no country in the world has any of such sanctions but taking back the licenses in case of slow implementation and disbursement.”

“Currently I am researching similar experiences around the world so that Vietnam will have other ways to deal with those circumstances.”

“First, in principle, as long as the appraisal project has an efficient business plan, I will give the green light to a project very quickly so that land will be allocated to the investor.”

“After two years, if the investor completes the infrastructures to an acceptable degree, I will recheck and relicense. Based on the technologies offered by the business, then I will offer more incentives if it can prove itself as a high-tech enterprise.”