Home / Economy

FDI Projects Contribute to Shifting Economic Structure Towards Industrialization and Modernization


Table 1.1: Contribution of FDI projects to Vietnam's economic development



Target

Period 1991-1995

Period 91-95

Period 1996-2000


2001


2002


2003


2004


2005

91

93

94

95

96

97

98

99

2000

FDI share in GDP (%)


3.6

6.1

6.3

6.3

7.4

9.1

9.8

11.8

13.3

13.7

13.7

14.5

15.2

15.5

National industrial growth rate (%)






14.2

13.8

12.1

11.6

17.5

14.6

14.5

16.0

16.0

16.0

Industrial growth rate

FDI sector (%)






21.7

23.2

23.3

21.0

21.8

12.6

14.5

18.3

18.3

18.4

Maybe you are interested!

FDI Projects Contribute to Shifting Economic Structure Towards Industrialization and Modernization

Source: http:/www.vneconomy.com.vn

Table 1.2: Budget revenue from direct investment sector

Unit: million USD


Target

Period 1991-1995

Period 1996-2000


2001


2002


2003


2004


2005


2006

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Submit budget




128

195

263

315

317

271

324

373

459

628

916

1,130

1,250


Source: General Statistics Office - 2006


Table 1.3: Export situation of foreign investment sector

Unit: Million USD



Target


Period 91-95

Period 1996-2000


2001


2002


2003


2004


2005


2006

1996

1997

1998

1999

2000

5

year

Revenue

4,106

2,800

4,050

4,628

6,150

9,470

27,098

10,492

12,668

15,240

18,000

22,000

25,000

Import and export turnover


3,612

2,962

4,680

4,651

5,972

7,658

25,923

8,657

11,306

15,053

19,786

23,400

27,000

Export

1,230

920

1,790

1,983

2,590

3,308

10,591

3,673

4,602

6,340

8,816

10,300

12,000

Import

2,382

2,042

2,890

2,668

3,382

4,350

15,332

4,984

6,704

8,713

10,970

13,100

15,000

Source: http://www.vneconomy.com.vn Exports excluding crude oil .

From 1991 to 1996, the lowest year of tax revenue from the foreign investment sector accounted for 16% of total revenue, while the highest year accounted for 21.2%.

In addition, with the export activities of FDI investment projects, it contributes to improving Vietnam's trade balance and international payment balance: excluding oil and gas, the export turnover of the foreign investment sector in the period 1991 - 1995 reached over 1.2 billion USD; in the period 1996 - 2000 reached over 10.5 billion USD; in 2001 reached 3.67 billion USD; in 2002: 4.5 billion USD (see table 1.3). Many important export items are implemented by FDI projects: 100% crude oil export; 25% garment products; 84% electronics, computers and


components. The proportion of export value compared to revenue of FDI projects increased rapidly from 30% in the period 1991-1995, to 48% in the period 1996-2000 and reached 50% in 2002.

over 50% in 2003.


1.2.2.3. FDI projects contribute to shifting the economic structure towards industrialization and modernization.

In the years 1988 - 1995, foreign investment was mainly carried out in real estate businesses: hotel construction, resorts, export processing zones, offices for rent... then in the period 1996 - 2003, FDI investment was more carried out in industrial production and service sectors: accounting for 53% of registered capital and 73% of implemented capital, investment projects in telecommunications and technical services increased 1.4 times in this period (Source: http://www.mpi.gov.vn).Currently, foreign investment accounts for nearly 35% of Vietnam's industrial output with an annual growth rate of over 20%.

Foreign investment plays an important role in the completion of EPZs and industrial parks in Vietnam.


1.2.2.4. FDI projects make important contributions to improving the level of

technical and technological level of the host country


One of the greatest benefits that the host country gains is the benefit from technology transfer. Technology transfer includes scientific and technical advances and management skills. The transferred technologies can be advanced technologies but can also be old and outdated technologies in developed countries. Management skills are one of the most important assets that each large company transfers to joint venture companies. The transfer of management depends on the scale of the investment project.

The benefits to host countries from research and development activities are even greater than the movement of capital.

Through FDI investment projects, many new and modern technologies have been put into use in Vietnam in the fields of oil and gas exploration and exploitation, post and telecommunications, electronic microchip manufacturing, computer manufacturing, chemicals, automobile manufacturing, software design, etc. These projects have made significant contributions.


to increase the competitiveness of Vietnamese technology in the context of international economic integration.

In addition, the use of advanced and modern technology in FDI projects also stimulates domestic enterprises to invest in technological innovation to create products that can compete with products of foreign-invested enterprises in the domestic and export markets.

Modern management models and business methods of foreign-invested enterprises encourage Vietnamese enterprises to innovate their business management and technology thinking to increase competitiveness.


1.2.2.5. FDI projects contribute to promoting the development of market economy and quickly integrating the economy of the investment recipient country with the world.

Investment projects of multinational corporations also create opportunities for the industry of the recipient country to penetrate the international market, which is very difficult for developing countries. It can also promote the development of a specific industry or the development of a geographical area. Along with the investment project is the participation of a series of multinational corporations in the domestic market, which

That makes competition in the market more fierce. This can make domestic companies face difficulties, even bankruptcy. However, this competition also makes domestic companies try to take advantage of their advantages to rise up.

By the end of 2003, there were 74 countries and territories with investment projects in Vietnam, including over 80 of the world's leading transnational companies. These projects had a significant impact on changing Vietnam's economic management policy mechanism towards international integration. They impacted the removal of international blockade and embargo against Vietnam, joining ASEAN, and signing over 100 bilateral and multilateral agreements, including the Vietnam-US Trade Agreement.

In addition, over 50% of the product value of foreign investment projects is exported to the world market, contributing to improving Vietnam's product market share and reputation in the international market.


1.2.2.6. FDI contributes to solving employment, training human resources and improving living standards for workers.

Foreign direct investment through FDI projects is also one of the directions to create jobs for workers. Project activities, in addition to directly creating jobs for workers in joint ventures, also indirectly create job opportunities for other workers in society. Joint ventures often pay workers higher wages than the domestic wage level, which also contributes to raising the wage level of the domestic labor market.

The number of employees working in foreign-invested enterprises is increasing. A significant number of business managers and workers

Workers trained domestically and abroad contribute to increasing labor quality; this is an important factor contributing to enhancing the competitiveness of Vietnam's investment environment.

In addition, FDI projects through wages bring income to workers.

dynamic, contributing to improving life. According to statistics of the Ministry of Planning and Investment in 2003: The average salary of Vietnamese workers in foreign investment projects is 76-80 USD/month; of engineers 220-250 USD/month; of managers about 490-510 USD/month. The total income of workers in FDI projects is over 500 million USD annually, this is a factor contributing to increasing purchasing power for the social market.

Table 1.4: Number of jobs created by the FDI sector.

Unit: 1000 people



Target


1995

Period 1996-2000


2001


2002


2003


2004


2005


2006

1996

1997

1998

1999

2000

Job creation

200

220

250

270

296

379

450

590

686

759

860

950

Source: Ministry of Planning and Investment

In addition to the number of direct workers from FDI projects, the number of indirect workers is also very large. According to statistics, depending on the field, the number of indirect workers created from FDI activities is 9.2 times the number of direct workers .

Besides the positive effects of direct investment, we also need to mention

to its negative effects. Technology transfer places recipient countries at the mercy of new technology flows. In general, for


Developing countries receive technology at the final stage of development. Therefore, the recipient countries will depend more on the technology of developed countries. Without careful assessment, the recipient country may turn itself into a waste of outdated technology.

The emergence of joint ventures causes a “brain drain” of domestic enterprises due to higher salary levels in joint ventures.

Foreign direct investment attracts a large amount of capital from abroad, but it also requires a large amount of domestic counterpart capital. In addition, it also creates a large and long-term capital outflow from abroad.

Expectations regarding management and technological skills of workers in the host country are not always met, as foreign investors focus more on using cheap local labor than on training to improve skills.

workers and technology transfer.

The operation of joint ventures with foreign countries can cause changes

changes in the lifestyle, consumption preferences... of local people. The business and cultural activities of joint ventures are sometimes not suitable with the culture and customs of the host country. Not to mention that direct investment can be used as a tool to interfere in the political, economic and diplomatic activities of the host country...


1.2.3. Benefits of foreign direct investment for foreign investors


The transfer of capital to invest in foreign markets is to implement a business development strategy on an international scale. Investors often achieve the following benefits:

Firstly, through foreign direct investment in the host country, investors can dominate the consumer market and main raw materials of the host country.

Second: Foreign investors have the ability to control the operations of the joint venture and make decisions that benefit them. Therefore, capital

Investments are safer and used more efficiently.


Third: Foreign investors will have more opportunities to exploit cheap labor resources in the host country, helping them reduce costs and improve labor productivity.

Fourth: By establishing joint ventures within the host countries, foreign investors can avoid trade protection barriers of the host countries.

Foreign direct investment increases the gross domestic product of the host country, from the profits remitted to joint ventures. In many cases

Foreign direct investment is not only a means to stimulate economic development but also a tool to serve the political and social purposes of the country implementing the investment. In addition, foreign direct investment can also turn the country implementing the investment from an exporting country to an importing country for some goods and services. For workers in the host country, joint ventures with foreign countries can be an opportunity for employment, but on the contrary, in the country implementing the investment, it will reduce the employment opportunities of workers. In addition, through the establishment of joint ventures abroad, it can weaken the competitive position of the investing company itself. This is especially true when the country receiving the investment has the ability to quickly absorb and develop new technology.

Foreign investment will create a larger market for the production and consumption of a company's products. Along with the extended product life cycle, the benefits of the investing company will be enhanced and maintained for a long time.

When joint ventures operate abroad, companies will exploit material and labor resources in host countries, this is especially meaningful.

For developing countries with scarce resources and labor, joint ventures abroad are also an effective tool to capture the market.

This is the main reason for the establishment of joint ventures between corporations.

investment group

Another reason for the establishment of joint ventures is that the investing companies will have the opportunity to carry out technology transfer contracts that are beneficial to them. The transfer of university technology lines that have to be replaced will help the parent companies have the conditions to replace them.

change and update advanced technology to meet competitive requirements. In addition, they


also gain significant profits from technology copyright, product branding...

Investing abroad also helps foreign companies implement their diversification strategy (diversifying types of activities and diversifying markets). With a diversification strategy, foreign companies can spread business risks and increase profits. Most companies that are successful in the domestic market try to invest abroad. Conversely, investing abroad will help companies be more successful in the domestic market.

However, foreign investment can still cause disadvantages for the parent company in terms of operation, management, competition and risk diversification. When conducting foreign investment activities, it means having to share ownership with foreign companies, the company will lose the right to decide on business issues, as well as the division of profits earned from shared business activities.

Along with the benefits from technology transfer, the company's technological and management secrets may also be lost. Foreign investment may create opportunities for the company's competitors to improve their competitiveness.

Ultimately, investing abroad means that a company must accept operating abroad.

operating in many different environments in different countries. That can lead to increased risk exposure for the company such as economic, political, financial risks...


1.2.4. Factors affecting the benefits of foreign direct investment


There are three factors that affect the benefits of foreign investment.

First, the impact of FDI on investment quality tends to decline as FDI increases steadily. As new investors continue to enter the domestic market, the productivity gains from the presence of foreign technology will decline. Eventually, as new technology and know-how become widely adopted, the advantages held by foreign investors will become irrelevant, so that in the absence of other investment incentives, the domestic market may lose its attractiveness to new investors.

Second, FDI is a consequence rather than a driver of growth.


The benefits of FDI are similar to the benefits of financial markets due to integration, only consolidating and enhancing the existing benefits of sound economic and financial policies without creating benefits of its own. Integration expands

The benefits of a sound policy foundation are numerous, but cannot be substituted for them.

get this policy system.

Third, the impact of FDI on development varies across economies. In economies with an inadequate policy system, poorly managed and inefficient domestic markets, or a weak financial sector, FDI may be directed to inefficient sectors. In economies with sound policy systems and fully functioning markets, FDI will be directed to efficient sectors with high returns.

International integration and capital circulation create many benefits. The benefits from FDI capital are quite clear and obvious. FDI promotes the transfer of technology, techniques, and know-how, and at the same time creates new export markets. In this aspect, FDI not only contributes to the development of capital in the economy, but also plays an important role in increasing the efficiency of capital. Besides

In addition, FDI in the financial sector also strengthens and develops the domestic financial system, thereby creating a cycle in which increased foreign capital can maximize

maximize benefits and minimize risks associated with capital turnover.


1.2.5. Factors affecting the interests of the investee in attracting and managing foreign direct investment

1.2.5.1. Orientation of foreign direct investment


Receiving foreign investment capital for the host country is an objective necessity for economic development. The problem in this aspect is to make FDI projects operate in accordance with the original principles and purposes.

the host country's head at the beginning of the investment project.

The issue of foreign direct investment orientation is extremely important in ensuring the interests of the host country in foreign direct investment projects.

to both gain the greatest benefit for yourself and minimize damage.

Comment


Agree Privacy Policy *