FDI colours a dark picture

illustration photo

According to a report from the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA), some $1.1 billion in net foreign direct investment (FDI) flowed into Vietnam in October, raising total net capital since January to October to $9.1 billion. Overall, total net FDI was up 1 per cent from one year earlier.
 
“This is a bright spot in a depressing tale of FDI attraction this year,” said Nguyen Dang Binh, deputy director of the National Economic Issues Department at the MPI. He added the rise of net FDI had been greatly significant in terms of the country’s economic development this year, given the investment capital from the state budget and the domestic private sector was down because of the government’s tightened monetary and fiscal policies. “What we really need is FDI disbursement, and this is still stably flowing into Vietnam at a rate of around $1 billion per month,” said Binh.

But the instability of the global economy and a slowdown in the domestic economy are turning many foreign investors away from investing into Vietnam. Newly committed FDI was down 22 per cent year on year over the past 10 months to $11.27 billion.

The FIA reported 861 new projects and 264 expanded investments  were registered in the country from January to October, representing falls of 19 and 28 per cent respectively. Meanwhile, recent surveys by international organisations like Grant Thornton and the European Chamber of Commerce in Vietnam showed investors were less upbeat about Vietnam’s economic outlook with high inflation being a particular concern.

Several deputies echoed Quang’s view. “Though the restructuring [of SOEs] could affect many interest groups, people, ministries and sectors, the government must improve the economy’s competitiveness [by committing to restructuring the SOEs],” said southern An Giang province’s deputy Mai Thi Anh Tuyet.

According to Vietnam Economics Institute’s statistics, the average incremental capital output ratio (ICOR) of SOEs hit as high as 7.8 during 2001-2007 compared to the country’s average of 5.2. The higher the ICOR, the lower efficiency of operations they boast. For local private enterprises this figure was 3.2 and for the foreign direct investment sector it was 5.2.

“Of course, SOEs, considered the engine of Vietnam’s growth, must invest much and their ICOR should be high accordingly. But such a high ICOR [of 7.8] is unacceptable,” said Vu Tuan Anh, a senior economist at the institute.

Professor Nguyen Quang Thai, general secretary of Vietnam Economic Association, said SOEs were operating inefficiently because they were sheltered by the government’s umbrella.
SOEs currently held 45 per cent of fixed assets and long-term investment capital of all Vietnamese enterprises nationwide and they also received 27 times more capital from the government than local private enterprises, said Thai.

“But their return on equity is just 3.7 per cent, which is low,” he said. Vu Thanh Tu Anh, director of research at the Fulbright Economics Teaching Programme in Ho Chi Minh City, said that from 2006 to 2009, SOEs used 44.6 per cent of the state’s investment capital, but contributed only 19 per cent to gross domestic product (GDP) growth.

Meanwhile, these rates were 27.7 and 54.2 per cent, respectively, for local private enterprises, and 27.8 and 17.4 per cent, respectively, for foreign invested enterprises. Tuyet cited a Ministry of Planning and Investment report showing SOEs received 60 per cent of state credits and 70 per cent of official development assistance capital, but only contributed 37 per cent of GDP annually.
“Meanwhile, some 12 per cent of SOEs suffer from losses. And their average loss is 12 times bigger than that of local private enterprises,” Tuyet said.