IMPACTS OF FDI ON ECONOMIC DEVELOPMENT OF VIETNAM IN THE PERIOD 2010 – 2019 TÁC ĐỘNG CỦA FDI TỚI PHÁT TRIỂN KINH TẾ VIỆT NAM TRONG GIAI ĐOẠN 2010 – 2019 MA Nguyen Thi Phuong Linh University of Economi[.]
INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 IMPACTS OF FDI ON ECONOMIC DEVELOPMENT OF VIETNAM IN THE PERIOD 2010 – 2019 TÁC ĐỘNG CỦA FDI TỚI PHÁT TRIỂN KINH TẾ VIỆT NAM TRONG GIAI ĐOẠN 2010 – 2019 MA Nguyen Thi Phuong Linh University of Economics & Business, VNU phuonglinhnt@vnu.edu.vn Abtract Foreign direct investment (FDI) is an important source of capital for economic growth of a country, especially developing countries Following this trend, during 30 years of attracting foreign direct investment, Vietnam has been greatly influenced by FDI inflows Although FDI offers many positive effects on economic growth, social investment, trade balance, labor market and technology, it also poses certain challenges to the country’s economy The following article used secondary data from official sources to analyze the impacts of foreign direct investment inflows on Vietnam’s economic development in the period of 2010 – 2019 On that basis, the article proposes a number of strategic policies to improve the use of FDI capital in Vietnam Keywords: FDI, economic development, Vietnam Tóm tắt: Đầu tư trực tiếp nước (FDI) nguồn vốn quan trọng cho tăng trưởng kinh tế quốc gia, đặc biệt quốc gia phát triển Việt Nam Trong 30 năm thu hút đầu tư trực tiếp nước ngồi, Việt Nam có ảnh hưởng khơng nhỏ dịng vốn FDI Bên cạnh tác động tích cực tới tăng trưởng kinh tế, vốn đầu tư xã hội, cán cân thương mại, thị trường lao động công nghệ Việt Nam, FDI đặt thách thức định cho sách nước nhà Bài viết sau sử dụng liệu thứ cấp từ nguồn thống nhằm tổng hợp phân tích tác động dịng vốn FDI tới phát triển kinh tế Việt Nam giai đoạn 2010 – 2019 Trên sở đó, đề xuất số sách chiến lược nhằm nâng cao hiệu sử dụng vốn FDI Việt Nam Từ khóa: FDI, phát triển kinh tế, Việt Nam Introduction Since 1987, for the first time, Vietnam enacted the Law on Foreign Investment which has become the basic legal framework for the management of foreign direct investment activities For more than 30 years of attracting foreign direct investment, FDI inflows have been showing their active role in the development of Vietnam’s economy FDI is an important source of capital in promoting economic restructuring, enhancing production capacity, innovating technology, making a breakthrough in international markets, increasing export turnover, improving balance of payments and contribute to increasing the state budget, developing high-quality human resources and creating more jobs for Vietnam 361 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Besides the benefits that FDI brings to the Vietnamese economy, there are still certain limitations of this investment capital Some typical issues can be mentioned as the still very high import of raw materials for production in the FDI sector; technology transfer and improving the quality of human resources for Vietnamese enterprises are still limited; FDI activities mainly in manufacturing industries, but there is very little investment in Vietnam’s strong industry (agriculture, forestry, and fishery); unbalanced investment among regions in Vietnam, With the above situation, the article “Impacts of FDI on economic development of Vietnam in the period 2010 - 2019” is necessary for research The structure of the article is arranged as follows: In the Methodology section, the author will summarize the data collection method and access sources; In the next section, Resutl and Discussion, the author will focus on analyzing the current situation of FDI in Vietnam and its impact on the economic development of the country; Finally, in the conclusion, the author will propose some solutions to overcome challenges and improve the investment environment Methodology In orhter to learn about the impact of FDI on Vietnam’s economic development in the period 2010 - 2019, the author used a research method to evaluate and synthesize scientific literature databases, journal articles, conference papers, books and other documentation, as the source of the utilized secondary data Furthermore, authors collected data from reliable sources such as State Bank, General Statistics Office, Ministry of Planning and Investment, Foreign Investment Department,…, over the 2010 - 2019 timeframe period The objective of this paper consisted in: (1) Evaluate the performance of FDI in Vietnam in the period 2010 - 2019; (2) Study the impact of FDI on Vietnam’s economic development in the period 2010 - 2019; (3) overcome challenges and improve the investment environment Result and discusion 3.1 Development of FDI inflows into Vietnam in the period of 2010 – 2019 During the period from 2010 to 2019, FDI inflows in Vietnam had grew steadily with the total number of accumulated FDI projects operating nationwide to December 30, 2019 is 31,428 projects, more than double the total cumulative FDI projects of 2010 which is 13,446 projects Average growth next year compared to the previous year of this period is about 15%, reflecting the long-term and sustainable contribution of FDI to the domestic economy in this period It is noticeable that the disbursement of FDI in recent years has reached a peak during the 30 years of attracting foreign direct investment in Vietnam Specifically, in 2019, FDI disbursement reached 20.4 billion USD, an increase of about 85% compared to 2010, an average annual increase of about 6% showing the safety and long-term of FDI to economic growth of Vietnam In addition, this also shows the Vietnamese government’s efforts in policies to attract foreign investment effectively 362 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 figure 1.1: FDI Inflows into Vietnam in the period 2010-219 Source: State Bank, General Statistics Office, Ministry of Planning and Investment The main FDI partners of Vietnam in the period 2010 - 2019 are still countries with long-term diplomatic relations such as Japan, Korea, Singapore, Hong Kong and China In which, the locality that attracts the most FDI is still the delta with favorable geographical location, modern transportation, crowded population and high human resource level such as the Southeast, and Red River Delta The imbalanced investment among regions can cause many consequences in Vietnam’s social development such as income disparity, disparity in quality of life among regions in the country Source: GSO Figure 1.2: Foreign direct investment is licensed by major investment partners (Accumulation of valid projects as of December 31, 2019 363 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 1.1: Foreign direct investment is licensed by locality (Accumulation of projects still valid until December 31, 2019) Region Red River Delta North Central and South Central Coast Central Highlands Number of projects Registed FDI (Million USD) Ranking 1.970,0 58.823,9 10.315,0 147,0 105.758,9 932,2 Southeast 15.707,0 153.782,3 Oil and gas 50,0 2.768,7 Mekong River Delta 1.707,0 23.065,4 Source: Ministry of Planning and Investment Vietnam’s most FDI investment sectors are manufacturing and processing industry and service, while agriculture, forestry and fishery – strengths of Vietnam has not received adequate attention, causing an imbalance in the investment sector of foreign businesses The reason may be that the agro-forestry-fishery sectors are often less profitable but contain many risks Source: GSO Figure 1.3: Foreign direct investment is licensed by economic sector (Accumulation of valid projects as of December 31, 2019) 3.2 The impact of FDI on the economic development of Vietnam 3.2.1 The impact of FDI on the economi growth of Vietnam In the period 2010-2019, the contribution of the FDI sector to Vietnam’s GDP increased over the years, on average of 6.8% per year Specially in 2012, the proportion of the FDI sector contributed to Vietnam’s GDP increased sharply by nearly 45% compared to 2011 The reason is because after the financial crisis period 2008 - 2009, Vietnam had a rebound Stable in the political 364 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 and economic situation have made Vietnam as an attractive destination for foreign investors This demonstrates that foreign direct investment sector play particularly important role in the economic growth of the country Figure 2.1: Contribution of the FDI sector to GDP by economic sector in the period 2010 - 2018 Source: GSO 3.2.2 The impact of FDI on total social investment capital Source: GSO, Foreign Investment Department Figure 2.2: Contribution of the FDI sector to total social investment capital in the period 2010 - 2019 365 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 The value of the FDI sector’s contribution to Vietnam’s total social investment capital has increased over the period, from 214,505 billion VND in 2010 to 469,441 billion VND in 2019, more than doubling In recent years, FDI inflows not only contribute to the total capital, but also play an important role in promoting the growth of the State economic sector and the non-State economic sector, orienting development for the whole industry and enhancing the country’s economic growth 3.2.3 Impact of FDI on import and export The FDI sector has made a significant contribution to Vietnam’s export Specifically, export turnover has increased steadily from 39,152.4 million USD, occupied 52.2% of the total export turnover of Vietnam in 2010, up to 173,963.7 million USD, contributing 71 , 4% of the total export turnover in 2018 However, the FDI sector also imports significantly, accounting for about 50% of the total import turnover of the country on average in the whole period This can be explained because foreign-invested enterprises often have to import machinery and equipment from other countries to serve domestic production The main reason is that domestic enterprises cannot afford to supply foreign production lines Therefore, despite contributing a large proportion in export turnover, FDI sector has not really created value-added for the economy as expected Figure 2.3: Import-export turnover and contribution proportion of the FDI sector in the period 2010 - 2018 3.2.4 The impacts of FDI on workforce Source: GSO In recent years, the FDI sector has created many job opportunities for Vietnamese workers Specifically, the number of employees working in FDI enterprises increased from 1,727 employees in 2010, accounting for 3.5% of the total number of employees in the country, to 4,538 em366 INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 ployees, accounting for 8.4% in 2018 Currently, FDI enterprises still take advantage of the abundant labor force in Vietnam to serve mainly for labor-intensive stages such as outsourcing and assembly Even leading technology companies such as Sumsung, Apple or Cannon still mainly produce input components in Vietnam, but produce finished products in other countries, which bring low added value-added to the country Because of that, FDI still focuses on exploiting the mass labor and has not focused on improving the professional qualifications of domestic workers This can significantly affect the Vietnamese labor market Source: GSO Figure 2.4: Number and proportion of employees of the FDI sector compare to the total number of employees nationwide Source: GSO Figure 2.5: Labor productivity of all economic sectors (In comparision with 2010) 367 ... over the 2010 - 2019 timeframe period The objective of this paper consisted in: (1) Evaluate the performance of FDI in Vietnam in the period 2010 - 2019; (2) Study the impact of FDI on Vietnam’s... December 31, 2019) 3.2 The impact of FDI on the economic development of Vietnam 3.2.1 The impact of FDI on the economi growth of Vietnam In the period 2010- 2019, the contribution of the FDI sector... 1.1: FDI Inflows into Vietnam in the period 2010- 219 Source: State Bank, General Statistics Office, Ministry of Planning and Investment The main FDI partners of Vietnam in the period 2010 - 2019