Production of electronic devices in a company in Hung Yen province. (Photo: VNA)“The abundant foreign direct investment (FDI) capital has given Vietnama new image on the global trade map but has not been able to pull the economyup a higher value ladder,” VEPR’s Vice President Nguyen Quoc Viet said at theworkshop themed “Facilitating Vietnam’s integration into the global value chainthrough enhanced FDI linkages”.
Viet cited findings of VEPR’s report that the FDI sector stilldominates Vietnam’s export and import while the added value that domestic firmscontribute, especially in the processing and manufacturing industry, remainsmodest.
Vietnam’s exports mainly focus on labour-intensive industries withlow added value. The country’s imports of inputs also have low added value andweak technology diffusion, the report found.
“There are certain emerging linkages in industry clusters towardsthe global value chain under the leadership of FDI enterprises. However, manyindustries are reaching critical points, which can be seen through the crisisof the garment and footwear exports, making it difficult for Vietnam toparticipate further in the global value chains unless breakthroughs incapacities are made,” Viet stressed.
Viet pointed out barriers which come from problems in themacro-level competitiveness, internal capacity of domestic enterprises as wellas the lack of efficiency and consistency of policies.
Specially, domestic enterprises remain weak in the capacity toembrace innovation, promote research and development, technology applicationand financial capacity, he said, adding that the quality of human resources isalso a problem, besides weakness in governance capacity.
“There are changes in investment appetite with the resettlement ofrules when the global minimum tax policy is adopted,” he said.
The global minimum tax will affect the competitive advantage of Vietnamin attracting FDI in the short term of because of changes in the preferentialtax framework.
“Countries, including Vietnam, will need to cease the race for thelowest taxation and tax-related incentives with other nations in the region,”Viet urged.
“The opportunity to increase the competitive advantage inattracting investment in general, and FDI in particular, lies in enhancingnational competitive capabilities,” he stressed.
“Enhancing competitiveness becomes vital for Vietnam to integrateinto the global value chain in the new globalisation context which raises newrequirements including environmental, social and corporate governance (ESG),just energy transition and green development,” Viet said.
Emphasising the gap between policy and implementation, Viet saidit is critical to carry out a comprehensive review of the legal system toattract investment.
“Vietnam will have to solve the puzzle of balancing nationalinterests and investor interest, amend the Law on Corporate Income Tax and Lawon Investment,” he said, adding that the focus would be on creating atransparent and predictable investment climate.
“Creating connections between regions is becoming a crucialmeasure to stimulate the development of industrial clusters, opening up newopportunities for the economic growth of Vietnam,” he said.
Think outside the box
Catching up with global transition trends and meeting newrequirements become vital for Vietnam, raising the need for transforming thegrowth model to establish new competitive advantages for further integrationinto global value chains.
“Garment, footwear and wood industries are having difficulty asexports have been struggling. Electronics and assembly are predicted to be soonunder pressure, in the very near future,” Viet said.
Preparations should be made, he said, stressing that this couldnot be done by a single enterprise alone but requires a comprehensivetransition of the entire economy.
According to Nguyen Dinh Cung, former Director of the CentralInstitute for Economic Management (CIEM), never has Vietnam been in such adifficult situation as today during the past 40 years of reform anddevelopment.
The difficulties come from the dramatic decline of global demandwith prolonged impacts on production and export coupled with the disruptions ofproperty and bond markets while measures to overcome the difficulties remainvague, Cung said.
Support policies for enterprises should be extended, even to theend of 2025, he said.
“It’s time Vietnam look at our internal capacity to find a way outof the difficulty, not relying on external resources,” he stressed. “Thereshould be a change in thinking and a long-term vision… Vietnam should build acompetitive advantage on the country’s internal strength.”
Cung said that Vietnam should focus on developing industries whichcan make the country an essential part of the world.
Human resources, technology: driving force
Human resources coupled with science and technology are drivingforces for Vietnam in the context that the country is striving to advance itsstanding in the global semiconductor supply chain, said Nguyen Dinh Duc,Chairman of the University of Engineering and Technology.
Vietnam has the advantages for the development of thesemiconductor industry as the world’s largest chip manufacturers are eyeinginvestments here, especially after high-profile visit exchanges between the USand Vietnamese leaders.
Pointing out the advantages from a young labour force and theworld’s second-largest rare earth reserves for chip making, Duc said that theVietnamese Government should develop policies to realise these advantages.
The focus should be on education and training to buildhigh-quality human resources for the semiconductor industry, in which thecoordination between universities and enterprises should be enhanced.
“Technology and talents should be the core if Vietnam does notwant to miss the opportunity to become a part of the multibillion-semiconductorindustry,” he said.
Financial expert Pham Xuan Hoe said that it is necessary todevelop policies to promote the development of domestic enterprises and enhancetheir competitiveness. Especially, the tax policies should be fair betweendomestic and FDI enterprises./.
VNA
