Fdi attraction in vietnam’s southern key economic region

Nội dung text: Fdi attraction in vietnam’s southern key economic region

1. FDI ATTRACTION IN VIETNAM’S SOUTHERN KEY ECONOMIC REGION Nguyen Thi Hien, Dang Thi Hien1 Abstract: The objective of this study is to propose solutions to increase the FDI attraction in the southern key economic region (SKER) in the future. This article uses the method of statistical analysis and comparison to assess the current situation of foreign direct investment (FDI) in the SKER in the period 2010-2018. The research results show the achievements of FDI attraction to the SKER and the problems encountered in practice. Through survey data and analysis of factors affecting regional linkages in FDI attraction, the article uses the exploratory factor analysis (EFA) method to evaluate the FDI attraction in SKER. The results show that there are 4 main factors including technical infrastructure, natural characteristics, preferential policies, and human resources that have a certain impact on the key economic region linkage to attract FDI to the SKER. Keyword: FDI, Vietnam’s Southern, SKER, KER 1. INTRODUCTION Foreign direct investment (FDI) is an important factor of economic development in all countries, especially in developing countries. With the right policy framework, FDI can bring financial stability, promote economic development, and strengthen social prosperity (Organization for Economic Cooperation and Development - OECD, 2008). In Vietnam, in context of economic integration, FDI inflows have increased sharply and have many positive effects on the economy and labor productivity of domestic enterprises. From the reality, a country or territory that attracts a lot of international capital and uses it effectively will have many opportunities in economic growth, overcoming lagging behind compared to developed countries. The SKER includes 8 provinces and centrally run cities: Ho Chi Minh City, Dong Nai, Binh Duong, Binh Phuoc, Tay Ninh, Ba Ria - Vung Tau, Long An and Tien Giang with a total area of ​​30,745 km2, equivalent to 9.92% of the national area as of 2018 (General Statistics Office, 2018). This is an economic area with great potential for development in all fields, possessing high ability to exchange goods with other countries and is one of the leading regions in FDI attraction in Vietnam. The Law on Foreign Investment in Vietnam was first enacted in December 1987, becoming the first legal framework to concretize the directions of the Communist Party of Vietnam and the Government on openness and integration. However, according to Ministry of Planning and Investment, up to 2018, The FDI attraction in localities in Vietnam in general and in the SKER in particular also has many limitations. Through the 1 Hanoi University National Resources and Environment; Email: ndduong@hunre.edu.vn 672
2. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 673 statistics of the authorities, the authors will summarize the current situation of FDI in the provinces of the SKER in the period 2010-2018; thereby proposing effective solutions for the SKER in FDI attraction. 2. LITERATURE REVIEW 2.1. The concept of FDI in key economic regions (KER) According to OECD (2008), foreign direct investment (FDI) is a form of cross-border investment carried out by residents of an economy (direct investors) with the goal of establishing long-term benefits in an enterprise (an FDI enterprise) which is a resident of another economy. In addition, the International Monetary Fund - IMF (2009) defines FDI as a form of cross-border investment in which a resident of an economy has certain control or influence over the management and administration of an enterprise which is resident of another economy. “FDI is an investment with relations, long-term interest and control of a legal entity or natural person (foreign direct investor or parent company) over an enterprise in another economy (FDI enterprise or foreign branch or enterprise branch)” (United Nations Conference on Trade and Development – UNCTAD, 2009). In Vietnam, according to the Law on Investment No. 67/2014 / QH13: “Foreign investment means the action of foreign investors bringing in cash capital and other legal assets to Vietnam to carry out investment activities”. From the definitions of FDI, the authors conclude that: FDI is the movement of capital, technology, or legal assets from the home country to the host country bases on international practices and the laws of the receiving country, in order to reap economic benefits. Therefore, from the concepts of KER and FDI, it can be understood that FDI is the investment activities of foreign organizations and individuals into KER of other countries, meeting the requirements of the planning of socio-economic development of that region, having a positive impact on the socio-economic development of the region to ensure sustainable development. 2.2. The role of FDI in socio-economic development of KER FDI not only plays an important role in economic development but also affects all aspects of social life of the country and locality where investment is put in. First, FDI has made a great contribution to the growth and overall economic restructuring of the country. FDI activities make receiving countries participate more deeply and broadly in international economic relations, creating favorable conditions to resolve disagreements and disputes by negotiation. On the other hand, the emergence of more and more FDI enterprises coming from many different countries and territories in the same area will create economic benefits, establishing a peaceful and stable environment (Ministry Planning and Investment, 2018). In the SKER, the mobilization of FDI capital has become the aim for provinces like Ho Chi Minh City, Binh Duong, Ba Ria-Vung Tau, Dong Nai to create the promotion for comprehensive and sustainable development; At the same time, FDI still plays an important role in the local economic restructuring (Anh Tuan, 2018).
3. 674 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI Second, FDI shows its role in promoting exports. According to the statistics of the Foreign Investment Agency (2012) and the Foreign Investment Department (2013), the export of sector with FDI in the provinces of SKER accounts for a large proportion in the general export since 2003 and has become the main factor boosting export turnover until 2010. In addition, FDI also contributes to exports restructuring in the direction of reducing the proportion of mineral products and primary products, gradually increasing the proportion of manufactured goods, creating opportunities for Vietnamese agricultural products to enter the world market. Third, FDI promotes the development of science and technology and acquires advanced management experience. According to the leaders of the SKER, many foreign investment projects have contributed to the technological innovation of the region. Through attracting FDI, host countries have the opportunity to approach modern science and technology and business management know-how that these companies have accumulated over the years at very high expenses. Thanks to the presence and non-stop increase of FDI, modern production lines as well as new scientific and technical achievements of the world will be applied in the host country. Owning to that, the production and business level of the host country will be gradually developed. According to the Ministry of Planning and Investment (2013), a number of industries have well performed technology transfer such as oil and gas, electronics, telecommunications, informatics, automobile, motorcycle and textile. Fourth, investment activities of FDI enterprises contribute to job creation for workers in KER and the host country in general. FDI enterprises directly create jobs through recruiting workers in the host countries. In addition, FDI enterprises also indirectly create jobs through creating favorable conditions for the foundation and development of enterprises which provide goods and services to this economic sector. 2.3. Some factors affecting FDI capital. Inheriting the results of scientific research and the arguments that have previously developed into the theoretical framework of many authors, the article summarizes some comments on factors affecting FDI in KER. First, the improvement of the legal system and policies related to FDI towards the development in KER has an impact on FDI activities and is including: direct policies and regulations on the sector, investment sectors, investment incentives, capital ownership of foreign investors, investment tax exemption and reduction, protection of intellectual property rights, and a number of other economic policies such as: financial and monetary policy, trade policy, land policy, environmental policy, labor policy, Second, the quality of the plan to attract FDI in KER is also very important, it has to be consistent with the requirements of the KER and in accordance with the master plan for socio-economic development, and also with long-term strategic that will affect FDI attraction in each specific period. Third, the capacity to inspect and supervise FDI activities is an indispensable factor in attracting FDI capital in key economic regions. Because inspection and supervision is an important feedback tool for the Government to evaluate the effectiveness as well as the reasonableness of the promulgated policies and regulations related to FDI. In addition, the
4. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 675 inspection and supervision activities also detect problems of foreign investors, with the aim of helping them to remove difficulties while carrying out the project. Finally, the linkage and coordination between ministries, branches and localities and between localities in the KER have a significant impact on FDI attraction. Dealing with inter-regional and interdisciplinary issues in FDI activities is one of the complicated issues that requires coordination to promote well resources; ensure balance, avoid overlap in the structure of FDI investment among provinces and cities in a region. 3. METHODS Research method of regression model uses data to analyze the exploratory factors EFA. Through a review of research documents and expert consultation, the author identifies the criteria that are believed to affect FDI attraction, the variables are explained in the following table: Table 4: Variables of research model Variable symbol Variable name HTKT1 The electricity supply system in region meets the demand HTKT2 The water supply system in region assures the quality HTKT3 Transportation system between localities and neighboring regions HTKT4 Modern and widespread post and telecommunications HTKT5 The region’s banking and service systems well serve the needs of FDI enterprises HTXH1 Planning social infrastructure among localities in the region is appropriate HTXH2 Social infrastructure in the region contains synchronous technical infrastructure HTXH3 Planning housing, schools, hospitals, and play grounds to meet the demand TN1 The location is favorable for the economic development TN2 Resources are plentiful and diverse TN3 The raw material purchasing price in the region is competitive, cheaper than that of other regions NL1 The human resources of the region are highly qualified NL2 Reasonable allocation of labor NL3 High-quality labor force is trained to meet the needs of FDI enterprises NL4 The labor’s wage of the region is cheap UD1 The region has many financial and tax incentives UD2 There are many incentive policies to FDI investors in the region UD3 Many new supporting policies to FDI investors in trade, import and export HT1 Supporting policies in completing FDI enterprises’ profiles HT2 Open environment and mechanism HT3 Quick processing time of administrative procedures HT4 Local officials are not bureaucratic or harassing HT5 Equal and transparent investment HT6 Regional locations help FDI investors promote investment faster The research is conducted by the following 2 steps: Step 1: Qualitative research by developing a conceptual system/scale and observed variables and adjusting observed variables in line with reality.
5. 676 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI Step 2: Quantitative research, using the reliability coefficient Cronbach Alpha to test the degree of rigor that the questions in the scale are correlated with each other; EFA analysis is used to identify the main factors affecting FDI attraction. This is an effective analytical method in finding groups of factors that affect the research objectives, and at the same time determining the importance of each factor in the group of factors. 4. RESULTS 4.1. Fluctuation trend of FDI capital in the SKER Up to 2018, FDI in the SKER has reached VND 190,594 billion, which slightly increased compared to 2017 (Figure 1): Figure 1: FDI in the SKER in the period 2010-2018 Source: General Statistics Office and Statistical Yearbook of provinces In the period of 2010 - 2018, the proportion of FDI in the KER accounted for a relatively stable proportion in the total FDI capital of the whole country (about from 38% to 50%). The data in Table 1 show that in 2018, the proportion of FDI in the SKER has decreased compared to the previous years: Table 1: Statistics of FDI capital of the SKER and the whole country in the period of 2010-2018 Source: General Statistics Office and Statistical Yearbook of provinces
6. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 677 In the period of 2010-2018, in the SKER, the amount of FDI in Ho Chi Minh city was the biggest. As of 2018, TP. Ho Chi Minh City has attracted the amount of FDI capital of 59 trillion VND, twice as much as in 2010. Meanwhile, Binh Phuoc is the region with the lowest amount of FDI in the SKER during the study period. As of 2018, the total FDI invested in Binh Phuoc was only approximately 1.5 trillion VND (Table 2): Table 2: Statistics on the amount of foreign direct investment in SKER by locality in the period 2010-2018 Unit: billion VND Source: Provincial Statistical Yearbook 4.2. The FDI scale in the SKER Table 3: FDI in SKER provinces accumulated up to 2018 Province The number of projects Total registered capital (Billion USD) up to 2018 Ba Ria - Vung Tau 343 27,3 Binh Duong 3.472 31,75 Binh Phuoc 191 1,99 Dong Nai 1.883 33,78 Long An 969 6,10 Tay Ninh 291 6,00 Tien Giang 182 4,00 Ho Chi Minh city 7.500 44,50 Source: Provincial Statistical Yearbook It can be said that for many years, Ho Chi Minh City is always on the list of localities attracting the most FDI in the country thanks to its attractive investment environment as well as the attention and effective support of the city government for foreign investors. According to the statistics in Table 3, TP. Ho Chi Minh City was in the leading position in FDI attraction. As of December 31, 2018, the city has attracted a total of 7,500 projects with a total registered investment capital of more than 44.5 billion USD. The average capital scale is about 5.9 million USD / project. Next is Binh Duong, the whole province has attracted a
7. 678 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI total of 3,472 FDI projects with a total registered investment capital of more than 31.75 billion USD and average capital scale of about 9.1 million USD / project. Binh Duong province ranks second in the SKER after Ho Chi Minh city in FDI attraction. With the strategy of simplifying administrative procedures, specialized inspection procedures, business conditions, fee reduction and regularly operating meeting with enterprises to solve difficulties; FDI capital and investment have increased significantly compared to to 2017 (Binh Duong Provincial People’s Committee, 2018). Meanwhile, Dong Nai province has attracted more than 1,800 projects with a total registered capital of more than 33 billion USD (as of December 31, 2018 according to the statistics in Table 3). Many occupations are created in new FDI projects in Dong Nai province, consistent with the province’s direction to attract capital to industrial parks since 2006 (Ministry of Planning and Investment, 2018). After Dong Nai, Ba Ria-Vung Tau province has also attracted 343 FDI projects with a total registered capital of more than 27 billion USD, average capital scale of 79.6 million USD as of the end of 2018, many times higher than that amount in Ho Chi Minh City and other provinces. According to the leaders of Ba Ria-Vung Tau province, to create pervasiveness in attracting foreign investment projects, the province must implement many measures to select projects with large scale, modern technology and higher value. However, in fact, a number of large projects investing in the province have to face difficulties, as a result they are standing still or are not working effectively (People’s Committee of Ba Ria-Vung Tau Province, 2018). The other provinces in the SKER such as Binh Phuoc, Tay Ninh, Long An, and Tien Giang have low total registered capital although they have a great number of FDI projects, indicating that the project scale is still low. In particular, ​​Tien Giang province has the lowest cumulative number of projects as of Dec 31, 2018, with 182 projects as shown in Table 3. 4.3. Policy And Mechanism and to attract FDI to the SKER According to the statistics of the People’s Committees of provinces in the region and the Ministry of Planning and Investment (2018), some provinces in SKER have applied many policies to attract FDI such as: • Provinces and cities in the region have actively built and implemented master plans such as industrial zones development plans, industrial clusters, tourism, to facilitate investment, project implementation. • Long An province also regularly inspects and urges to speed up site clearance and infrastructure - technology investment to promptly put the industrial park and cluster into operation (Minh Dang, 2019). • In Ho Chi Minh City, a number of High-Tech Park Management Boards were established to regularly work with departments, agencies in the city. The Hi-Tech Park which facilitates the development of technology play an important role as a leverage in attracting FDI, accelerating economic restructuring associated with growth model innovation, improving productivity, quality, efficiency, implementation of national industrialization and modernization, domestic and foreign investment promotion (Ministry of Planning and Investment, 2018).
8. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 679 • Regarding investment promotion activities, Ho Chi Minh City has been focusing on sustainable development, specifically by prioritizing the attraction of projects with modern technology, friendliness with the environment, efficient use of natural resources, minerals and land, facilitating and strengthening linkages with domestic enterprises (Ministry of Planning and Investment, 2018). Ba Ria - Vung Tau province held some meetings between leaders, authorities, enterprises and foreign investors in the area to support foreign investors in the process of implementing the project, aiming to speed up the implementation, disburse registered capital, and improve the quality of foreign investment efficiency (People’s Committee of Ba Ria - Vung Tau Province, 2018). • Other provinces in the region such as Binh Duong, Dong Nai, have publicized regulations related to online foreign investment, thereby providing investors with information about relevant procedures. The principle is to always create all favorable conditions for investors to fully and promptly benefit the State’s current investment incentives and implement equally among enterprises of all sectors. Therefore, it can be said that investment promotion activities of provinces and cities in the SKER focus on long-term, sustainable development (Ministry of Planning and Investment, 2018). 4.4. Results of Model analysis Table 5: Results of evaluating the reliability of the scale after the elimination of variables Reliability Statistics Factor Cronbach’s Alpha N of Items HTKT 0,889 5 HTXH 0,797 3 UD 0,865 3 HT 0,897 6 TN 0,966 3 NL 0,898 4 To study the factors affecting the regional linkage in FDI attraction, the author implemented the EFA model with 24 variables. The 5-level Likert scale is used to evaluate the impact of observed variables from “Totally disagree” to “Totally agree”. After testing Cronbach’s alpha coefficient over 2 rounds to assess the reliability of the scale, 6 groups of factors were found with Cronbach Alpha coefficients in the range from 0.797 to 0.966, proving that the scale is suitable. Therefore, 6 groups of measurement factors will be used in the next factor analysis. Coefficients Unstandardized Coefficients Standardized Coefficients Model t B Std. Error Beta Constant 1.876 .497 3.772 HTKT .264 .117 .163 2.169 HTXH -.051 .082 -.027 -.384 UD 0.85 .088 .060 .852 HT .165 .084 .112 1.481 TN .024 .063 .034 .543 NL .116 .090 .091 1.284
9. 680 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI The results of EFA analysis for the test are guaranteed: (KMO = 0.78> 0.50, satisfying the requirement for EFA. Moreover, according to Kaiser (1974), if KMO> 0.70: YES, which according to this result , KMO = 0.78> 0.7, so the model is good for EFA. At the same time, Bartlett’s test on the correlation of observed variables Sig. = 0.000 76% changes of the FDI dependent variable is explained by 6 independent variables HTKT, HTXH, UD, HT, TN, NL, which shows that the relationship between variables in the model are closely correlated. From the Coefficients table: (i) VIF (Variance Inflation Factor) <10, so there is no multicollinearity. From the results of regression analysis, the author built the following model: FDI = 1.896 + 0.264 * HTKT + -0.051*HTXH + 0.085*TN + 0.165*NL + 0.024*UD + 0.116 *HT The above model explains that 76% of changes of the variable Y is from the independent variables in the model, the remaining 24% of the variation is explained other variables outside the model cannot be studied. Beta value shows that technical infrastructure has a great influence on FDI attraction, with 24%, natural characteristics affecting 7.5% of FDI attraction and preferential policies affecting 3, 4% in FDI attraction, the standardized regression value of human resources affecting 12.5% ​​in FDI attraction. Only HTXH variable had a negative effect of 3.1% on FDI attraction. This shows that local leaders have not paid attention to the development of social infrastructure to attract FDI. 5. CONCLUSIONS AND RECOMMENDATIONS 5.1. Conclusions Although there are many methods to attract FDI, the effect is not satisfied, not ensuring the sustainability in attracting FDI in SKER and promoting the strengths of each province. The analysis of factors affecting FDI attraction is the basis to evaluate the situation of FDI attraction to the SKER; At the same time, it is the basis for selection of appropriate measures to increase the effective FDI SKER. Therefore, it is necessary to pay attention to completing the factors effectively to increase FDI attraction. 5.2. Recommendations Firstly, in terms of infrastructure, priority should be given to budget capital for early completion of unfinished projects. At the same time, it is necessary to select a number of key areas in the country to invest in upgrading infrastructure in a modern and advanced direction to meet the diverse needs of investors. At the same time, it is necessary to have a monitoring mechanism to ensure that the budget capital is used for the right purposes, for the right purposes with the highest efficiency. In addition, in order to strengthen the infrastructure, the state needs to have policies suitable to the form of public-private partnership, specifically: legal mechanisms and policies that both ensure the quality of community services and are open. , transparency to facilitate attracting FDI into these projects.
10. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 681 Second, in order to strengthen investor confidence, Vietnam needs to improve the business environment, including the following: Protect the environment through: handling and closing down production facilities that cause environmental pollution; encouraging the use of environmentally friendly raw materials, fuels, production and manufacturing methods, etc.; propagate environmental protection in production and daily life with accompanying sanctions. Regarding the strengthening of intellectual property protection, the State needs to have a policy to deal with deterrence against cases of intentionally infringing on brands, making counterfeit, imitation goods, and poor quality goods. Reducing implementation time and simplifying administrative procedures by: completing implementation documents that are easy to understand and implement; streamlining the apparatus; clearly define the responsibilities of each stage and each part in handling administrative procedures, especially in the areas related to business licensing, work permits, visa management, customs procedures. tax office. Thirdly, the issuance of preferential policies for FDI capital must be decentralized in the direction of giving priority to large investors with long-term relations with Vietnam; projects with advanced technology, new technology, high technology, clean technology, modern management, high added value, spillover effect, connecting global production and supply chains. Fourth, improve the quality of human resources in the country by: Encouraging research activities, scientific and technological investment in enterprises with specific benefits directly related to the operation of enterprises; strengthen self-training, on-the-job training and integrated training in enterprises, industry sectors and associations; perfecting career guidance for students - students in accordance with their own capacity and forte; adopt policies to attract and call talented people to work in the country; innovate educational programs in the direction of theory coupled with practice. Vietnam’s human resources must be ready to meet the requirements of foreign investors. Fifth, it is necessary to improve the ability to transfer technology by setting standards on technology level for investment projects in Vietnam; require investors to commit to technology transfer; strengthen the form of investment in buying shares or merging and acquiring enterprises; promote linkages between domestic enterprises and FDI enterprises. REFERENCES 1. Charkrabarti, A., 2001. The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross- Country Regressions. Kyklos, 54 (1), pp. 89-114. 2. Le Van Thang and Nguyen Luu Bao Doan (2017), Analysis of factors affecting FDI of Vietnam’s provinces by Spatial econometrics, 28 (7), 4-33 3. Nguyen Thi Ai Lien (2011), Investment environment with activities to attract foreign direct investment into Vietnam; 4. Nguyen Thi Tue Anh et al (2006), “The impact of foreign direct investment on economic growth in Vietnam”, The SIDA Project: Strengthening the capacity of policy research to implement socio- economic development strategy in Vietnam in the period 2001-2010. 5. Nguyen Van Huan: Regional linkage - From theory to practice, Vietnam Economic Institute, H. 2012;