Foster the role of fdi enterprises towards socioeconomic development in phutho province

Nội dung text: Foster the role of fdi enterprises towards socioeconomic development in phutho province

1. FOSTER THE ROLE OF FDI ENTERPRISES TOWARDS SOCIO- ECONOMIC DEVELOPMENT IN PHUTHO PROVINCE Dr. Pham Thi Nga Thai Nguyen University of Economics & Business Administration Email: Phamngaktct@gmail.com MA. Nguyen Van Thinh Thai Nguyen University of Economics & Business Administration Email: Thinhnv2010@gmail.com) Dr. Pham Thi Thu Huong Hung Vuong University Email: Huongdhhv84@gmail.com Abstract In recent years, FDI calling has been ubiquitous and no longer strange in development strategies of every nation as well as locality. However, there has been heated concern about the practice of how to attract and utilize this genre of capital to achieve the highest level of effectiveness without too much dependence and negative side effects related to it including environmental pollution, technological rubbish or political binding. Also, the question how to improve the performance of FDI enterprises to maximize the capital has seized tremendous concern and interest. This paper focuses on analyzing the current situation of FDI enterprises in the province of Phu Tho in recent years; accordingly, fundamental solutions will be recommended in order to enhance the productivity of those enterprises. Keywords: FDI enterprises, capital, productivity 1. Rationale Reckoned as an agricultural province with poor infrastruction, Phu Tho desperately needs a remarkable capital to meet the provincial demand of eco-socio development, industrialization, modernization and competitiveness. Highly aware of this situation, Phu Tho has invested great efforts in encouraging all possible resources to address current difficulties along with exploiting available potentials. One of the marked strategies of this province falls for the “click” from outside through completing the macro institution, policies and a series of favorable tools to attract and support investors. Thanks to the aforementioned endeavour, FDI inflow of Phu Tho, which plays a crucial part in socio-economic development of the province, has witnessed continual growth. 469
2. However, it cannot be denied that the number of potential investors who have come to investigate the investment climate and conducted actual projects in Phu Tho is still modest, far below this province’s potentials. In addition, there have not been several strong financiers who hold strong positions in terms of both capital and technology. On the other hand, the constructive role of FDI enterprises towards the province’s socio-economic development has drammatic constrains, compared to those fovours received from the local authority. 2. The nature and Role of FDI enterprises towards eco-socio development * Key Definitions: - Foreign Direct Investment (FDI): There exists a variety of definitions for FDI, each of which concentrates on certain aspect of this type of capital. In general, FDI could be defined as: a type of mobilizing international capital, where the owner also acts the direct manager and decides how to use this finance. The appearance and development of FDI is the inevitable result of the internationalization and international labor specialization. - FDI Enterprises: There are different concepts of FDI enterprises, the most widely known of which states that: they are legal entities newly established in the country of investees; parties hold different nationalities and the foreign partners have an acceptably low contribution of capital in order to be directly involved in the management of the enterprise. This concept emphasizes the role of foreign founders in FDI enterprises. The 1996 Foreign Investment Act did not mention any definitions of FDI enterprises, which only recognized enterprises with foreign investment including joint and wholely foreign-owned ventures. In terms of legal aspect, the aforementioned enterprises operate in the same way as limited companies. In Vietnam, FDI enterprises are often understood as a form of financing where foreign investors use partial or entire capital to found a new entity following strictly the foreign investment law at the local country of Vietnam to achieve the commonly set objectives of all stakeholders. According to Article 3 term 18 of 2014 Investment Act “Economic units with foreign investment are those with foreign investors performing as either stockholders or staff members”. Therefore, “Companies with foreign direct investment (FDI) represent a form of economic organizations where one or more parties hold different nationalities who together contribute their capital and manage the operation of the organization for 470
3. profitability target and in line with the legal regulations of the home country as well as international rules”. * Role of FDI enterprises towards eco-socio development: Firstly, they contribute to the scale of investment, thus, help to promote the eco-socio growth at both national and local level. In Vietnam in general, Phu Tho in particular where internal reserves are low, conditions for technological innovation are poor, then FDI truly plays an essential role in addressing the shortage of finance while pushing investment, technology advancement, labor productivity, economic growth, and the transition towards efficiency and modernity. Secondly, they create more jobs and help develop the human resource. Job creation and improved labor force are among the objectives of attracting FDI. Understandably, addressing employment is one of the most crucial factors to promote economic development and sustainability. It could be said that FDI does have a role to play in improving people’s income and life quality2. Moreover, FDI enterprises may exert positive impact on upgrading the human resource of other companies with which they have cooperation, especially their partnership. Such improvement in host countries (receiving investment) can become flourishing when staff of FDI enterprises shift to work for state-owned or self- employed businesses. Thirdly, they encourage the modernization-oriented shift of economic structure. Economic transition has been a demand at not only internal but international level, which becomes ubiquitous and widely seen nowadays. FDI is an essential component of external economic activities, through which global countries will join more and more into the economic collaboration with others. As a result, this shift is highly needed to match the international labor specialization. Thanks to FDI, such key industries as oil and gas refining, electronics and home electronics, agricultural processing have been able to witness remarkable growth. In addition, this source of capital stimulates technological application in various economic sectors, which accordingly helps advance the productivity, economic transition in terms of structure proportion and overall efficiency of the national economy. On the other hand, a couple of industries have undergone depression or even collapse3. 2 According to Vietnamplus.vn: FDI attraction is motivation for Vietnam’s economic growth in 2016, Journal of Finance, Vol 2 (12/2015) 3 Pham Thi Nga, Pham Thi Thu Huong “FDI with the goal of sustainable economic development in Vietnam”, National Science Conference “Accounting-Auditing and Vietnam Economy in the Industrial Revolution 4.0”, p. 257 471
4. Fourthly, they boost technological science advancement. FDI is considered a principal channel to foster technologic competence of the host country as this is among the most central targets of the investment. Fortunately, FDI enables Vietnam to have access to advanced technologies worldwide, paving the ground for technology-intensive industries like electronics, telecommunication, biotech to flourish4. Thanks to FDI, a number of modern technologies have been transfered to host countries where they act as milestone in those economies. Also, FDI encourages Vietnamese enterprises to innovate technology, enhance quality, diversify products at competitive prices. Fifthly, FDI into Vietnam will create such influence known as "spillover effect", thereby attracting other capital sources into Vietnam such as ODA and NGO. At the same time, this effect will spread to other economic sectors through the linkage between foreign-invested enterprises and domestic counterparts, technology and management capacity. The spread can spill vertically across businesses or horizontally among firms in the same industry. On the other hand, foreign invested enterprises also create competitive motivation for domestic enterprises to adapt in the context of globalization, accordingly improving the capacity of domestic companies5. 3. Current performance of FDI enterprises in Phu Tho In recent years, Phu Tho has issued several favourable mechanisms and policies on investment attraction with focus on investment promotion, administrative reform, reducing intermediate stages and shortening processing time of investment procedures. With this method, the number of FDI enterprises, projects and capital in Phu Tho has continuously increased. Many foreign investors from Japan, South Korea, India, Slovakia, Italy came to explore investment opportunities in the province. 3.1. Authorized projects and Registered capital of FDI enterprises Recently, the number of FDI enterprises, projects and capital in Phu Tho has continuously increased. While in 2012, the province had only 85 FDI projects with the registered capital of 491.83 million USD, of which only 68 actually operated with the investment capital of 393.2 million USD, an average of 5.78 million USD /project, by the end of 2017, there were up to 135 FDI enterprises in Phu Tho. By the end of the third quarter of 2018, Phu Tho province had 150 FDI enterprises with a total registered capital of nearly 1.1 billion USD. To be specific, out of the aforementioned 150 projects, 120 were from Korea with a total registered capital of 793 million USD, 4 Ngo Van Cuong (7/2015), “FDI in Vietnam”, Journal of Political Philosophy 5 Pham Thi Nga, Pham Thi Thu Huong, “FDI with the goal of sustainable economic development in Vietnam”, National Science Conference “Accounting-Auditing and Vietnam Economy in the Industrial Revolution 4.0”, pp. 257 472
5. accounting for 80% of foreign direct investment in the province, other 07 came from Japan with a total registered capital of around 36 million USD6. Table 1: Authorized projects and total registered capital of FDI enterprises in Phu Tho in 2012 and during 2015-2017 Authorized projects Total registered capital (project) (Million USD) 2012 85 491.83 2015 106 800.00 2016 119 906.60 2017 135 1.84.2 Source: Source: Phu Tho Statistical Yearbook, p.177 However, in addition to the above achievements, there exists certain limitations in FDI attraction in Phu Tho, including: the number of projects is not large, the scale is small and the technology level is still low. FDI enterprises mainly invest in light industry: garment, textile, leather shoes, processing agricultural products, chemicals for textile and garment industry, packaging Projects for manufacturing computer or electronic equipment account for small proportion. Besides, technology level as well as management competence is poor compared to other regions in Vietnam. 3.2. Structure of investment of FDI enterprises in Phu Tho Unit: % Figure 1: Capital structure by current value in Phu Tho in 2010 and during 2015-2017 Source: Phu Tho Statistical Yearbook, p. 161 6 Lam Dao An (Vietnam News) 473
6. There is no denying the positive role of FDI enterprises in the province's socio- economic development over the years. This economic sector has progressed more and more actively in the context of limited investment capital from the budget while addressing the financial demand of state-owned enterprises for economic development in the generation of industrialization and modernization. It can be seen that, contrary to the slight growth the non-state sector, there is a continuous upward trend among FDI enterprises out of the total investment capital structure implemented in Phu Tho province. In 2010, the FDI sector accounted for only 6.6% of the provincial capital structure - a modest figure compared to neighboring provinces and the whole country. By 2017, the total investment of FDI enterprises in Phu Tho reached VND 3,601,386 billion, an increase of 5.09 times compared to 2010 (VND 106,820 billion), accounting for 15.2% of the total capital structure. This shows the province’s determination and attempt in improving the investment and business environment as well as actively promoting investment in key markets. However, although the investment capital structure of the FDI sector has continuously increased in the total investment of Phu Tho, the figure of 15.2% is still quite modest for a province with such huge potentials, especially from preferential policies of the province for FDI enterprises. This poses a problem for the province's FDI attraction policy to continue attracting FDI to improve the proportion of this capital source in the total investment capital of the society to promote its role and efficiency. Actually, FDI enterprises are always an important source of supply and supplement of capital for development, meeting the demand of economic growth, contributing to economic restructuring and improving industrial production capacity, fostering the budget and increasing the general import-export turnover of the province. On the other hand, FDI capital also has a significant impact on technology innovation and transfer to strengthen facilities for industrialization and modernization. The presence of FDI enterprises also creates a strong competitive incentive for other businesses in the province to adapt to the market economy while sharpening the competitiveness for each of them7. 3.3. The role of FDI enterprises in Phu Tho in terms of job creation Not only creating economic growth, increasing exports, thereby increasing foreign currency revenue, contributing to the provincial budget, FDI enterprises are often businesses with advanced production technology which helps create more jobs 7 Nguyen Thi Thu Hien, “State governance of FDI enterprises in Phu Tho province”, M.A thesis (2018) 474
7. for many local workers. As a result, social security and life quality of local people in this province enjoy drammatic improvement. It is noticeable that the prospect of attracting workers of FDI enterprises currently is higher than that of other types of business. In fact, labor in FDI enterprises has a tendency to increase while labor in the state and non-state sectors tends to decrease (see table 2). Table 2: Number of employees in FDI enterprises in Phu Tho during 2015-2017 Total State Non-state FDI Number Number Number Number Structure Structure Structure Structure (thousand (thousand (thousand (thousand (%) (%) (%) (%) people) people) people) people) 2015 743.8 100 62.7 8.43 636.6 85.59 44.5 5.98 2016 751.7 100 62.3 8.29 639.9 85.13 49.5 6.58 2017 760.8 100 62.3 8.19 647.4 85.09 51.1 6.72 Source: Phu Tho Statistical Yearbook, p. 215,216 Although Phu Tho has made endless efforts in attracting foreign investment, there are still many shortcomings such as: low level of technology, uneven investment proportion. On the other hand, due to the small number of projects, small scale, the labor force involved in this area is quite modest: in 2017, the labor force in FDI enterprises only accounted for 6.72% of the total company employees in Phu Tho, while this figure in the non-state sector was 85.09%. On the other hand, although the FDI sector has created remarkable efficiency, the survey on people working for FDI enterprises reveals such concerns as language conflicts, being disgraced or discriminated, unsecured working conditions, highly toxic working environment, and unsecured workers' meals. In addition, a number of of workers also encountered difficulties in renting accommodation or long commuting. A corresponding proportion said that they had to suffer workload or overtime, which badly affected workers' health. Another common concern in FDI enterprises was believed to come from the harsh and unfair labor discipline between foreigners and Vietnamese people. 3.4. Average monthly income of employees in FDI enterprises Not only contributing to the state budget and economic development of the province, FDI enterprises have also helped to solving employment for a large number of local workers, based on which social welfare and life quality for local people can be enhanced. 475
8. Table 3: Average monthly income of employees in FDI enterprises in Phu Tho and Bac Ninh during 2015-2017 Unit: Thousand VND Type of enterprise Province 2015 2016 2017 Phu Tho 7,273 6,871 7,319 State-owned Bac Ninh 7,629 8,249 8,903 Phu Tho 4,794 5,196 5,303 Non state-owned Bac Ninh 5,180 5,964 6,951 Phu Tho 4,500 5,231 5,721 FDI Bac Ninh 9,019 9,545 10,607 Source: Phu Tho Statistical Yearbook, p. 267; Bac Ninh Statistical Yearbook, p. 193 In the period of 2015-2017, the average monthly income of workers in FDI enterprises tended to increase. In 2017, this figure attained almost 5.8 million VND/ person /month, an increase of 2.67 times compared to that in 2010. This shows the central role of FDI enterprises in job creation, income improvement and social issue resolution in the province. However, when compared to the figure of Bac Ninh – one of the leading provinces in attracting FDI, it can be seen that the average income per capita per month of company employees in general and in FDI enterprises in particular in Phu Tho is fairly modest. In the FDI sector alone, the average income of workers in Phu Tho is only half that of Bac Ninh province. The same pattern also occurs at State enterprises. This shows that the role of the business sector in creating jobs, increasing income and improving the living standard for employees in Bac Ninh province is evaluated quite well. This sets a task for Phu Tho provincial government in the coming time. 3.5. Gross products of FDI enterprises In recent years, contrary to the incentives of the province for the FDI sector, the contribution of this sector to the total product of Phu Tho is pretty moderate. 476
9. Unit: % Figure 2: Structure of Capital and Gross Product produced by FDI area out of Phu Tho’s economy during 2015-2017 Source: Phu Tho Statistical Yearbook, p. 127 In the period of 2015-2017, the capital structure of the FDI sector continued to rise in the total investment capital, with 15.2% in 2017, an increase of 1.9 times compared to that in 2015; meanwhile, the total products of this sector accounted for only 10.57%. This shows that the FDI sector has not fully played its role towards the province’s GDP. 4. Measures to promote the role of FDI enterprises in Phu Tho 4.1. Prioritize clean FDI capital It can be seen that the biggest limitation in the policy of attracting FDI of Phu Tho province in the past is the lack of high quality human resources and skilled technical workers, thus, hindering the potentials of high-tech and large-scale projects. Consequently, the ability to contribute to the provincial budget or attract environmentally friendly projects are limited. Therefore, in the coming time, the province should continue to improve the investment climate, diversify investment channels, strengthen support and solve difficulties and obstacles for enterprises to promote project deployment. The province should also focus on selecting clean FDI sources, prioritizing investors who use advanced and environmentally friendly technologies to limit the situation of becoming a technology waste dump as well as to reduce environmental pollution. Favourable policies for enterprises producing high quality, large-scale and high-value products need to be issued to promote economic restructuring and foster the competitiveness of the economy in Phu Tho. Local authority should encourage 477
10. projects that have invested effectively to expand their scale, investment capacity in order to enhance industrial production volume and further product value of FDI enterprises in the total product. 4.2. Attract FDI towards developing high-tech agriculture as a strong sector of Phu Tho province Development of high-tech agricultural applications, heading for clean agriculture is one of the priority tasks and effective measures in restructuring the agricultural sector of the province. In order to improve the value, production efficiency and income for farmers, during the past years, Phu Tho has focused on leading and directing the implementation of many effective high-tech agricultural production models, opening a new direction for the province's economic development through an appealing strategy to attract the participation of the business sector in this field. The province has released many preferential policies to invite investment into agriculture. From 2014 to 2017, this province enjoyed 71 investment projects in agriculture and rural areas, in which: 61 projects were domestically invested with a total capital of more than 3,400 billion VND; another 27 were high-tech agricultural investment projects with a total investment of over VND 2,100 billion. A number of large-scale enterprises and modern technology applications have been put into operation, making a sound contribution to the growth of the industry. However, there was the absence of active participation of FDI enterprises - a sector with strength in capital scale, technology science and management skills, in attracting investment into clean agricultural development - an area that is considered to be the strength of Phu Tho. Therefore, in the coming time, the province need to have policies to promote, call and favor in order to attract the participation of FDI enterprises in the high-tech agricultural sector. 4.3 Strengthen supervision on FDI enterprises in terms of tax responsibilities while ensuring the legitimate rights and interests of workers In addition to the task of strengthening FDI attraction and facilitating the operation of FDI enterprises by constant care and support to solve difficulties, it is also essential for Phu Tho authority to fortify management, closely monitor and timely tackle in case of legal violations. The situation of "stagnant taxes" by FDI enterprises in Phu Tho province in the last years has negatively affected the budget collection, resulting in inequality and unfairness in the implementation of tax obligations. On the other hand, this practice also triggered immense impact on investment climate while causing disent and resentment of the public. 478
11. Moreover, the province also needs to strengthen supervision of FDI enterprises in undertaking their obligations and responsibilities to employees, ensuring conditions of the working environment, improving the material and spiritual life of employees through policies on wages, food and accommodation. 5. Conclusion In recent years, the rapid increase in FDI into Phu Tho has contributed significantly to the local socio-economic development. This is the result gained after tremendous efforts to improve the investment and business climate, proactively promote investment in key markets of the province. However, besides the achievements, it is also necessary to objectively recognize the shortcomings and limitations of FDI enterprises in Phu Tho province during the past years. The paper analyzes the current status of FDI enterprises in Phu Tho province as an important resource contributing to local economic development. From the above approach, the paper proposes solutions to promote the role of FDI enterprises towards socio-economic development in Phu Tho province in the future. The solutions focus on: reinforcing the policy of selecting clean FDI sources and pushing FDI attraction to the strong sectors of the province. In addition, to improve the performance of this business sector, measures to strengthen supervision of FDI enterprises in the coming time will be also mentioned. References 1. Lam Dao An (Vietnam News) 2. Ngo Van Cuong (7/2015), “FDI in Vietnam”, Journal of Political Philosophy 3. Nguyen Thi Thu Hien, “State governance of FDI enterprises in Phu Tho province”, M.A thesis (2018) 4. Pham Thi Nga, Pham Thi Thu Huong “FDI with the goal of sustainable economic development in Vietnam”, National Science Conference “Accounting-Auditing and Vietnam Economy in the Industrial Revolution 4.0”, p. 257 5. Vietnamplus.vn: FDI attraction is motivation for Vietnam’s economic growth in 2016, Journal of Finance, Vol 2 (12/2015) 479