Vai trò của FDI ngành công nghiệp chế biến, chế tạo đối với tăng trưởng kinh tế bền vững ở Việt Nam

Nội dung text: Vai trò của FDI ngành công nghiệp chế biến, chế tạo đối với tăng trưởng kinh tế bền vững ở Việt Nam

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 ROLE OF FDI IN PROCESSING AND MANUFACTURING INDUSTRY TO VIETNAM’S SUSTAINABLE ECONOMIC GROWTH VAI TRÒ CỦA FDI NGÀNH CÔNG NGHIỆP CHẾ BIẾN, CHẾ TẠO ĐỐI VỚI TĂNG TRƯỞNG KINH TẾ BỀN VỮNG Ở VIỆT NAM MBA. Nguyen Thi Quynh Huong; MBA. Tran Kim Anh; MA. Vu Thi Thu Trang Thuongmai University huongntq@tmu.edu.vn Abstract: Manufacturing and processing industry is the industry with high labor productivity in the whole economy which is currently making a significant contribution to economic growth thanks to its major FDI attraction and its main contribution to Vietnam’s export growth. However, the results of FDI attraction in the manufacturing and processing industry are still limited which do not fully promote the potential of the industry with the goal of sustainable growth. In this study, the author analyzes and evaluates the current situation of FDI attraction in the manufacturing and processing industry in Vietnam, thus analyzes the role of FDI in the processing and manu - facturing industry to sustainable growth and proposes suggestions and measures to contribute to promoting the FDI attraction in the industry to achieve the goal of sustainable economic growth in Vietnam. Keywords : FDI, manufacturing and processing industry, economic growth, sustainable economic growth Tóm tắt Công nghiệp chế biến chế tạo là ngành có năng suất lao động cao so với năng suất chung của toàn nền kinh tế, và hiện đang có đóng góp đáng kể vào tốc độ tăng trưởng kinh tế nhờ có thu hút phần lớn vốn FDI và đóng góp chủ yếu vào tăng trưởng xuất khẩu của Việt Nam. Tuy nhiên, kết quả thu hút FDI vào ngành công nghiệp chế biến chế tạo cho đến nay vẫn còn nhiều hạn chế, chưa thực sự phát huy được hết tiềm năng của ngành với mục tiêu tăng trưởng bền vững. Trong nghiên cứu này, tác giả phân tích và đánh giá thực trạng thu hút FDI vào ngành công nghiệp chế biến chế tạo ở Việt Nam hiện nay, từ đó phân tích vai trò của FDI ngành chế biến, chế tạo đối với tăng trưởng bền vững và đưa ra được những chính sách, biện pháp góp phần đẩy mạnh việc thu hút nguồn vốn FDI vào ngành nhằm đạt được mục tiêu tăng trưởng kinh tế bền vững ở Việt Nam. Từ khóa : FDI, công nghiệp chế biến chế tạo, tăng trưởng kinh tế, tăng trưởng kinh tế bền vững. 1. Introduction Foreign direct investment (FDI) plays an important role in economic growth of developing 476
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 countries. FDI not only contributes to economic growth through capital and technology transfer (Blomstrom et al ., 1996; Borensztein et al. 1998), contributes to human capital accumulation via labor skill training courses for recipient countries. investment (De Mello, 1997), but also is the driving force to promote competition among domestic firms. Vietnam, a developing country, is in need of positive effect from FDI to take advantage of external capital, promote economic growth, invest in education, and social security and environmental protection. In recent years, the processing and manufacturing industry has always been the leading industry in attracting FDI. According to the statistics of the Foreign Investment Agency, in the early 6 months of 2020, the total amount of FDI invested in the processing and manufacturing industry (PMI) reached 6.88 billion USD, accounting for 49.21% of the total FDI invested in Vietnam. The Ministry of Industry and Trade affirmed that the PMI is the leading industry in the economy with the propor - tion in GDP increasing from 13% in 2015 to 16% in 2018. In 2019, the industry increased by 8.86% thanks to PMI key role leading the overall growth of the whole industry and the economy (increased 11.29%); PMI contributed 16.48% to GDP. It can be seen that FDI in PMI plays an important role in the sustainable economic growth of Vietnam. 2. Theories and methodology on FDI, PMI and sustainable economic growth 2.1. Basic concepts 2.1.1 Foreign Direct Investment (FDI) According to the IMF, FDI is an economic organization (direct investor) deriving long- term benefits from an enterprise located in another economy. The aim of a direct investor is to have a lot of influence on the management of the business located in that economy. According to the Organization for Economic Co-operation and Development (OECD): Di - rect investment is an investment that is made to establish long-term economic relationships with a business, providing the ability to make an influence on business management. In general, FDI is the investment of individuals and companies (mostly transnational and multinational companies) in order to build overseas establishments or branches and own these branches partly or wholly. This is a type of investment in which foreign investors contribute a sufficiently large amount of capital to the production or provide services allowing them to directly participate in the management and administration of the investment object with the aim to obtain higher profits through the deployment of production and business activities abroad. 2.1.2. Sustainable economic growth Economic growth can be understood as an increase in the ability to produce goods and services, or an increase in the size of the economy over a certain period of time, often reflected in a percentage increase of real gross domestic product (GDP) (after inflation has been adjusted), or the real per capita income growth rate. Sustainable economic growth is a modern concept used to define goals and factors which are good for an economy through sustainable growth. Accordingly, growth is not only simply understood as increasing per capita income, but it must be associated with sustainable develop - ment, focusing on all three factors: economy, society and environment. In order to maintain high growth rates in the long run, income increases must be associated with increase in quality of life 477
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 or welfare and poverty. The growth rate doesn’t have to be too high, it just needs to be reasonably high but sustainably. 2.1.3. Concept of processing and manufacturing industry PMI is defined as establishments participating in the mechanical, physical or chemical transformation of raw materials, substances or accessories into new products, as well as estab - lishments participating in the assembly of parts of products manufactured for purposes other than construction (Levinson.M, 2017). According to the Prime Minister’s Decision No. 27/2018 / QD-TTg on the Vietnam Eco - nomic System, PMI (level 1 industry group: C) includes 23 level 2 groups, namely: food (10); beverages (11); tobacco products (12); textile (13); garment (14); leather and related products (15); wood processing and wooden and bamboo products (except beds, wardrobes, tables, chairs), products from straw and plaiting materials (16); paper and paper products (17); Printing and copying (18); production of coke coal, refined petroleum products (19); chemical production and chemical products (20); medicine, pharmaceutical chemistry and production (21); rubber and plastic products (22); products from other non-metal minerals (23); metal production (24); prod - ucts from prefabricated metal (except for machinery and equipment) (25); electronic products, computers and optical products (26); electrical equipment (27); unclassified machinery and equip - ment (28); automobiles and other motor vehicles (29); other means of transport (30); beds, wardrobes, tables and chairs (31); Other PMI (32); machines and equipment repair, maintenance, and installation (33). 2.2. Theory of the relationship between FDI and economic growth sustainability Theory of Exogenous growth The theory of exogenous growth, also known as the neoclassical growth model or the Solow-Swan growth model pioneered by Solow (1956), defines capital, human capital, and tech - nology as the input factors for economic growth. However, it only considers factors in terms of quantity, and considers these factors as exogenous factors. From this points of view, endogenous growth theory has shown that FDI promotes economic growth in the long term through technol - ogy transfer channels; accumulating human capital through training courses for labor in the host countries (De Mello, 1997). Barro and Sala-I-Martin (2004) demonstrate that there is a positive relationship between economic growth and capital accumulation over time. The theory of exoge - nous growth states that FDI increases capital in the host country and then promotes economic growth towards a new stable status by accumulating capital. According to the theory of exogenous growth, FDI affects economic growth through effects on domestic investment. Theory of Endogenous growth In the mid-1980s, the theory of exogenous growth had become inconsistent in explaining long-term growth determinants (Barro and Sala-I-Martin, 1995). The theory of endogenous growth pioneered by Romer (1986) focuses on two factors: economic growth derives from human resources and technological change. The theory of endogenous growth defines economic growth by introducing new technology production processes in the host country and FDI is assumed to be more efficient than domestic 478
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 investment (Herzer et al., 2008). Therefore, FDI enhances economic growth via technology spread, labor mobility, training in organizational management and organizational skills (Romer, 1990; Barro and Sala-I-Martin, 1995; De Jager, 2004). As a result, foreign investment can increase the productivity of the host economy and it can be seen as a catalyst of domestic investment and technological progress. Theoretically, FDI can promote economic growth in many different ways (Herzer et al., 2008). Some researchers believe that the effects of FDI on economic growth can be divided into two parts (De Mello, 1999; Kim and Seo, 2003). Firstly, FDI can affect the economic growth through capital accumulation by introducing new goods and foreign technologies. This view stems from the exogenous growth theory. Secondly, FDI can promote economic growth through research and development in host countries on knowledge transfer. This view stems from the ar - gument of the endogenous growth theory. Therefore, FDI can theoretically play an important role in economic growth via capital accumulation, technology spillover and progress (Herzer et al., 2008). This conclusion shows that FDI can contribute to economic development and promise po - tential benefits for development in the host country. In addition, the Eclectic theory developed by Dunning (1981) provides another analysis of the relationship between economic growth and FDI. The attraction of FDI depends on the ad - vantages of the host country, including: ownership of technology, capital, resources ; location; investment environment, low cost labor ; and internalization. Based on these above theories, domestic and foreign researchers have analyzed the relationship between economic growth and FDI. 2.3. Methodology and data sources Methodology Qualitative methods including statistics, synthesis, comparison, etc. combined with graphs, tables are used to analyze research problems. Specifically: - Analyzing and synthesizing method: Systematizing general theoretical issues on FDI, processing and manufacturing industry, economic growth and sustainable economic growth. - Data collection and statistical method: exploiting and using secondary data sources from domestic and international official information channels related to topics such as: General Sta - tistics Office, Ministry of Planning and Investment, to analyze the impact of FDI in processing and manufacturing industr y on Vietnam economy and goals of sustainable economic growth of Vietnam. - Descriptive statistical method to compare the situation, the contribution of FDI during stages and associated with the economic growth goals over the periods; to compare the role of FDI to economic growth of some other countries with Vietnam. - Methods of analysis and comparison: basing on data sources assessing the status of FDI in processing and manufacturing industry with the goal of sustainable economic growth of Vietnam. Data source s: Secondary data taken mainly from statistics of the General Statistics Office, Foreign Investment Department - Ministry of Planning and Investment. 479
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 2.4. Experience of FDI attraction in processing and manufacturing industry to enhance the sustainable economic growth of some countries In current time, t here are many countries initially gaining success with policies to en - courage FDI inflows in general and FDI in processing and manufacturing industry in particular to ensure sustainable economic growth, typically: China, Germany, India, Singapore, Thailand, Malaysia The article will explore the experiences of China, which has some similar character - istics to the Vietnam economy and Singapore, one of the members of the Association of Southeast Asian Nations like Vietnam. 2.4.1. Singapore’s experience Singapore’s strategies to attract FDI has helped this country attract high-tech projects, es - pecially in wafer-based semiconductor manufacturing and oil refining, thereby helping to improve technology levels of domestic enterprises, minimizing environmental damage. In addition, the creation of a stable business environment has retained FDI enterprises and limited negative effects on economy and society due to sudden withdrawal of these capital flows. Looking back at the policies that Singapore has implemented to attract FDI into processing and manufacturing indus - try, we can draw some experiences to help Singapore effectively implement the FDI attraction policy and make many businesses choose this country as an attractive destination to invest: First , Singapore has clearly identified FDI attraction focusing on three prioritized areas: new manufacturing, construction and export. Besides, basing on the specific conditions of each period, Singapore advocates to attract FDI in appropriate industries. Initially, due to the low foun - dation of economy, Singapore advocated using FDI in industries to create export products such as: textiles, assembly of electrical equipment and means of transport Along with the rapid de - velopment of the electronics industry and a number of other advanced technologies, Singapore focused on manufacturing industry such as computer and electronics manufacturing, consumer goods, oil filter industry, and mining technology Second , the Government of Singapore has created a stable and attractive business environ - ment for foreign investors. The Government has publicly confirmed that foreign businesses are not nationalized. In addition, Singapore has also focused on building infrastructure for production activities. The licensing procedure is simple and convenient. It took only a few months even 49 days for some projects to apply for a license and then go into production which has been known as the “49-day miracle” in Singapore. In particular, Singapore has built up a complete, strict, fair and effective legal system. Corruption is treated very seriously, all businesses, regardless of domestic or foreign countries, are treated the same, everyone is working in compliance with the law. 2.4.2. Experience of China Recently, with policies to attract foreign investment which have been promptly supple - mented, changed according to global trends, combined with a relatively high economic growth, China has created confidence for foreign investors to pour huge amount of capital into this coun - try. But large amount of foreign investment capital has caused significant changes to China’s social economy, such as: high inflation, increasing gap between rich and poor, serious environ - mental pollution, etc. In order to minimize these negative effects, China has implemented a num - ber of key policies to attract FDI in general and FDI in processing and manufacturing industry in particular, contributing to the economic growth as follows: 480
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 First , issuing regulations on investment guidance for foreign traders and a guide list on the processing and manufacturing industry to attract FDI, and policies for territorial development. Through measures such as the establishment of special economic zones, scientific and technical development zones and the opening of coastal cities, creating favorable conditions and focusing on attracting FDI into them. Second : The legal system which is quite strict on environmental standards and legal proce - dures for foreign investment activities partly helps this country to increasingly refine clean FDI capital sources to ensure the Sustainable Development. In recent time, because of serious damages to environment from the illegal mining industry, this country has issued policies to strengthen su - pervision and control of the metallurgical industries and cut down on mineral exports. These above lessons from Singapore and China are essential to Vietnam in the process of issuing and implementing policies to attract FDI in general and FDI in the processing and man - ufacturing industry in particular to promote sustainable economic growth. 3. Situation of FDI attraction in the processing and manufacturing industry in Vietnam in the period of 2009 - 2019 3.1. An overview of the situation of FDI, PMI in Vietnam in the period of 2009 - 2019 3.1.1. The current situation of FDI attraction in Vietnam In recent years, Vietnam’s FDI attraction has achieved impressive results. In the past 10 years, annual FDI inflows into Vietnam have increased by nearly 1000%. According to the sta - tistics of Foreign Investment Department, the total capital of newly and additionally registered FDI projects, in 2018, reached 35.46 billion USD, of which realized capital of FDI reached 19.1 billion USD, an increase of 9.1% as compared to 2017. In 2019, the total capital of newly and additionally registered FDI projects was estimated at 38,019 billion USD, an increase of 7.2% as compared to 2018; of which realized capital of FDI reached 20.38 billion USD, up 6.7% as com - pared to 2018. Table 3.1. The current situation of FDI in Vietnam from 2009 to 2019 Year Registered FDI Realized capital Newly licensed (billion USD) of FDI (billion USD) projects (projects) 2009 21.48 10 839 2010 18.59 11 969 2011 14.69 11 1091 2012 13.01 10.46 1100 2013 22.35 11.5 1275 2014 21.92 12.5 1843 2015 24.11 14.5 918 2016 24.37 15.8 2556 2017 35.88 17.5 2591 2018 35.46 19.1 3046 2019 38.02 20.38 3883 Source: Foreign Investment Department 481
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 As we can see from the statistics, for 10 years (from 2009 to 2019), FDI disbursement over the years tends to increase with the average growth rate of 9% -10% / year. In 2019, the disbursed capital was more than doubled compared to 2009, reaching 20.38 billion USD. Disbursed FDI projects in 2019 increased by 6.7% over the same period in 2018. The number of granted projects and the value of FDI capital into Vietnam has grown very well recently, from 839 newly licensed projects in 2009 to 3883 projects in 2019 (an increase of nearly 5 times). However, FDI attraction at present is still not methodical. Vietnam has not really been proactive and selective in attracting FDI projects with advanced technology and strictly controlled pollution levels. Many FDI projects include raw production, high processing, high emissions, low added value, lack of fundamental industries such as supporting industries, and high technology. There are still many shortcomings in the capacity to prevent, control and protect the environment in some FDI enterprises. The spillover of FDI inflows to economic sectors has not lived to expectation. The level of localization in Vietnam is still low when the ratio of imported inputs to the product value is mostly more than the threshold of 50% FDI has made an important contribution to the realization of Vietnam’s socio-economic development strategy and goals in each period, accounting for a significant proportion in GDP, leading exports, as well as positively contributing to the budget, creating jobs and stable income for employees. FDI capital plays an important role in promoting Vietnam’s economic growth. The contribution of the FDI in the country’s GDP increased from 16.9% in 2008 to 19.6% in 2019. This is a significant contribution to the Vietnamese economy in the context of a low average income country. Though the investment accounts for 23% of the total social investment, it only contributes 19.6% of GDP that is unsustainable and does not show the advantages of technology, market, and management skills, of FDI. 3.1.2. Situation of manufacturing and processing industry in Vietnam Recently, PMI has always played a key role in the economic growth of Vietnam which has the leading contribution to the economic growth, export growth and FDI attraction. In the period 2015 - 2019, PMI accounting for 15.15% of GDP on average tended to be higher than that of 2010-2014 period (13.22%) but lower than the 2005-2010 period (17.9 % of GDP on average), increase from 13.69% in 2015 to 16.48% in 2018. In terms of its growth rate, PMI is the dominant industry. In the last 5 years, PMI has had a high growth rate in the economy with an average growth rate of 12.23% / year, ranking first. This shows the active role of PMI in contributing to the economic growth of Vietnam. 482
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Source: General Statistics Office, 2020 Figure 3.2. Growth rate of economic sectors PMI is currently the industry with the highest industrial production index among all indus - tries and higher than the overall industrial production index of the whole economy. In 2019, PMI index was estimated at 110.4%, higher than that level of the whole industry (109.1%); in which, a number of PMI sectors have high production indexes such as: metal production increased 28.6%; metal ore exploitation increased 25.9%; production of coke coal and refined petroleum products increased 21%; printing and copying increased 15.3%; rubber and plastic products in - creased 14.3%; On the other hand, the PMI product consumption index continued to increase in recent years. By 2019, the product consumption index of the whole industry reached 109.5%, focusing on a number of industries such as: metal export; coke coal production and refined oil products; printing and copying; rubber and plastic products; By the end of 2018, the export of PMI accounted for 93.2% of the total export value. In general, the export ratio of some key products still belongs to the FDI sector with the main export items including: electronics, computers and components; phones and accessories; footwear; tex - tiles and garments and its raw materials However, PMI is also currently the industry that accounts for a large proportion of the im - port value of the economy, accounting for 88.7% in 2018. This shows a large dependence on im - ports in its production activities. In terms of trade balance, there had often been a deficit in the balance of trade due to the large import rate. However, from 2016 to now, the trade balance has turned to surplus, especially in 2018, PMI has a trade surplus of $ 16910.3 million, showing a positive trend in PMI operations. 483
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 3.2. FDI attraction into PMI towards the goal of sustainable economic growth in Vietnam in the period 2009 - 2019 Among economic sectors, PMI is the one that attracts the majority of FDI capital and con - tributes mainly to Vietnam’s export turnover. In addition to services and real estate, PMI is one of the three sectors attracting the most FDI in the economy. In recent years, PMI has always been the leading sector in FDI attraction in Vietnam. According to the Foreign Investment Department, within 10 years from 2009 to 2019, the FDI of PMI has had a remarkable growth. The registered FDI capital of PMI in 2009 was 2.97 billion USD, which has increased by nearly 10 times at 24.561 billion USD in 2019 . Table 3.2. FDI attraction into PMI from 2009 to 2019 Year Registered FDI capital % compared to total Newly granted (Billion USD) FDI capital (%) projects (projects) 2009 2.97 13.8 _- 2010 5.1 27.4 385 2011 7.123 48.5 435 2012 9.1 69.9 498 2013 17.14 76.7 605 2014 15.5 70.7 880 2015 16.428 68.1 616 2016 15.538 63.8 1020 2017 15.876 44.2 932 2018 16.588 46.8 1065 2019 24.561 64.6 1314 Source: Foreign Investment Department In the period of 2012 - 2016, the proportion of FDI in PMI has significantly increased com - pared to the total FDI capital of the entire Vietnamese economy, accounting for 60 to 80%. From 2017 to 2019, the proportion of FDI in PMI has decreased, but it has always had the highest pro - portion. Although there was a decrease to 44.2% in 2017 and 46.8% in 2018, it increased again in 2019, accounting for 64.6% of the total FDI of the economy. According to the Foreign Investment Department, in the first 10 months of 2019, PMI at - tracted the largest FDI with the registered capital of newly granted projects of more than 9,132 billion USD, accounting for 71.2% of the total newly registered capital. FDI into PMI in 10 months was estimated at nearly 13,873 billion USD including additional registered capital of pre - viously licensed projects, accounting for 75.8% of the total registered capital. The accumulation of valid projects until December 20, 2019 of PMI is 14422 projects with a total registered invest - ment capital of 214,175 billion USD. In 2019, PMI was granted the largest new FDI with the registered capital of projects reaching 12,093 billion USD, accounting for 72.2% of the total newly registered capital. 484
10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Source: Foreign Investment Department Figure 3.3. FDI in PMI and total FDI in the period of 2009-2019 The number of registered projects also increased significantly from 385 projects in 2010 to 1314 projects in 2019 (an increase of nearly 5 times). On average, in the period of 2009 - 2019, the registered capital increased by 20- 30%. Although there was a decrease in the number of reg - istered projects in 2015 and 2017 compared to the previous years, the invested capital still in - creased. However, it is easy to recognise that FDI invested in Vietnam is mainly in sectors using a lot of simple labors such as: garment and footwear. FDI enterprises mainly focus on outsourcing, assembly, and raw materials are mainly imported from abroad, so the added value remains low (CIEM, 2017 ). In order to attract FDI projects in PMI with high efficiency, Vietnam needs to be “stricter” in choosing FDI projects. It is necessary to say no to projects with outdated technology, using a lot of labor, causing environmental pollution, wasting resources; aims to attract large projects of multinational corporations with strong financial potential, modern technology, low labor use and high added value. 4. The role of FDI in PMI toward the sustainable economic growth in Vietnam PMI is considered as the “backbone” of the economy, the foundation and driving force leading the growth of the entire Vietnamese industry which always accounts for the largest pro - portion with the highest rate increase. Besides, PMI is also the key sector to attract FDI. In recent years, FDI in PMI has made great contribution to Vietnamese economy with direct impacts in - cluding: Supplementing an important source of capital for development investment : The structure of investment capital in recent years continues to shift towards increasing the proportion of the private sector - the domestic population and reducing the proportion of investment from the 485
11. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 government sector. Accordingly, the investment from the government sector has sharply de - creased by 6.6 %, from 39.9% in 2014 to 33.3% in 2018. However, the proportion of the FDI sector in total investment remained stable at an average rate of 23.5% in the 2015 - 2018 period which affirmed its important role for investment in socio-economic development in Vietnam. In particular, PMI attracts the largest FDI, accounting for over 70% of the total FDI in the past period (figure 3.3). In recent time, the investment wave from Korean, Japanese and Chinese enterprises into the PMI has never slowed down. The strong inflow of FDI into PMI positively shows that the production and business environment in Vietnam has been improved. A series of large mergers and acquisitions with the value of from hundreds to billions USD shows the great integration speed of PMI enterprises. The good growth of PMI is also consistent with the industry restruc - turing policy of the Party and the State, in the direction of gradually reducing the proportion of raw goods and increasing the proportion of high-tech industries in PMI. Thus, spread and lead to restructuring the whole industry, improve competitiveness and participate more deeply in the global industrial value chain. Contributing to GDP growth and state budget revenue: In recent years, Vietnam’s economy has made positive progress and achieved many re - markable achievements. Gross domestic product (GDP) in 2019 achieved impressive results, with a growth rate of 7.02%, exceeding the target set by the National Assembly from 6.6% -6.8%. This is the second consecutive year that Vietnam’s economic growth has been estimated at over 7% since 2009. FDI capital in general and the FDI in PMI in particular plays an important role in promoting economic growth of Vietnam. The contribution of the FDI sector in Vietnam’s GDP increased from 9.3% in 1995 to 16.9% in 2008 and 19.6% in 2017. According to a report by the Ministry of Industry and Trade, for the early 10 months of 2019, The production index of the whole in - dustry was estimated to increase by 9.5% over the same period in 2018; of which, PMI increased by 10.8%, contributing 8.3%. It is clear that industrial production growth has been improved day by day. PMI production, which always accounts for the largest proportion with the highest rate of increase, continued to be outstanding leading the growth of the whole industry. The proportion of state budget revenue from the FDI also increased significantly, from 1.8 billion USD in the period 1994-2000 to 23.7 billion USD in the period 2011-2015, accounting for nearly 14% of the total revenue. Increasing the export proportion: FDI enterprises have been remarkably contributing to the impressive export performance of Vietnam over the years with the proportion increasing sharply from less than 50% of the total turnover before 2003 to over 60% 2012 and continuing to exceed 70% from 2015 to present. The effects spreading to PMI domestic enterprises are an - alyzed in depth in Nguyen Bich Ngoc’s study (2017). Research shows that large-scale FDI proj - ects have created a strong boost to the export performance of these industries in Vietnam. The presence of FDI enterprises in PMI has created pressure and forced domestic enterprises to in - novate technology, improve production, increase research on export markets, and strengthen trade 486
12. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 links. The overwhelming advantages of capital and technology of multinational corporations have put considerable pressure on export market share as well as competitiveness of domestic enter - prises. In addition, from a macro perspective, FDI enterprises dominate Vietnam’s exports. How - ever, this situation also creates instability for exports, because FDI’s production and exports heavily depend on regional and global supply chains. In 2019, PMI accounts for 80% of the country’s export turnover. In particular, notably, this is the first year PMI has had a trade surplus, although this figure is not large, about 100 million USD. According to data from the Import and Export Department (Ministry of Industry and Trade), there are 7 export products with a value of over 1 billion USD which belong to PMI. Specifically, wooden furniture reached nearly 1.5 billion USD; textiles reached 4.5 billion USD; shoes 2.7 billion USD; electronics, computers and components 5.3 billion USD; phones and ac - cessories nearly 6.9 billion USD; machinery, equipment and spare parts 2.9 billion USD; vehicles and spare parts 1.4 billion USD. Moreover, the export and import markets for these products are also constantly being expanded, not only strengthening in traditional markets, but also exploiting new and potential markets and taking advantage of FTA. Promoting the process of economic restructuring : The request for economic restructuring is not only the requirement of the internal development of the economy itself, but also the re - quirement of the internationalization trend of economic life which is getting stronger and stronger at present. FDI in general and FDI in PMI in particular is an important part of foreign economic activities, through which countries will increasingly participate in the process of economic link - ages among countries all over the world, requiring each country to change its domestic economic structure to suit the international division of labor. The shift in the economic structure of each country in accordance with the general level of development in the world will create favorable conditions for FDI activities. In contrast, it is FDI that contributes to speeding up the process of economic restructuring in the host country, because it creates many new economic sectors and industries, and contributes to the rapid improvement of technical skills and technology in many economic sectors, developing the labor productivity of these sectors. With FDI capital, the PMI internal structure is motivated to shift towards increasing added value, focusing on the develop - ment of key industries such as mechanics, automobiles, supporting industries, Contributing to labor productivity growth: Theoretically , FDI inflows are interrelated with labor productivity of the host country, but it should be noted that it will have a positive effect when the domestic businesses have the capacity to learn new technologies, or the capacity to pro - vide inputs for FDI enterprises. In contrast, labor productivity is also a factor affecting FDI at - traction. Analysis from the report of the General Statistics Office (2016) shows that though the gap of labor productivity among economic sectors has gradually been narrowed down the years, the labor productivity of the FDI sector is about 1.4 times higher than with the state economic sector and 7 to 8 times higher than the private sector in general. Research by Nguyen Thi Tue Anh et al (2020) shows that the proportion of added value, employment, export, labor productivity of PMI sub-sectors such as petroleum, chemicals, pharmaceuticals, electronics, and electrical equipment, footwear has been increased from 14 - 42% from 2006 to 2018. 487
13. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Helping to develop human resources and creating jobs : Human resource development and job creation are important factors in promoting economic growth. PMI of Vietnam has created job opportunities for a large number of people. The total number of employees in this industry in 2010 was 6.6 million people, accounting for 13.5% of the total number of employees nationwide; In 2015, this number increased to 8 million people, equivalent to 15.3% of the total number na - tionwide. In particular, textiles and electronics are employing a lot of labor with top export turnover in Vietnam in recent years. Currently, in PMI, domestic private enterprises is the second largest employer after the FDI sector with a proportion of 47.8% (2019). The FDI sector employs a workforce on labor-intensive fields such as computers, electronics, footwear, etc. while private enterprises dominate labor in medium-sized labor force fields such as wood and bamboo pro - duction, non-metal mineral products, medical equipment, and food processing. Source: General Statistic Office Figure 3.4. Forecasting the size of labor workforce of the whole industry by sectors and business type in the third quarter of 2020 Though the disruption in the supply chain caused by the Covid-19 epidemic has affected production and business activities of the entire industry, the FDI sector always tends to attract more workers with the highest rate. 10.5% of enterprises affirm that the average number of em - ployees increased in the second quarter of 2020 compared to the first quarter of 2020; That rate of the state-owned enterprises and non-state enterprises were 9.6% and 9.7%, respectively. The trend of attracting more employees in the third quarter of 2020 compared to the second quarter of 2020 is the highest with 20.1% in the FDI sector. The forecast of the average number of em - ployees in the second half of 2020 increases positively compared to early 6 months of 2020 with 34.2% of FDI enterprises forecasting to increase average labor (figure 3.4). 488
14. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 5. Solutions to promote FDI attraction in PMI towards the goal of sustainable economic growth in Vietnam in the approaching period From the success of these above countries, Vienam needs to implement the following so - lutions to enhance the FDI attraction in the processing and manufacturing indutsry: First, strongly promote the supply of skills to ensure FDI attraction. Investors in PMI in particular and in all sectors in general said that the top barrier against the growth is the lack of necessary skills (namely technical skills, language skills, soft skills) that has resulted in the pressure on wage increases. It is important to provide skills to address and re - main competitive and attract FDI. At that time, PMI must immediately conduct a national survey on supply and demand according to its fields and regularly update. Conducting a national coordination program: implement a multi-dimensional business- state coordination program with a variety of contents, from vocational training courses/short- term transition, improving the cooperation between educational institutions and enterprises, skills-based visas, to long-term curriculum reform and FDI in education by leading global insti - tutions. It is imperative to concentrate on language skills and soft skills, or integrate those skills with all vocational and tertiary training programs, as well as allow training institutes to have more autonomy to meet the needs of business and collaboration opportunities. Promote innovation and creativity along with skills. Attracting those who have business ideas and skills to work in Vietnam is as important to FDI attraction and technology transfer as attracting companies with capital. Promoting research and application inside the country and attracting foreign enterprises and brainpower requires a nationwide coherent research and application strategy, along with in - centives to encourage research and application in institutions, private and state economic sectors, start-up financing, small and medium-sized enterprise support Secondly, introducing “Business Environment 4.0” suitably to meet the business needs in the digital era. The service and business environment of Vietnam has not kept pace with the growth of the private sector due to some practical barriers or awareness of approval procedures, licensing and investment licenses, outdated regulations and procedures, inadequate investor protection which are preventing FDI invested into PMI. In order to improve the business environment for all in - vestors, it is necessary to set great goals, moving from “follow-up” to providing a superior busi - ness and investment environment to other competitive destinations in the region. Experience of FDI attraction from Singapore shows that this country has attracted many hi-tech projects that is a valuable lesson for Vietnam in attracting FDI in processing and manu - facturing industry in the context of industrial revolution 4.0. To do this, Vienam has to replace obsolete paper-based regulations and systems with digital/online solutions to reduce corruption (which is still considered as the leading barrier to growth by investors). Replace the outdated 489
15. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 positive list for determining eligibility for licensing/concessions, including multiple groups of priority/permitted activities, with the more limited negative list. Abolish implicit incentives for new investment and export-oriented FDI – FDI joint ventures and FDI enterprises in local supply chains often have a greater impact on adding value and technology transfer in site. Thirdly, increase the internal resources of PMI enterprises While PMI enterprises need to actively innovate technology, production scale, the author - ities need to resolve the “thirst for capital” for businesses, actively seek and approach enterprises which need capital to innovate production technology. Thus, to build investment solutions, ef - fectively using loans. In addition, it is necessary to promote the development of the internal dis - tribution system to lead and facilitate the spillover of the development of Vietnamese products. On the contrary, enterprises also need to be more proactive in accessing loans to shorten the gap from loan demand to actual loan disbursement. Vietnamese businesses need to implement effec - tive financial transparency, production activities and have a sustainable development strategy. Fourth, improve the investment attraction policies The Government has provided many preferential policies to attract investment in order to raise the processing rate of key agricultural and aquatic products, apply international standards in the manufacturing and processing process; hence, building brand name and competitiveness for Vietnam’s agricultural, forestry and fishery products. China and Singapore have had attractive financial policies for investors such as tax reduc - tion, monetary incentives, etc. to attract FDI into these countries. During the first period of reform and opening, China founded 4 special economic zones, opened up 14 coastal cities boosting the FDI technology attraction with tax, land and labor incentives, the general incentives include im - port tax exemption for machinery, materials, specialized means of transport, materials that cannot be produced domestically, raw materials for processing export products In the field of food processing, in addition to the general incentives, businesses will enjoy a preferential tax incentive of 10% for corporate income invested in agricultural product processing after harvest, agricultural and fishery and food preservation. In the period of 2010 - 2020, China clearly showed their view point on FDI attraction into high-tech industries, management experience, high-quality human resources. China also carried out an amendment to the “Guide to Foreign Investment Professionals” along with allowing local government to approve projects investing from $100 million to 30 million. Therefore, to Vietnam, Enterprises will also be supported in human resource training, market development and science and technology application. The Government has directed provinces and cities to re-plan agri - cultural material areas, in combination with redefining long-term land use plans for each foreign investment project in the field of agriculture and agricultural and food processing. In order to increase competitiveness, deeply penetrate into the world market, Vietnamese enterprises had better comply with food safety and hygiene standards, invest in modern equip - ment, and improve prices and product quality. In addition, they must proactively approach the distribution system and purchasing partners to discuss and increase their business opportunities. 490
16. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 6. Conclusions Vietnam is a developing country with low accumulation for investment. Therefore, it is necessary to make use of FDI resources for the development of the economy in general and of PMI in particular. Besides, PMI is the leading industry in FDI attraction with the largest contri - bution to the total domestic product. Therefore, in order to promote that contribution, PMI needs to change policies to encourage and promote investment, and at the same time to have a long- term strategy and orientation to attract FDI to promote economic growth towards sustainable economic growth. REFERENCES Vietnamese 1. Nguyen Thi Tue Anh et al (2020), Industrial capacity of domestic private enterprise sec - tor in Vietnam: suggestions for adjusting industrial policies to avoid the middle income trap, Central Institute for Economic Management Research Report, 6/2020. 2. Department of Foreign Investment (2009 - 2019), Foreign investment attraction . 3. Nguyen Tien Dung (2011), FDI attraction in the steel industry , Journal of Economics and Forecasting, No. 22, November 2011. 4. Nguyen Thu Hang (2020), F actors affecting FDI attraction to sustainable development in Thai Nguyen Province , journal of Asia-Pacific Economics, (March 2019), pp. 93-96. 5. Pham Thien Hoang (2019), The importance of the FDI to Vietnam’s socio-economic de - velopment , Journal of Finance, -in-of-the-place- of-the-place-with-Vietnam-Economic Zone-308893.html 6. Nguyen Ngoc Mai (2013), Recipes to attract FDI in Singapore and experience for Viet - nam, Finance Magazine, singapore-va-kinh-nghiem-cho-viet-nam-62797.html. 7. Ho Thi Thanh Mai and Pham Thi Thanh Thuy (2016), The relationship between eco - nomic growth and foreign direct investment in Khanh Hoa, Journal of Science, Can Tho Univer - sity, No. 44/2016, pp. 28-38. 8. Nguyen Bich Ngoc (2017), S preading effects of FDI on exports of the processing and manufacturing industry in Vietnam, Doctoral thesis, Business Administration major, National Economics University. 9. Nguyen Thi Thanh Thuy (2020), FDI - An important source of capital boosting Vietnam’s economy in the integration period , Journal of Economics and Business Administration, No. 12/2020, p.30-35. 10. General Statistics Office (2019), Statistical Yearbook 2018, editor, Statistical Publishing House, Hanoi. 11. General Statistics Office (2020), Report on production and business trends of processing and manufacturing industry in the second quarter , forecast for the third quarter and the last 6 months of 2020. 491
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