The report was issued as part of the framework of the Platform for Investment Monitoring and Supplier Development in Vietnam technical assistance project funded by UNIDO on the basis of the survey on 1,494 construction and industrial firms operating in Vietnam. Fifty-seven percent of the respondents were FDI enterprises and 43 percent local firms. The survey was conducted in Hanoi, Hai Phong, Vinh Phuc, Bac Ninh, Da Nang, Ho Chi Minh City, Dong Nai, Binh Duong and Ba Ria-Vung Tau.
According to the report, the average age of local industrial and construction enterprises was eighteen years, compared with ten years of the FDI sector in the country. Despite their younger age, each FDI firm had an initial investment capital of US$31.7 million on average, higher than US$26 million of every local enterprise.
However, both local and foreign-invested sectors have not yet fully used their equipment and machinery capacity in production. The equipment utilization of the later was reported to stand at 86 percent and the former was 84 percent, respectively. Local firms attributed unstable supply, low demand and low-level vocational skills as core reasons, while FDI enterprises blamed the shortage of well-trained human resources and consumer markets.
With regards to operations, 92 percent of local firms and 97 percent of FDI enterprises operated in manufacturing. The report also showed that the operation of local firms was more effective than that of FDI sector. In detail, 54 percent of local enterprises met or exceeded their set targets, while the figure of FDI sector was merely 49 percent. About 24 percent of FDI firms did not reach their initial plans.
However, the FDI sector was reported to have an average pre-tax revenue rate of 7.6 percent over the last three years, higher than 6.7 percent of local enterprises. Both sectors have targeted to increase the rate in the coming time, with 9 percent for FDI firms and 7.8 percent for local companies.
Also according to the report, the impetus for FDI firms to invest into Vietnam’s industry was political stability and low labor costs. However, in recent years, they gradually found difficulties caused by a lack of qualified human resources.
In the future, there will be a new trend of investment abroad by enterprises operating in Vietnam. To date, 10 local and 12 FDI enterprises have planned to expand their investment to regional countries, with capital up to US$47 million and US$8.9 million, respectively. However, UNIDO experts warned that this could be a positive sign of development when experienced industrial firms in Vietnam decided to expand investment abroad after their success in Vietnam, but could equally be an excuse for FDI firms to withdraw investment gradually from Vietnamese territory.
The report clearly indicated that besides economic and political stability Vietnam should solve outstanding problems relating to infrastructure and policies and further reform administrative procedures in order to improve investment environment and attract more foreign firms.
It also showed that sixty percent of all FDI firms in Vietnam learned about investment opportunities in the country via their fellow-country enterprises operating in Vietnam, while only six percent through affiliates of the MPI and two percent through Vietnamese embassies abroad. This will open a new orientation for Vietnam to lure more investment. The Vietnamese Government should attach great importance to attracting not only new foreign enterprises but also partners of the currently-operated-FDI firms, which are considered a useful bridge to enable the country to lure more foreign investment.
In his appreciation for the report, Vietnamese Deputy Minister of Planning and Investment Dang Huy Dong has affirmed that the Vietnamese Government sees the need to attract resources from the outside for the country’s economic development, especially FDI. Therefore, he said, the report would be very useful tool for the MPI to analyze the country’s current situation and take effective measures in the new period. The report also supported Vietnam in changing its FDI strategy, from giving its top priority to the number of projects to the quality of projects while maintaining growth rate of investment value, Dong added.
