IFC helping Vietnam with FDI strategy for economic growth

IFC, a member of the World Bank Group, is supporting Vietnam to unlock the next generation of foreign direct investment (FDI) to sustain the country’s rapid economic development, competitiveness and inclusive prosperity.

According to a report by devdiscourse.com, the Recommendations on Vietnam Next Generation FDI Strategy and Vision 2020-2030, launched by IFC and the Ministry of Planning and Investment (MPI) today in Hanoi provides findings and recommendations to serve as key inputs for the government to develop Vietnam’s new national FDI approach, part of the country’s strategic documents such as the Socio-Economic Development Strategy (2021-2030).

While open-door investment and trade policies have led to increases in FDI inflows, employment opportunities and diversification of exports — especially in the last decade with annual FDI inflows rocketing by almost ten times to outperform most regional competitors — this new report responds to a growing realization that Vietnam requires breakthrough reforms to compete for higher quality streams of FDI.

Saigon, Vietnam

“The challenge we face is unique, as record FDI inflows contrast with still limited spillover and value-added benefits. We believe the recommendations outlined today will underpin a new national approach to FDI and contribute to the achievement of national development goals,” said MPI Vice Minister Vu Dai Thang.

Developed in partnership with Switzerland’s State Secretariat for Economic Affairs SECO, the strategy, in particular, responds to recent findings that FDI in Vietnam is substantively driven by low labor costs and generous incentives.

In fact, investors have identified a lack of skilled labor as an impediment to growth, while the absence of integrated local supply chains has further blunted the competitiveness of firms as has the lack of qualified domestic suppliers and effective policies to assist local players.

“By addressing these issues, the government is likely to unlock more opportunities for Vietnam,” said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia and Lao PDR. “The core analysis involved an intensive review of potential priority sectors. It aimed to identify which sectors — and under what circumstances — represent the most competitive opportunities for Vietnam to attract investment (FDI and domestic), create both more and better jobs, and increase sourcing from local firms.”

Having emerged from a qualitative survey and stakeholder consultations on FDI strategy, the report’s recommendations translate into eight proposed breakthrough reforms.

An immediate priority is adoption of concrete policies that increase FDI linkages and spillovers, with a focus on introducing policies to increase FDI linkages and targeted supplier development programs.

In line with meeting the challenges and opportunities of Industry 4.0, Vietnam should aspire to a business environment commensurate with business needs in the digital age. Instead of “playing catch-up”, this reset should offer a superior investment climate and operating experiences with digital/online solutions compared to regional competitors.

Other recommendations include creating and implementing an integrated national skills development plan to accelerate Vietnam’s transition from low to skilled labor; modernizing investment promotion, moving from reactive to proactive promotion in priority sectors; overhauling current incentives frameworks; opening up important sectors that underpin competitiveness and growth; and introducing strategic outward FDI promotion policies.

Above all, a strong FDI focal point agency with the proper profile, influence, organizational structure and budget is key to ensuring effective implementation of all these recommendations.