Article Type : Research Article
Authors : Ngo Thanh Phong
Keywords : Attraction; Economic growth; Foreign direct investment; Tien giang
After more than 30 years of reforming the
country, the foreign direct investment (FDI) sector has increasingly affirmed
its important role in the economic development of Vietnam in general as well as
localities in particular, through the contribute to important growth factors
such as additional investment capital, increase in output, technology transfer,
job creation, etc. The article uses descriptive statistical method to express
the relationship between FDI capital and economic growth of Tien Giang province
(Vietnam) to assess the outstanding effects and propose recommendations to
collect FDI attraction in Tien Giang province (Vietnam) in the near future.
T In the context of globalization, under
the great impact of the scientific and technological revolution, all countries
must participate in the process of international integration and international
integration has become an inevitable trend. In which, international economic
integration has been a major, consistent and cross-cutting policy of our Party
and State for many decades. After more than 30 years of international economic
integration and attracting foreign investment, Vietnam has attracted more than
23,000 FDI projects with a total registered capital of over 300 billion USD, of
which implemented capital is estimated at 161 billion USD [1]. Along with the
whole country, the journey to attract FDI in Tien Giang province has also
achieved many important achievements. Implementing the Law on Foreign
Investment in Vietnam in 1987, Tien Giang province began to receive the first
FDI project. The highlight for the transformation of Tien Giang Industry was
the establishment of BGI Alcohol and Beer Joint Venture Company in 1992,
followed by a series of joint venture companies. FDI enterprises increasingly
assert their important role in economic growth in Tien Giang province when
contributing to supplementing investment capital, increasing exports, transferring
technology, creating jobs, etc. In addition to remarkable contributions to
economic growth, FDI investment in Tien Giang province in recent years still
has many challenges. The article analyzes the current situation of FDI
attraction as well as the contributions of this economic sector in recent
years, on that basis, some recommendations on policies to promote FDI
attraction in Tien Giang province (Vietnam) are proposed.
Legal
basis for foreign direct investment activities in Vietnam
Foreign direct
investment into Vietnam is the total amount of lawful money and in-kind that
foreign investors have brought into Vietnam and made investments in approved
projects, in the form of: Money, machinery, equipment, supplies, raw materials,
fuel, finished goods, semi- finished goods, value of industrial property
rights, technical know-how, technological processes, technical services
technology, intellectual property rights and other legal assets. To implement
the economic reform policy of the 6th Congress of the Central Executive
Committee of the Communist Party of Vietnam in 1986, many economic policies
were promulgated. In particular, with the aim of encouraging foreign
investment, the Law on Foreign Investment in Vietnam was promulgated at the end
of 1987 as one of the Laws that started the period of economic renewal of the
country, creating a favourable environment for the economy. Legal documents to
attract foreign investment capital into Vietnam. In 2005, in the trend of
globalization and international integration, in order to create an equal
business environment among economic sectors, the National Assembly promulgated
the Law on Investment to replace the Law on Foreign Investment. The Law on
Investment has eliminated discrimination, created an equal environment for both
domestic and foreign investors, ensuring the legitimate rights and interests of
investors. Since its inception, the Law on Investment (2005) has accelerated
the process of attracting investment capital in all fields, especially
attracting FDI. However, after Vietnam joined the World Trade Organization
(WTO), the 2014 Investment Law amending a number of articles of the 2005
Investment Law, including regulations on expanding investment freedom to
attract foreign investment into Vietnam. And from January 1, 2021, regulations
on business investment activities in Vietnam are implemented in accordance with
the Law on Investment 2020. The Law on Investment 2020 was promulgated with the
basic goal of improving the quality. The quantity and efficiency of investment
attraction is consistent with the planning and development orientations of the
sectors, fields and regions, on the basis of ensuring security, national
defence, sustainable development and environmental protection; continue to
ensure the full and consistent implementation of the right to freedom of
business of people and enterprises in industries not prohibited by the Law, and
at the same time remove obstacles and create more favourable conditions for
investment activities, manufacturing business. Thus, the legal basis for
foreign investment activities in Vietnam has been initiated since Vietnam began
to integrate into the international economy. Through each period, Vietnam's
investment guidelines and policies are constantly improved in the following
years to suit the new situation. Although the world economy has undergone many
changes in recent years, Vietnam's policy of economic integration and foreign
investment attraction has been consistent and throughout history. This is a
premise to help Vietnam in general and localities in particular mobilize
maximum resources to serve local socio-economic development and has brought
about many great achievements in recent years.
Theoretical
basis for research
The role of investment
capital in economic growth has been mentioned a lot in economic theories and
models. In the 40s of the twentieth century, two economists, Roy Harrod and
Evsay Domar, jointly proposed a model to explain the relationship between
economic growth and the basic factors of capital and labor. In it, Harrod and
Domar argue that the source of capital is from national savings. If this
savings source is limited, it is possible to use foreign capital, also known as
foreign investment capital. After Harrod and Domar, in 1956, economist Rober
Solow introduced a new economic growth model (Solow model or neoclassical
model) showed: in addition to capital, labor also has more technology. These
are the inputs for economic growth. However, Solow only considers factors in terms
of numbers and thinks that these are exogenous variables (exogenous models).
Developing this model, endogenous growth theory has shown that capital promotes
long-term economic growth through technology transfer, capital accumulation,
export enhancement, capacity building and job creation. Nowadays, there are
also many studies on the relationship between FDI and economic growth.
According to, FDI plays an important role in the economic growth of the host
country, through it can encourage the use of new technologies and contribute to
the transfer of knowledge and skills to workers [2]. The factors that
positively affect FDI attraction in Vietnam are domestic investment, market
opening and secondary education while inflation is believed to have a negative
impact on economic growth. From there, the Vietnamese government should improve
regulations governing business activities, facilitate business start-ups,
control prices, and increase investment in education to promote economic growth
[3]. According to, for developing countries like Vietnam, FDI provides a
significant source of capital for economic growth, and points out that trade
openness and economic crisis are two factors affecting FDI inflows and economic
growth. While in South Asian countries, FDI has a significant influence on
economic growth through variables such as human capital, infrastructure and
capital. However, population, technology gap and inflation have negative
effects on economic growth. For countries in the European Union, said that
there are many factors affecting the economic growth of countries, but FDI is
the factor that has a significant influence on growth [4-7]. The study also
shows that the impact of FDI on economic growth does not depend on the human
capital of the host country. With economic theories and models, economists have
found an endogenous relationship between economic growth and FDI. In
particular, FDI inflows have a 2-way effect, both directly affecting the
economic growth of the country, on the other hand, FDI inflows are also
affected by the level of economic development of that country.
Research
methods
Secondary data research
method: Used to review, systematize and summarize the results of theories
related to economic growth and development. Methods of systematization, synthesis
and analysis include: qualitative analysis, comparison, statistical analysis.
This method is used in synthesizing information and single data from the
Statistical Yearbook, systematizing and chaining by problem group; On the basis
of available information and data, it will be generalized to build a framework
to analyze the role of FDI in Vietnam's economic growth. Comparative method:
Used to compare data between years, periods, between factors in the same year
to evaluate and analyze the relationship between economic growth and FDI
capital.
Overview
of FDI Capital of Tien Giang Province
From a practical perspective, from 1996 to 2000 was the period when state-owned, non- state-owned and FDI enterprises were gradually formed, developed rapidly and strongly, creating significant innovation of the production force. The province's economy had a very important development, the average annual GDP growth rate in this period reached 8.1%/year, and the industrial production value reached 14.2%/year. The next step, attracting FDI into Tien Giang begins to accelerate.
Figure 1: FDI in Tien Giang province 2000-2020.
In 2007, Tien Giang has
attracted 31 foreign direct investment projects with a total investment capital
of 342 million USD. Accordingly, the capital of the partner is a foreign
investor is 304 million USD, accounting for 89%, the contributed capital of the
Vietnamese party only accounts for 11%. Out of 31 projects, there are 13
projects established in the form of joint ventures, 18 projects established in
the form of enterprises with 100% foreign capital. In recent years, investment
attraction in the province has increasingly flourished. In terms of FDI, in the
2016-2017 period, the province has attracted 20 new projects, with a total
registered investment capital of more than 407 million USD, reaching 27% more
than the target of the 2016- 2020. In 2017, the province had 109 valid FDI
projects in operation, with a total registered investment capital of 1.99
billion USD. According to the general assessment, the province's FDI attraction
ranks fourth in comparison with other provinces and cities in the Mekong Delta,
only after the provinces of Long An, Kien Giang and Tra Vinh. If only in 2017,
FDI projects in the province contributed nearly 96 million USD to the budget,
with the industrial production value reaching nearly 60,000 billion VND. Along
with the trend of increasing investment capital in Tien Giang, the average
investment capital for a project has also increased over time, the average
investment capital in 2010 is 14.8 million USD/project has increased 25.9
million USD/project in 2020. It shows that more and more large-scale FDI
enterprises are investing in Tien Giang, making an important contribution to
the process of promoting economic growth in Tien Giang province (Figure 1).
According to the
Department of Planning and Investment of Tien Giang province, for the 2016-2020
period, the province has attracted 122 projects, with a total investment
capital of 34.918 billion VND (including 44 foreign direct investment
projects), with a total investment capital of 18.853 billion VND; 78 projects
with domestic investment capital, with a total investment capital of 18.065
billion VND, an increase of 23 projects, an increase of 70% in investment
capital compared to the period 2011-2015. Particularly, attracting foreign
investment is 2.5 times higher than in the previous period, with 131 FDI
projects up to now, becoming a province attracting high FDI capital in the
Mekong Delta [8-10].
Attracting
FDI by investment partners of tien giang province
In recent years, Korea, China and Hong Kong are the three largest investment partners in Tien Giang province.
Table 1: Foreign direct investment by major investment partners in Tien Giang province.
Country/territory |
Project
number |
Total
Capital (Million $) |
Korea |
30 |
266 |
China Hong Kong |
30 12 |
745.5 503.7 |
Singapore |
10 |
101.9 |
Taiwan |
8 |
118.3 |
England
Japan Thailand … |
7 5 4 … |
133.8 20.7 51.5 … |
Source:
Statistical Yearbook of Tien Giang province in 2020 Based on Table 1, it shows
that, although China is the country with the highest amount of investment
capital in Tien Giang, the average capital size for a project is about 24.85
million USD/project, lower than the average capital size of Hong Kong, reaching
49.9 million USD/project.
The proportion of
investment capital of these three countries accounts for more than 50% of total
FDI capital. Investment partners of Tien Giang are still mainly Asian countries.
The fact that Vietnam has just signed a Free Trade Agreement with the European
Union (EVFTA) is expected to boost FDI attraction in this market to Vietnam in
general and Tien Giang in particular in the coming time (Table 1).
Attracting
FDI by sector of Tien giang province
By 2020, FDI capital tends to focus more and more on a few key industry groups, associated with a roadmap to cut tariffs and open up attractive investment areas according to Vietnam's commitments upon integration. The registered capital in Tien Giang province focuses on the manufacturing and processing industries with 91.1% of the total registered capital (Table 2).
Table 2: Foreign direct investment by economic sector in tien giang province.
Field |
Project number |
Total registered capital (Million $) |
Agriculture, forestry and fisheris
Manufacturing and processing industry Accommodation
and catering services Real estate business Art of amusement and entertainment … |
1 116 5 1 2 … |
0.5 1,958.1 82.1 100.0 1.6 … |
Total |
130 |
2,149.2 |
In contrast to the top FDI-attracting industry group, the FDI attraction of other industries is still limited, most notably agriculture, forestry and fisheries. Although, Tien Giang's population is concentrated mainly in rural areas (about 85.8%), labourers working in this area account for about 63.9% of total social workers and agriculture contributes about 38.9% of the province's gross product (Tien Giang Statistical Yearbook, 2020) but FDI capital invested in this field only accounts for 0.77% of total projects and 0.02% of total FDI in the province. From that, it can be seen that, in recent years, FDI capital has not played an important role in the development of agriculture and rural areas of the province [11-14].
Additional
investment capital
Additional investment capital is one of the major impacts when Tien Giang province attracts foreign direct investment. Since the Law on Foreign Investment Attraction was promulgated, along with the implementation of commitments in international economic integration, the attraction of foreign investment capital to Tien Giang province has continuously increased, both in terms of the number of countries participating in the investment, the number of projects and the size of capital. Along with that, the opportunity to receive technology, management experience, etc., allowing Tien Giang enterprises to participate in global production chains will also increase, contributing to socio-economic development in recent years (Figure 2).
Figure 2: Investment capital in Tien Giang province for the period 2015-2020.
Source: Author's calculation from Tien Giang Provincial Yearbook 2020 Although FDI capital invested in the province has decreased in recent years (accounting for 21.6% in 2015, down to 11.6% in 2020), but on average in the period 2015-2020, investment capital of FDI nearly 17%. Achieving this result shows the confidence of foreign investors in the investment environment and the implementation of commitments when Vietnam integrates into the international economy in general and Tien Giang province in particular.
Increase
in export turnover
Increasing export
turnover is one of the great impacts of FDI enterprises on the economy of Tien
Giang province. According to the Department of Industry and Trade of Tien Giang
province, in 2018 export turnover reached 2.7 billion USD, an increase of 8.3% compared
to 2017, of which FDI enterprises accounted for 75% of export turnover. By
2020, Tien Giang's export turnover of goods will reach 3 billion USD, an
increase of 4.7% over the previous year, with more than 78% of the total export
turnover of 2020 in the foreign-invested sector. In the period 2010-2020, FDI
enterprises in Tien Giang province always make positive contributions in
increasing export turnover of the province. According to the analysis of Tien
Giang Department of Industry and Trade, the province's export turnover still
relies heavily on foreign-invested enterprises, specifically, the FDI sector
still accounts for 75-80% of the export turnover of the province. This shows
that the role of FDI enterprises is very large in increasing export value for
Tien Giang province in recent years [15-18].
Promote
economic growth
Enterprises in the FDI sector contribute to promoting economic growth in Tien Giang province when their total product continuously and increasingly accounts for a high proportion in the total production structure, contributing to the economic restructuring in a positive direction, in line with the policy of industrialization and modernization of the country (Table 3).
Table 3: Foreign direct investment enterprises' contribution to the gross domestic product of Tien Giang province (at current prices).
Year |
Unit |
2015 |
2017 |
2018 |
2019 |
2020 |
Gross domestic product |
Billion VND |
64,740.2 |
80,673.7 |
88,779.6 |
96,347.7 |
99,544.4 |
Gross domestic product of the FDI sector |
Billion VND |
6,272.3 |
9,868.2 |
12,186.7 |
13,584.7 |
14,067.1 |
Structure |
% |
9.7 |
12.2 |
13.7 |
14.1 |
14.1 |
Source:
Statistical Yearbook of Tien Giang province in 2020 FDI capital plays an
important role, promoting Vietnam's economic growth when the contribution of
the FDI sector to gross domestic product was 9.7% in 2015, this ratio has
increased and accounts for 14.1% of the total product in the area in 2020.
Human
resource development and job creation
In addition to attracting FDI, contributing to economic growth, FDI enterprises also create jobs for a part of labor in Tien Giang province. The number of employees working in FDI enterprises has increased rapidly over the years. In 2015, FDI enterprises solved 48.3% of jobs for workers, by 2020 they have solved 51.9%, contributing to job creation and raising per capita income for labor (Table 4).
Table 4: Number of employees in active enterprises with business results as of December 31 every year in Tien Giang province.
Year |
2015 |
2017 |
2018 |
2019 |
2020 |
Total number of employees |
158.1 |
175.1 |
185.9 |
188.4 |
190.5 |
Labor in the FDI sector |
76.3 |
88.5 |
93.2 |
97.2 |
98.9 |
Structure (%) |
48.3 |
50.5 |
50.2 |
51.5 |
51.9 |
Source:
Statistical Yearbook of Tien Giang province in 2020 The FDI sector also has a
positive impact on human resource development of Tien Giang province through
investment projects in the field of education and training. Employees working
in FDI enterprises have the opportunity to learn and improve their professional
qualifications when accessing advanced technology and management skills. This is
considered a potential human resource to develop local businesses.
In the process of globalization, international
economic integration is an inevitable and objective trend. In particular,
opening up the economy, attracting FDI capital has helped Tien Giang province
mobilize more resources for economic development and FDI enterprises have
increasingly affirmed their great role in the economic growth of Tien Giang
province in recent years, such as promoting economic growth, increasing export
turnover, supplementing social investment capital and contributing to job
creation and income improvement for workers. In the coming time, in order to
attract high-quality FDI, Tien Giang needs to focus on the following issues:
One is to focus on investing in building a synchronous infrastructure system,
especially traffic, electricity and water, etc. to create attractiveness in
attracting investment and creating favourable conditions for investment and
production development. Tien Giang focuses on synchronous investment in bridges
and roads connecting with provinces in the Southern Key Economic Zone, the
Mekong River Delta, in addition to national highways and provincial roads. The
second is to focus on reforming administrative procedures, improving the
investment and business environment, reviewing and simplifying as much as
possible procedures related to investment and business development. Educating,
inspecting and improving the ethics of civil servants and public employees in
the performance of their official duties, especially the department in contact
with investors and businesses. Promoting the role of the Business Association,
the Investment Promotion Center and supporting enterprises in investment
promotion, new business development, and expansion of the scale of existing
enterprises. The third is to train human resources to meet the requirements,
strengthen the consolidation and improve the quality of the system of education
and training institutions in the province such as: Tien Giang University, Tien
Giang College, and vocational training institutions, in order to train human
resources to meet the needs of industrial production, business and service
development. At the same time, focus on taking care of the health and life of
workers and employees. Fourth, build and regularly update the list of projects
calling for investment in the province with all relevant information and
organize public announcement through mass communication channels for investors'
convenience. Surveying and collecting opinions of enterprises on the business
investment environment; focus on researching and promptly removing difficulties
of enterprises and investors; perform well the supervision and evaluation of
investment to coordinate to solve difficulties for each investment project.
Over the past 30 years, the presence of FDI enterprises in Tien Giang province
has made certain contributions to the local economic growth. However, besides
the positive effects of FDI enterprises on the economy, there are also risks
affecting the environment. Typical negative impacts include degradation and
pollution of water sources, air pollution, soil degradation and erosion,
increase in greenhouse gas emissions, etc. In the coming time, Tien Giang
province needs to continue to boost revenue attract FDI capital to have more
resources for socio-economic development but absolutely cannot harm the
environment. Therefore, when attracting FDI, it is necessary to focus on
selectively attracting projects with modern and environmentally friendly
technologies, ensuring sustainable development in the future.