July 19, 2018 08:42

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FDI accounted for a large share in exports is a major defect

08:45 | 30/06/2018

VCN- Exchanging with the reporter of the Customs Newspaper, Le Quoc Phuong (pictured), former Deputy Director of the Center for Industry and Trade Information (Ministry of Industry and Trade), said that FDI enterprises having accounted for a large export proportion is a major defect, and is too big in the "picture" of exporting Vietnamese goods. To support sustainable export, supporting industries must really develop and domestic enterprises have to reduce trade deficit.

fdi accounted for a large share in exports is a major defect

In 2017, the total import turnover of Vietnam reached over 400 billion USD, of which surplus export was nearly 3 billion USD. In the first five months of this year, exports continued to grow well, maintaining surplus trade. In your opinion, what is the main reason for export success?

There are two groups of causes that are objective and subjective.

Objectively, reviewing the previous world economy, it can seen there was quite steady growth until the 2008 crisis occurred, leading on into 2009. When there is an economic crisis, countries are focused on stimulus, including Vietnam. Thanks to that, in 2010, the economy improved a bit, but in 2011 it went down. In general, during the period 2008-2016, the world economy was basically downgrading, stagnating, affecting exports. From 2017 the world economy started to flourish, in which major economic centers such as the United States recovered well; EU debt crisis was better; China had reduced growth, but had not "landed hard" but "soft landed", growing at 7% per year; ASEAN had a relatively stable economy and development ... These large economic centers are the main export markets of Vietnam. When the world economies in general, and in these economic centers in particular are stable and have certain development, they will facilitate exports. Economic stability and the increased demand, it means development of Vietnam export.

Besides the objective factor, the most important is the subjective cause. After Vietnam had stabilized macroeconomics, curbing inflation, from 2011, the Government tightened the issue on the implementation of fiscal measures and fiscal policy. Vietnam has reduced its inflation rate, but its economy was slowing down in 2011-2014. From 2015, the domestic economy began to flourish, and especially in 2017 it reached the highest growth in 10 years. In the first quarter of this year, economic growth reached 7.38%, it was also the highest growth rate in 10 years. After the difficult period, the economy prospered from 2017, and in the first few months of 2018. This makes favorable conditions for export.

The strong economic growth, falling inflation, the reduction of bad debt, the reduction of interest rates, exchange rates are relatively stable ... Macroeconomic environment and legal environment are improved, and the Government is determined to fight corruption. In addition, the accelerated implementation of electronic customs procedures, electronic tax payment, National Single Window ... have all contributed to creating a business environment more favorable and transparent for businesses ... Therefore, the sectors of manufacturing and export are strongly developed. All generate strong export growth.

In the past 5 months, Vietnam's had a trade surplus, but the domestic economic sector is still trading a deficit of $ 10.39 billion; foreign investment (including crude oil) surpassed 13.78 billion USD. Thus, the "export picture" has not still changed a lot when mainly basing on FDI enterprises. What do you think about this?

The assessment of FDI in general, it must be objective and comprehensive. Vietnam has been attracting FDI for 30 years, and from 1988 until now, this country continues to attract it, considering it an important part. Since 1988, Vietnam has attracted about 25,000 FDI projects, contributing a great deal of capital, equipment, technology and employment to Viet Nam, and helped Vietnam convert a purely agricultural economy into having a large industrial share. At present, in the structure of the economy industry accounts for more than 40%, agriculture is less than 20%, contrary to the time before the new innovation occurred. On export, FDI promotes export. Most FDI enterprises are exporters. Clearly, the FDI bloc has a great impact on the economy, boosting export.

In addition to the above positive factors, negative factors are environmental pollution, transfer pricing situation, spillover effect ... FDI companies invest in Vietnam, but most of them have no link with domestic enterprises. The technology is low technology, just assembly ... In export nowadays, FDI enterprises make up a large proportion and their growth is too fast. Meanwhile, domestic enterprises have slow export growth. This is a big and worrying defect. In 2000, FDI enterprises accounted for only 30% of total export turnover and this figure was less than 50% in 2010. However, in 2017, FDI enterprises accounted for 72.6% of the total export turnover, the rest are domestic enterprises.

Another point worth noting is that Vietnam now trades a surplus, with trade deficit or balance of trade completely depending on the FDIs. Exports over the past few years are due to FDIs. Vietnam's trade surplus is high,but domestic enterprises still have a large trade deficit.

fdi accounted for a large share in exports is a major defect

Besides the large dependence on FDI enterprises in export, the export picture of Vietnam has appeared with some positive signals showing the development of domestic enterprises. Could you better analyze this?

In the first five months of this year, optimistic signs are that for the first time domestic enterprises’ export growth figures are higher than FDI enterprises. Specifically, domestic enterprises have an export growth of 17.8% and FDI enterprises 16%. Until now, FDI enterprises have always had higher growth rates. Besides, the positive point is that the proportion of FDI enterprises is the first export reduction, in the past it increased. In the first five months of this year, FDI accounted for 71% of the total. For domestic enterprises, the proportion many years ago continued to decline, but this year the number increases. However, all these are only positive signs that appear for the first time, so it is not sustainable.

How do you assess the export of goods from now until the end of the year? Can Vietnam continue to maintain a trade surplus, sir?

Vietnam's economy continuously had a trade deficit in the period 1986-2011. From 2012, Vietnam would continue to trade surplus, but in 2015, import surplus returned. In the first five months of this year, Vietnam's trade surplus and forecasts for the whole year remain unchanged.

Regarding the structure of export commodities, in recent years, industrial goods have been dominant in export. At present, industrial processing sector accounts for 80% of exports. In terms of commodity structure the shift to industry is positive. With the current trend, export structure will remain stable, basically not much change.

The government aims to strive for a balanced trade balance by 2020. Under the current situation it is a fact Vietnam has exported a trade surplus. In your opinion, can Vietnam be confident in the achieved results?

The target set by the Government is in the Import-Export Strategy 2011-2020, orientation to 2030, signed in December 2011. The strategy was drafted in years of stressful trade deficit, especially in 2007 when the trade deficit was 17 billion USD and in 2008, when the trade deficit was 14 billion USD. In 2009-2010, the trade deficit had decreased but it was still over 10 billion USD. The target was very high at the time, however, as soon as the strategy was announced, Vietnam had already surpassed it and there was a difference between strategy and reality.

The result of export surplus achieved over the past time is very optimistic, but it cannot be considered sustainable because Vietnam is an economy of processing to export, Vietnam still imports raw materials. Vietnam's supporting industries have not been produced yet. In addition, export surplus depends on FDI enterprises. FDI enterprises have surplus export, Vietnam does, too

Please tell us, what is the solution to help Vietnam’s trade balances be more balanced in the future?

For the solutions to balance trade, even the trade surplus. Firstly, the supporting industry must be built. Supportive industries help Vietnam reduce imports. For example, when manufacturing automobiles and motorbikes, Vietnam can produce tires, wheels, spare parts itself ... Secondly, domestic enterprises have to reduce import surplus. Domestic enterprises must use materials and accessories in the country, thus reducing imports. To do so, in addition to the actual development of supporting industries, there should be incentive policies, creating incentives for enterprises to reduce imports from foreign countries.

Thank you Sir!

According to the General Statistics Office, after 4 consecutive months of export surplus, Vietnam had a trade deficit of $ 500 million in May. This result is mainly because Samsung has focused on exporting Galaxy S9 products in March, making the telephone export turnover tending to decrease from April. In general, in the first 5 months, Vietnam has a trade surplus of $ 3.39 billion. Of which, the trade deficit of the domestic economic sector is USD 10.39 billion; Foreign investment (including crude oil) surpassed 13.78 billion USD.

By Thanh Nguyễn/Bui Diep