If Vietnam doesn’t have a reasonable policy on using capital from FDI, it will have to pay a heavy price for it, experts say.
The fact that Big C Vietnam unexpectedly stopped collecting textiles and garments from Vietnamesesuppliers has once again rung the alarm about foreign businesses' encroachment on the Vietnamese retail market.
Big C unexpectedly stopped collecting textiles and garments from 200 Vietnamese suppliers
Nguyen Van Nam, an economist and ormer head of the Trade Research Institute, pointed out that loopholes exist in Vietnam’s policies for the retail sector.
When opening the retail market, Vietnam will apply the ENT (economic needs test) when foreign retailers want to open second and subsequent retail points.
However, ENT doesn’t work well, because local authorities ignore it. They just try to attract more foreign investors, considering this an achievement in economic development.
Metro is an example. Vietnam took cautious steps when allowing Metro to open the first supermarket. However, the second and subsequent Metro supermarkets were opened easily without any barriers. It opened 19 supermarkets throughout the country until it was sold to a Thai company.
ENT doesn’t work well, because local authorities ignore it. They just try to attract more foreign investors, considering this an achievement in economic development.
Nam said that Vietnamese negotiators could anticipate the risk of the domestic retail market falling into foreign hands and tried to set provisions to protect Vietnamese retailers. However, the legal framework is not strong enough to prevent rapid expansion by foreign investors.
“So, our policies are not watertight, with low enforcement and lack of consistency between the central management and local implementation,” Nam commented. “As a result, 50 percent of the domestic retail market share is in the hands of foreigners."
The second problem is that it doesn’t understand partners. Each partner has specific purposes when coming to Vietnam.
European partners do not consider bringing their products to Vietnam for sale as a top priority because of the difference in qualifications of goods, prices, and payment capability.
But Asian partners, especially Thai, are different. Thai retailers have been trying every possible way to bring Thai products to Vietnam to sell at trade fairs, exhibitions and supermarkets.
An analyst, sharing the same view with Nam, commented that Vietnam has been trying to attract as much FDI as possible over the last 30 years, but it brought fewer benefits than expected.
“Vietnam gets nearly nothing from FDI, from technology, labor to tax. Meanwhile, it became a technology dumping ground for foreign investors,” he commented.
“Thirty years ago, Vietnam needed capital and investment, so it had to accept polluting technologies. But it still does this 30 years later, when the economy is better,” he commented.
With Vietnam’s new foreign direct investment attraction strategy towards 2030 set to be unveiled soon, international investors are making fresh moves to benefit from privileged incentives.
Vietnam’s industrial and economic zones attracted 340 foreign-invested projects with a total newly-registered capital of 8.7 billion USD in the first six months of 2019.