The director of a husbandry company admitted that his enterprise bears pressure from FIEs in the production chain. “At some moments, FIEs’ sale policies determine the selling prices of all products in the market,” he said.

Vietnam’s animal husbandry has been growing rapidly, but the animal feed industry heavily relies on FIEs and two-thirds of feed are imports.

“We can’t do like them and we are inferior to them. So we have to accept to stand at a lower position,” he said.

The director said it is necessary to be fair when talking about FIEs. The presence of foreign enterprises has helped bring Vietnam’s livestock industry to a higher development level. 

Thanks to them, Vietnam now has large-scale livestock companies which raise animals in accordance with international standards. 

Agriculture attracts less foreign direct investment (FDI) than other fields. The same situation is seen in the logistics sector. Cap Trong Cuong, CEO of Viconship, noted that Vietnam’s logistics companies still have to work for FIEs in their home market, though their labor force quality, infrastructure, and management technology are not inferior to FIEs.

Over the last 40 years, since the day FDI capital flow arrived in Vietnam, the footprint of FIEs can be found everywhere, especially in the fields of retail, automobile, electronics, textile and garment, and footwear.

According to the Ministry of Industry and Trade (MOIT), in 2022, Vietnam’s turnover from phone and phone accessories reached $57.99 billion, of which $57.8 billion came from FIEs, accounting for 99.67 percent.

Of the $55.53 billion worth of computer and computer component export turnover, FIEs made up $54.6 billion, or 98.31 percent.

According to the General Department of Customs (GDC), of the $45.75 billion worth of machine and equipment export turnover, $42.55 billion came from FIEs, or 93 percent.

In the footwear industry, 70 percent of footwear companies are Vietnamese owned, but they create only 20 percent of total export turnover.

As for added value, turnover and jobs in the processing and manufacturing industry, FIEs are dominant in 12 out of 24 sub-industries, and play the controlling role in four out of Vietnam’s five biggest industries for export, namely textile and garment, footwear, electronics, and woodwork.

FIEs make up 20 percent of GDP, 72 percent of total export turnover and 50 percent of industrial output. Vietnam's registered business sector just makes up 10 percent of GDP. 

The number of FIEs is small compared with Vietnamese-owned ones (25,000 vs 800,000). Of the 25,000 FIEs, the General Department of Taxation (GDT) can count about 335 projects which have registered investment capital of over $100 million, mostly in the processing and manufacturing industry in economic zones (EZs) and industrial zones (IZs). The total registered investment capital of these projects accounts for nearly 30 percent of total FDI capital in Vietnam ($131.3 billion).

Domestic budget revenue

However, it is only a small number of FIEs that contribute 7.5-8.5 percent to the total domestic budget collection, according to GDT.

Reports by the Ministry of Finance (MOF) show that more than half of FIEs in Vietnam report losses every year. In 2021, 14,293 enterprises reported losses (55 percent), while 16,258 enterprises reported accumulated losses (62 percent).

“Many FIEs take a loss. Their contributions to the state budget are not commensurate with their operation scale," according to MOF. The common corporate income tax in Vietnam is 20 percent, but in fact, the actual tax rate many FIEs pay is 12.3 percent, while large foreign economic groups bear tax rates of between 2.75 percent and 5.95 percent.

In terms of technology transfer, FDI effectiveness has been limited and much lower than that in other regional countries, while the FDI ratio in industry is much higher.

The number of technology transfer contracts remains very modest, just 1,000 contracts for a total of 27,500 foreign invested projects. Of these, technology transfer including industrial property objects account for 13 percent as estimated by the Ministry of Science and Technology (MST).

According to MOIT, there are about 5,000 enterprises that make spare parts and components, of which only 1,000 enterprises can join multinationals’ production networks.

The level of participation of domestic enterprises in supply chains for FIEs remains modest. Most domestic support enterprises are third- or fourth-level vendors that mostly supply simple products and accessories of low value.

For Samsung, there are only about 35 domestic enterprises that are first-class vendors and 136 second-class vendors, a small proportion of the total number of suppliers for Samsung. Of the second-class domestic vendors, there are only three electrical and electronic component manufacturers, while the other 102 enterprises supply plastic components and mechanical engineering products, and 31 vendors supply materials and spare parts.

Duy Anh