Impacts of FDI on Sustainable Development Objectives of Vietnam in International Economic Integration Doan Tranh, Duy Tan University, Vietnam. E-mail: dtranh_2005@yahoo.com Nguyen Thi Thoa, Danang College of Economics Planning, Vietnam. E-mail: thoaminhphuc@gmail.com Abstract In the process of extensively international economic integration at present, the moving of FDI inflows more and more powerfully have affected the development of each country. Vietnam also does not stand apart from this trend as well. However, the focus only on FDI attraction for growth targets based on industries capable of large polluting, overexploitation of natural resources without paying attention to environmental protection that Vietnam is facing with serious consequences. The article focuses on the problems of FDI on sustainable growth in Vietnam to find the cause of existence of negative impacts. On this basis, the author proposes some solutions to promote positive effects and to limit negative effects of the FDI projects in Vietnam, towards the development of the economy to sustainable goals and improve quality of human life. Key Words: FDI, sustainable development, Vietnam economy, economic integration, negative effect 1
1. Global Trend towards Sustainable Development Goals Foreign direct investment (FDI) has contributed so much to the achievements of growth and socio-economic development of Vietnam in recent years. Through economic agreements were signed, Vietnam established free trading relations with 57 countries worldwide. The FDI into Vietnam has had trend increasing more and more. However, the focus only on FDI attraction for growth targets based on industries capable of large polluting, overexploitation of natural resources without paying attention to environmental protection that Vietnam is facing with serious consequences. The depletion of natural resources, air pollution, water pollution, environmental degradation, biodiversity reduction are increasing seriously. So, those problems have caused negative impact to the sustainable growth, social welfare, as well as increasing social costs for recovery. On the other hand, according to the forecast of the World Bank, due to the impacts of environmental pollution, Vietnam's GDP will be fell 2.5% each year. The fact that sustainable growth is seen as development goals in Vietnam both in the short and long term. So it needs a thorough study on the impact of FDI on the economy, society and environment in Vietnam to assess the full effects of both positive and negative FDI projects. Since then, to propose the necessary solutions to promote positive effects and limit the negative from this investment flow to the socio-economic environment and to ensure sustainable development in the process of further integration of the economy into globalization process. 1.1 Perspectives on Sustainable Development According to the World Council on Environment and Development (WCED): "Sustainable development is the development to meet current needs without damaging the ability of future generations to meet the requirements of themselves" In Vietnam, sustainable development perspective is shown very clearly in the society - economic development strategy period 2001-2010. "Rapid development, efficient and sustainable, economic growth coupled with real progress, social justice and environmental protection. That means: Socio-economic development tied to protecting and improving the environment, ensuring harmony between man-made environment and the natural environment, preserving biodiversity. Actively prevent and limit the adverse impact of natural disasters, climate change on the environment. Protecting and improving the environment is the responsibility of the whole society, strengthen state management coupled with enhanced sense of responsibility of all citizens. Thus, sustainable development has required a combination of rapid economic growth with the environment protection and social development. Sustainable development is the development that combines tight, harmonious economic development (economic growth), social development (progressive realization of social justice, alleviating poverty and creating 2
jobs, protecting vulnerable groups in society), and environmental protection (treatment, pollution, prevention of fire and deforestation, rational exploitation and use of information saving natural resources, restore and improve the quality of the living environment) - Economic sustainability is an economy with constant growth, but it does not cause the degradation of natural resources and artificial and does not pollute the environment - Sustainable Development society is a society in which economic development, quality of life is enhanced, quality living environment is guaranteed. - The generations have the same right to meet their development needs. The species in the biosphere create unity of earth ecosystems must be guaranteed the right to exist even if they mean how to humans. Everyone has the right to the same benefits and obligations in the economy Ecology Ecology Society society ecology Society Economy Econom y Figure 1: Shift in sustainable development approach protection of natural resources and environment of the earth as well as the protection of human. 1.2 Inevitability for Sustainable Development The core objective of all economic activities, society must do is raising the quality of human life on both materially, physically and mentally. In fact, economic growth is not always accompanied by similar progress in human development. Experienced a long period of development, focused primarily on the economic, most countries have realized very clearly consequences due to unsustainable development caused such severe environmental pollutions, warming up of the atmosphere, biodiversity is destroyed, natural disasters and diseases increased rapidly both in intensity and extent of danger, crisis of food, fuel, clean water, rising inequality, a large population living in poverty, unemployment, disease, illiteracy, social conflict intensifies, uncertainty is increasing seriously affect quality of life. To limit and gradually reduce the negative impacts of adverse growth to human life, each individual, each nation must be aware of the great role of sustainable development. From there, take the proper actions to be able to guide the development achieving the targets of human development both physically and mentally. 3
2. Overview of Foreign Investment in Vietnam In recent years, Vietnam has actively participated in international relations and attracted FDI. The number of FDI projects keeps growing. In 1991 Vietnam had 152 FDI projects with total registered capital of $1244.4 million in 2014, then increased to 1843 projects with a total registered capital amounted to $ 21921.7 million in 2015, Vietnam attracted nearly $ 22.76 billion in FDI, up 12.5% compared to 2014. Year Table 1: Volatility on FDI in Vietnam for the Period 1991-2014 The number of FDI projects Total registered capital (millions USD) Total realized capital (Million USD) % realized capital / registered capital 1991 152 1284,4 428,5 33,36 1996 372 9635,3 2938,2 30,49 2001 555 3265,7 2225,6 68,15 2006 987 12004,5 4100,4 34,16 2010 1237 19886,8 11000,3 55,31 2011 1191 15618,7 11000,1 70,43 2012 1287 16348,0 10046,6 61,45 2013 1530 22352,2 11500,0 51,45 2014 1843 21921,7 12500,0 57,02 Source: Statistical Yearbook of Vietnam 2015 The number of investment projects in the industrial, manufacturing is the largest: to 31/12/2014 Vietnam has 9600 industrial projects, which are manufactured to the amount of $ 141,406.7 million accounted for 55.95% of FDI capital. 1698 investment projects in the field of scientific expertise and technology projects (representing 9.55% of the project), but the amount of capital is only $ 1792.4 million (representing 0.7% of total FDI capital). The number of investment projects in the field of water supply, management and wastewater treatment very little: there were only 38 FDI projects to invest in this sector with $1348.5 million. In 2015, FDI into the manufacturing sector continued to rise to $ 15230 million accounted for 66.9% of total registered capital. Table 2: Structure of FDI by Economic Activities Accumulated to 31/12/2014 in Vietnam Branch The number of projects Total registered capital (mill. USD) The rate of capital each branch (%) 1. Agriculture, forestry and fishing 528 3721.8 1.47 2. Mining and quarrying 87 3375.3 1.34 3. Manufacturing and processing industry 9600 141406.7 55.95 4. Electricity, gas, hot water, steam and air conditioning 98 9774.8 3.87 5. Water supply, management and wastewater treatment 38 1348.5 0.53 4
6. Construction 1166 11400.4 4.51 7. Wholesale and retail trade; repair of vehicles 1383 4030.7 1.59 8. Transportation, Warehouse 448 3755.3 1.49 9. Accommodation and food service activities 371 11193.6 4.43 10. Information and communication 1095 4124.9 1.63 11. Financial, banking and insurance activities 82 1332.4 0.53 12. Real estate activities 453 48279.8 19.10 13. Professional, scientific and technical activities 1698 1797.4 0.71 14. Administrative and support service activities 131 211.6 0.08 15. Education and training 204 819.9 0.32 16. Humans health and social work activities 97 1754.6 0.69 17. Art and entertainment 148 3634.2 1.44 18. Other service activities 141 754.1 0.30 Source: Statistical Yearbook of Vietnam 2015 Total 17768 252716.0 100.00 Partners invest in Vietnam come from many countries and regions, Korea has invested the most projects (4190 projects) with a total investment of $ 37,726.3 million accounted for 14.93% of total FDI Vietnam. Followed by Japan, Singapore, Taiwan, British Virgin Islands, respectively ranked second, third, fourth, fifth of FDI in Vietnam. The majority of FDI projects are concentrated in areas with favorable conditions on the market, in terms of infrastructure, resources and quality of human resources such as Ha Noi, Bac Ninh, Hai Phong, Thai Nguyen, Thanh Hoa, Ha Tinh, Danang, Quang Nam provinces in Vietnam. 3. The Impacts of FDI on Growth in Vietnam 3.1 Economic Impacts * Positive impacts. FDI plays an important role to accelerate the pace of economic growth. The contribution rate of FDI into Vietnam's GDP is increasing. In 2014, the total domestic product of 16.41% FDI accounted for GDP. GDP growth rate of FDI regions is higher than overall GDP growth rate of Vietnam. Table 3: Contribution of FDI into Vietnam's GDP at Current Prices in 2010 Year unit 2010 2011 2012 2013 2014 Vietnam GDP Billion VND 2,157,828 2,292,483 2,412,778 2,543,596 2,695,796 % growth of GDP % 6.42 6.24 5.25 5.42 5.98 GDP FDI Billion VND 326,967 352,123 378,236 407,976 442,441 % growth of GDP FDI % 7.69 7.42 7.86 8.45 5
GDP FDI /GDP % 15.15 15.36 15.68 16.04 16.41 Source: Statistical Yearbook of Vietnam 2015 Chart 1: Growth of GDP in Vietnam 9 8 7 6 5 4 3 2 1 0 7.69 7.42 7.86 8.45 6.42 6.24 5.98 5.42 5.25 2010 2011 2012 2013 2014 % growth of GDP Vietnam % growth GDP of FDI area FDI is an important channel to provide funds to the economy. FDI has accounted for an average of about 25% of Vietnam's total social investment capital for five years (from 2011 to 2015). FDI partially offset the shortfall of domestic economy in the field of large capital use as treating environmental pollution, formation of the modern urban area, using high-tech. FDI has contributed important to increasing openness of economy. It creates opportunities for Vietnam to trade with foreign countries, facilitates to learn experiences developed from the leading industrial nations in the world. In exports, FDI has hold key positions and create products with high added value. According to data from the Ministry of Planning and Investment reporting to Congress: in 2015, exports of FDI (including crude oil) was estimated at US $115.1 billion, up 13.8% over the same period in 2014 and accounted for 70.9% of the total export turnover of Vietnam. Imports of the region is US $97.9 billion (up 16.4% over the same period in 2014); accounting for 59.2% of total imports. Overall, in 2015, the FDI sector has trade surplus nearly US $17.15 billion. FDI contributes to promoting the process of industrialization, modernization and increases productivity in the economy through the projects invested in the field of production with modern technologies. However, there are not much projects using high-tech, the whole country is only about 5% of investment involved in the production with modern technologies such as: communications and information technology, about 5 % of the projects invested in the field of science and technology services; 3.5% of investment in the insurance, financial industries with skill of modern management, high level labors [3]. FDI contributes to transform economic restructure of Vietnam towards increasing the proportion of manufacturing industries and services and stimulates the development of new 6
industries, increases the rate of economic sectors outside the state owner. The success of the FDI sector that is dynamics to stimulate for developing domestic service sector such as: education and training consultants, finance and banking, etc. FDI to create a competitive environment to promote domestic enterprises raising the management level, machines equipped with more modern techniques, changing the outlook on the market and faster accessing to international markets. FDI creates opportunities for Vietnam enterprises to develop supporting industries. * The negative impact. The emergence of foreign investors with strong economic potentials, advanced management level, and so on. Causing some local businesses which can not compete and must fall into dissolution or bankruptcy. Many FDI enterprises produced with the aim to take advantage of cheap labor, resource utilization, leveraging technology rejected (in 2013, only 5% of FDI enterprises in Vietnam with high-tech, 80% with average technology, the remaining 14% are using low technology) should not promote technological spillover effects. Some FDI affect the ecological environment, detrimental to many businesses and households producing in agriculture, fisheries, or tourism in Vietnam. Typical pollutants damage directly and heavily economic as: Formosa (Ha Tinh province), Vedan (Dong Nai province), Pangrim Neotex (Phu Tho province), Chinfon Cement Company (Hai Phong city), etc. 3.2 Impacts of FDI on Society * Positive impacts. FDI creates more jobs helped reduce the unemployment rate, limiting the social problems caused by unemployment. In 2005, Vietnam had 1,220,616 workers employed in the FDI sector (accounting for 19.57% of employees in the businesses), in 2014, the figure was 3.04 million people (representing 26.38% of the employees work in the business). In addition, FDI sector also generate tens of thousands of indirect jobs in the domestic enterprises that manufacture and supply inputs or goods and ancillary services for the FDI sector. The FDI projects in manufacturing research, high quality education and training have contributed to promote the development of education, training and improve labor force level. * The negative impact. Besides the positive side, FDI also creates unemployment increases by pushing local businesses into the dissolution or bankruptcy because they can not compete. Some FDI exploit excessive labor to the maximum extent through extra shift, create pressure based on productivity causing stress for employees. Some enterprises caused serious pollution directly affecting the lives, health and livelihoods of so many people. Since then, effects of complaints, protests generated have the large impacts on social security and order. 7
3.3 Impacts of FDI on the Environment * Positive impacts. Although there are a number of FDI projects complying with requirements of environmental protection, but only a few. According to the date of 02/20/2016 Foreign Investment Department, currently has 28 projects in the field of water supply and waste treatment investment in Vietnam (only 0.2% of all projects). The total registered capital of 28 projects is US$ 710,084,540 out of a total investment of US$ 199,703,267,764 of all projects in Vietnam, accounting for 0.36% [4]. * The negative impact. Never as before, problems of polluting FDI caused there are many annoyances from society and government agencies at the time. Large consequences can foresee ongoing makes authorities as well as all people must look at the actual activities of FDI enterprises in Vietnam. More and more FDI businesses discovered polluting invested in the North, Central and South Vietnam. Extremely heavy consequences from the pollution of water, air, destroys biodiversity, distort the ecological environment, seriously affects the lives and human health. Only the pilot production phase, Formosa has caused the problem: "About 70 tonnes of wild fish of the 4 provinces of Ha Tinh, Quang Binh, Quang Tri and Thua Thien - Hue died drifted the ashore, mainly benthic species. Fishermen of 4 provinces has had difficulties because marine products can not be sold, or sold cheaply, not enough to offset the cost of fishing [5]". Not to mention the loss of activities of seafood restaurants, tourism, and other ecological damage. More typical is the discharge of Vedan polluted Thi Vai River: In 2008, monthly Vedan illegally discharged about 100,000 m3 of toxic waste water into the Thi Vai River (Dong Nai province) with wide radius contaminated to 10 km along the river. Vedan has damaged nearly 2,700 ha of Dong Nai, Ho Chi Minh City and Ba Ria - Vung Tau aquacultures. Although the government has on the sanctions, but the environmental consequences are not overcome 3.4 The causes of negative effects from FDI on sustainable development in Vietnam Vietnam has signed many bilateral agreements and multilateral, with the advantage of cheap labor so that Vietnam attracted a lot of FDI last time. On the other hand, foreign investors to Vietnam enjoy many incentives in the operation and natural resource utilization. These incentives are also a cause for the rapid depletion of natural resources, the environment quickly deformed, and destroyed. Vietnam lacks strategic direction and planning the project selection and investment partners with clear quantitative targets. This causes a large effect to the implementation of FDI orientation cleaner, less energy consumption, reducing emissions. The structure of FDI attracted unbalanced in the industries, of which focused on industry sectors such as manufacturing, metallurgy easy to pollute and use too many resources. According to a survey by VCCI and USAID/VNCI recently showed that 67% of FDI 8
businesses currently operating in Vietnam related to manufacturing industries with low added value, 80% use of average technology, 14% use low-tech, much energy consumption and high emission capability. This is contrary to one of the top targets of Vietnam's FDI attraction that is attracting projects with strong capital, high-tech and modern. FDI Partners from countries are available source technologies, easy to transfer of technologies and access to learning experiences such as Germany, France, Switzerland, USA, Canada, Russia is very little, remaining the partners mainly from Asia such as Korea, Japan, Taiwan, Hong Kong, China. The present FDI projects accounted for 70% of investment coning from Asia, including China, Hong Kong, Taiwan is relatively high, not to mention to the projects from other countries but originated and driven from China. Environmental standards of Vietnam is still low, the monitoring and evaluation of environmental impacts of the State management agencies are loose, conscious of environmental protection of many officials show signs of weakness, corruption. Ability to technological appraisal and environmental impact assessment of the appraisal officials is very weak, so in many cases not fully foreseen consequences. So more and more FDI projects easily polluted environment accepted in Vietnam. Environmental standards of Vietnam are too low, the monitoring of Vietnam about the environmental impacts still lax. The consciousness environmental protection of many staff still not good. Ability to evaluate the technology and the environmental affects of the project evaluation staff very weak and in many cases not fully foreseen the consequences. The consequence is more and more foreign direct investment projects in the field of environmental pollutants investment into Vietnam. Many localities set a target for local development based on industrialization through FDI and GDP growth taken as a measure of achievement. Find ways to attract more FDI so that bypass the standard in high-tech, energy-saving, environmentally friendly projects of FDI. To attract FDI and compete with other localities, many provinces are in the race to land rent exemption and reduction of chargeable resources of land, water, forests. Consequences of the easygoing for investors in this way that the provinces have received the projects of large energy consumption, increased material costs, low labor productivity, while the amount of waste products increased, causing huge waste for businesses and for national resources. The link between the ministries, departments and local authorities in the management and supervision of the implementation of enterprises responsibility in the enforcement of environmental regulations is not synchronized and close cooperation. In some localities, the management board of industrial zones and economic zones have not made full powers and responsibilities, being manipulated by investors, thereby breaking industry planning, territory, not ensuring the National Interest in FDI attraction. 9
Aware of the many businesses and the people about sustainable development is not high. Production activities, trading and consumption only focus on immediate benefits of individuals and without or very little attention to the environment. 4. Solutions to Promote the Positive Impacts and Limit Negative Effects of FDI on Sustainable Development in Vietnam To improve the efficiency of FDI flows and promote positive impacts and limit the negative effects of this capital inflow to sustainable development, Vietnam should implement synchronously the following solutions: 4.1 Improvement of Policies Related to FDI, Tight Control of Investment Licensing Appraisal with the Environmental Impact Assessment Seriously and Really Full Compliance with Regulations on Environmental Law The government needs to complete mechanisms and policies, legislation related to FDI to be more liberal and attractive while ensuring coherence and easy to control to promote FDI from developing properly. The investment policy should be adjusted strongly oriented to encourage the production and business enterprises applying energy saving, reducing of input materials, the cost-saving and applying environmentally friendly technologies. Terminating incentives like cheap resources of land tax, environmental fee. Simultaneously, there must be sanctions and punishment for enterprises causing environmental problems, waste of resources and energy. Improve the quality of project evaluation and investment licensing to choose the projects with many positive effects, remove the projects with many negative effects Using taxes as a tool to influence investment decisions of FDI. Completing the tax policy towards ensuring fairness and equity among economic sectors. The complete policy towards using FDI to solve the shortages that domestic enterprises can not meet; prioritize potential businesses and bring high-added value, use a lot of domestic labors. 4.2 Restructuring of FDI Attraction through Building Strategy to Attract and Select Projects and Investment Partners Vietnam need to develop strategies to attract, choose investment partners, projects. Encouraging projects with a positive effect, remove the projects having the potential harm to economy, society and Environment. There is strategy to attract FDI in line with planning for socio-economic sustainable development. Orientating FDI investment activities in areas appropriate to the market demand at home and abroad, to promote the advantages of Vietnam and create leverage to stimulate the development of supporting industries. Resolutely refuse the FDI projects that harm the environment, strengthen the attraction of foreign investment to develop clean industries such as high-tech areas, education, health, environment, commerce, tourism and so on towards sustainable development. 10
Pay attention choosing the FDI projects and partners. Give priority to investment partner with sound financial resources, partners from countries with source technologies and the commitment to use high technology, particularly multinational companies from advanced countries like US, Japan, Italy, Germany, and so on. Adjust the ratio of the FDI partners towards increasing the FDI structure from potential partners and reducing the proportion of investors from Asia (Asia would hold 30%, 30% Europe, Asia US 25%, Australia 10% and the rest are from other areas). To prioritize projects and partners from countries with advanced production, modern management level so that Vietnam laborers have the opportunity to learn the experiences in production and management. This is a chance for domestic enterprises to adjust and keep up with the development level of advanced countries. 4.3 Improve the Efficiency of State Management of FDI Attraction FDI management of state management agencies will better contribute to reducing the negative effects appeared from FDI. To improve the efficiency of the management of the FDI, priority should be improving policies of FDI attraction, then renewing management mechanism as well as reforming the management system and manpower in management. - Improve the ability to control and remedy these problems related to the environment since emerging. Regularly inspect and supervise the activities of FDI, detecting timely violations, negative impacts on environment (such as smoke, dust, sewage, noise), from stages of design for technology selection to construction and commissioning to take timely solutions for adjusting, preventing and treating promptly the serious problems. - Reform the management system by increasing the effectiveness and efficiency in management, necessary to reduce government intervention in the operation of enterprises. Improve workforce management and courage use of managerial staff qualified and high responsible. For activities of the organizational structure of government at all levels should maintain motivational mechanisms work, creating reasonable pressure for officials to raise awareness of personal responsibility in resolving the administrative management procedures. To develop legal mechanisms, strictly discipline for public officials, and must pay adequately for their responsibilities. 4.4 Developing the Various Economic Sectors, Investing the Technical Economic Infrastructures to Promote FDI Attraction to the Regions in the Country Vietnam should prepare the prerequisites required (economic, science, technologies and human resources) order to absorb the positive impacts and the antibodies required to fight against or limit the damage. Need to develop the domestic sectors strong enough to provide supporting industries for the FDI enterprises in particular and other businesses in general. This is also a way to absorb the positive impacts of FDI inflows to the domestic sectors. 11
4.5 Developing High Quality Human Resources, Science, and Technologies Vietnam needs to develop high-quality human resources and science and technology order to ensure the ability to attract FDI inflows with high technologies, less environmental pollution and having the ability to expand the global market (such as technology software, high quality services, and so on). Not only meet the requirements of high-quality laborers of foreign investors that the more important thing is capable of acquiring technologies, advanced management methods from FDI projects. In order to high-quality human resources are always available, Vietnam should invest in improving the quality of education and training, improve their fitness and health of workers and encouraging training and use of talents. Developing markets of science and technologies, data and information systems serving scientific research, macroeconomic management and business operations. 5. Conclusions Sustainable development is the inevitable path and is selected in accordance with the current development trend in Vietnam. On the other hand, in-depth trend of integration today, the presence of foreign investors is also essential to the economy of Vietnam. The impacts positive or negative from the FDI sector to the sustainable development of Vietnam depends on the mechanisms, policies, attitudes and choices of Vietnam for this investment flows. Therefore, Vietnam should have the the strategic direction and appropriate solutions order to improve the efficiency of FDI attracted in the process of economic development as the goal of improving the quality of life of people. References Garcia, J.H.T. Sterner, S. Afsah (2007), Public Disclosure of Industrial Pollution: the power approach http://baodautu.vn/lot-doanh-nghiep-fdi-gay-o-nhiem-moi-truong-d42047.html http://vnexpress.net/tin-tuc/thoi-su/ha-tinh-lap-hoi-dong-danh-gia-thiet-hai-do-formosa-gay-ra- 3428807.html http://dantri.com.vn/kinh-doanh/ngay-cang-nhieu-doanh-nghiep-fdi-gay-o-nhiem-o-viet-nam- 20160330164417696.htm http://iavietnam.net/detailnews/m45/n738/thu-hut-fdi-nguy-co-nhap-khau-o-nhiem.htm Statistical Yearbook of Vietnam 2011, 2014 12