Senior economist Doan Hong Quang from the World Bank spoke to VIR about what factors had led to such a contrasting year of success between foreign invested and domestic businesses, as well as factors affecting economic growth in 2014.
Some have argued that despite the poor economic environment, the robust performance by foreign invested firms should have an impact on the operation of local firms. Do you agree?
The foreign direct investment (FDI) sector has operated effectively in recent years and in my view this has had a positive impact on the operation of local firms.
FDI firms are also transferring technology through developing supporting industries and creating more jobs for local people.
But it's the case that FDI and domestic firms aren't particularly closely linked which means that we have yet to make the most of these opportunities, it's not that local firms are being hindered by FDI businesses.
What factors are causing the continued success of FDI firms, given the problems affecting domestic businesses?
The two sectors service different markets and customer groups. For instance, FDI firms often make specific product groups, so that they can make the most of advantages like material sources. When selling products, they can benefit from a clearly identified market.
Foreign invested firms can also source low-cost loans from external sources and aren't affected by high lending rates like local firms.
Meanwhile, most local firms are small and medium in size so that they are being hurt by plunging consumer demand. This indicates that the two sectors barely overlap, but the poor performance of local firms mainly comes from their inability to effectively tap the positive effects created by FDI firms.
Do FDI firms benefit from more incentives compared to local firms?
I don't think so. The fact of the matter is that the FDI sector enjoys specific advantages as I previously stated. The legal system actually seems to favour local firms.
Many said the FDI sector continued to be the key driver for development of Vietnam in 2014. Is that the case?
I don't have sound data to prove the comment, but it appears to me that the economy won't be solely based on FDI firms. Increasing numbers of new business setups and firms that temporarily halted operations resumed work in November which indicated initial signs of recovery, particularly in terms of the private sector. I think local companies, particularly the private sector, can make greater contributions to Vietnam's economic growth in 2014.
2014's growth targets have been set. Input stability is one of most important factors to achieve these goals, but input prices are predicted to constantly increase. Will this affect the country's economic growth targets?
Obviously subsidies on basic necessities like electricity, water and petrol shall be gradually curtailed, and these price increases often have suitable roadmaps for implementation, so that firms will have time to prepare for the change.
Generally, I believe the economy next year will be better than this year and could be even brighter in the ensuing years.
Vietnam Investment Review
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