According to the latest study on Vietnam’s investment incentive policies for foreign-invested enterprises (FIEs) by the Ministry of Planning and Investment’s (MPI) Task Force on Implementation of Enterprise Law and Investment Law in cooperation with the United Nations Development Programme, nearly all FIEs in Vietnam are subsidiaries of the second or third generation parent companies. “This means Vietnam has for years been unable to approach high-quality technology, while facing a higher risk of price transfer,” said Nguyen Tu Anh, an expert from the Department for Macro Economic Policy and Integration Studies under the MPI’s Central Institute for Economic Management.

The study, conducted over 50 FIEs throughout Vietnam, showed that 80 per cent of FIEs had no research and development funds. Roughly 35 per cent of respondents had no research activities and only 20 per cent had research on new products. Particularly, 94 per cent of them had no independent technology patents. “Thus they have no technological capacity and also do not want to transfer technology to Vietnam,” said Anh. Senior economist Le Dang Doanh said if the situation went on, Vietnam may soon become a dumping ground for low quality technology.

In particular, Anh said half of FIEs in Vietnam were small and medium sized which suffered from continuous losses for years. Doanh ascribed such losses to FIEs’ price transfer, which could help them dodge tax obligations in Vietnam. The Ho Chi Minh City Taxation Department reported late last year that 60 per cent of the 3,500 FIEs operating in the city reported losses in 2009 and 50 per cent in 2008. Meanwhile, 104 out of 111 FIEs in Lam Dong province reported losses.

Head of Vietnam Economics Institute Tran Dinh Thien, said that decentralisation of investment licencing had prompted localities to race for attracting foreign direct investment (FDI). “But localities’ weak management has given opportunities to many FIEs in overexploiting natural minerals and polluting the environment,” Thien said. “Vietnam’s complicated investment policies are preferred by many FIEs, because they can find loop-holes in such policies,” he said. In 2009, FDI comprised 25.5 per cent of the total investment in Vietnam and FIEs contributed 13.3 per cent to the nation’s gross domestic product. FIEs employed nearly 4 per cent of Vietnam’s labour force. They also comprised 57.6 per cent of Vietnam’s total export-import turnover in 2010.