Vietnam - Review of shortcomings needed to attract FDI

VietNamNet Bridge – Viet Nam failed to fulfill its foreign direct investment (FDI) target for the third consecutive year in 2012.

The decline indicates that the country may be less appealing to foreign investors than it once was.

The country needs to assess its achievements and shortcomings to increase both quality and quantity of FDI inflow, Vietnam News Agency reports.

Bui Quang Vinh, Minister of Planning and Investment:

In 2010, Viet Nam sought to attract about US$23 billion in FDI, an increase of 10 per cent over 2009; however, only $18.1 billion was reported. In 2011, the nation attracted $14.7 billion despite its goal of $21 million. Last year, FDI poured into the country reached only $13 billion in comparison with the goal of $15-17 billion.

As neighbouring countries such as Indonesia, Myanmar, Thailand and Cambodia emerge as attractive investment destinations, if Viet Nam does not create a more favourable investment climate, FDI might continue to decline.

Quoc Phuong, deputy director of the Ministry of Industry and Trade's Information Centre:

The project "Evaluation of FDI inflow over the past 25 years with orientations to 2020" recently completed by the Ministry of Planning and Investment addressed a series of problems related to investment incentive policies which needed amending. According to the project, the quality of FDI should be improved in high-tech industries, as well as in industries that use cheap labour.

Viet Nam has the right to select appropriate projects and those that are unsuitable must be rejected.

Christopher Twomey, Chairman of the American Chamber of Commerce:

Over the years, Viet Nam's success in attracting foreign investment was largely built on the expectation of economic and political stability.

Many AmCham members are finding it more difficult to conduct business here than in past years.

Given the current state of the economy, Viet Nam should make every effort to entice foreign investment and resources.

Viet Nam gains better access to capital sources, modern technology and management experience through investment and trade activities with major economies.

There are many areas of the business climate that require improvement in order to elevate Viet Nam's competitiveness.

We endorse the call for urgent reforms and we expect the Government to take decisive action to create a more attractive business climate.

Duong Thi Quynh Trang, BigC's public relations and marketing manager:

Given its long-term development objectives in Viet Nam, BigC will try to offer consumers attractive prices and high-quality products in order to maintain stable growth during these difficult economic times.

During 2012, BigC opened three more supermarkets in the country. BigC Di An in southern Binh Duong Province will open in March. BigC continues to seek opportunities to develop further in the Viet Nam market.

We highly appreciate the support from the Government of Viet Nam, especially the Ministry of Planning and Investments and provincial and municipal People's Committees.

Political stability and a young population with high purchasing power, combined with policies from the Government encouraging foreign investment, have made Viet Nam attractive to investors.

Dang Xuan Quang, Deputy Director of the Foreign Investment Agency:

A series of problems related to mechanisms, policies and the legal framework for FDI sectors have been put under review. In my opinion, there are three main reasons why FDI flow into the country slowed down: increasing competition between countries in the region to attract FDI, the impact of the global economic recession - especially on the US and Europe –and most importantly, the country's limited FDI absorptive capacity.

The declining FDI inflow cannot entirely be attributed to the economic downturn.

According to a recent report of the United Nations Conference on Trade and Development, global FDI capital hit $1.4-1.6 trillion in 2011, increased to $1.7 trillion in 2012 and was estimated to reach $1.9 trillion this year - equal to the record in 2007.

These figures reflect the recovery of the global FDI, raising the question of why Viet Nam is seeing less investment.

Looking at neighbouring countries, Indonesia has seen strong FDI growth in recent years although its investment climate remains incomplete.

Myanmar is also a potential investment market, forecast to become the next destination for development opportunities in the region.

Malaysia and Thailand remain favorites of foreign investors.

The latest report of the Japan External Trade Organisation indicated that Japanese enterprises worry about many things when investing in Viet Nam: salary increases, finding raw materials and components, the limited capacity of local workers and complicated customs procedures.

Phan Huu Thang, director of the Foreign Investment Research Centre, Ha Noi National Economics University:

Appropriate investment promotion solutions and a more competitive investment climate are needed to increase FDI.

In order to improve the investment climate, besides upgrading infrastructure such as roads, bridges and ports, we need to focus on completing legal policies concerning FDI enterprises' investments and business while enhancing the management of the FDI sector.

Experts said many times that if the country failed to tackle weak infrastructure, it would be very difficult to attract foreign investors. And if foreign investment was not poured into the country, Viet Nam's ability to upgrade its infrastructure would remain limited, creating a "vicious cycle". So, to break the cycle, the country should prioritise infrastructure construction to meet the demand of foreign investors.

According to Preben Hjortlund, Chairman of the European Chamber of Commerce at the Viet Nam Business Forum in 2012, Viet Nam is now in competition with other countries that also offer cheap labour. Recently, the Government of Viet Nam planned to shift the economy of low labour costs into industries of higher technology and high added value.

However, investors do not want to bring technology to Viet Nam when intellectual property rights are not adequately protected. If the problem is not handled, foreign investors might stop investing in Viet Nam.

In the FDI orientation project, the Ministry of Planning and Investment proposed amendments and reforms of the legal framework for investment, which tackle the contradictions and overlap between the Law on Investment and other laws.

Investment incentives and promotions also need to be amended to be more realistic and create advantageous conditions for investors.

Tackling these problems is not easy, but it's a necessary task if Viet Nam wants to become a more attractive destination to investors.

Source: VNS

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