Vietnam is betting that the most significant
easing of business regulation in 25 years and an accelerated sale of
state-owned firms’ shares will revive a flagging investment outlook.
The
government on July 1 will reduce to six from 51 the number of areas in which
firms are prohibited from operating, allowing fireworks manufacture and
genetically-modified products, among others. It will also loosen regulations in
more than 100 other areas in what will be the biggest overhaul of business
rules in the economy since private firms were allowed in Vietnam in 1990.
“We aim
to trigger an investment wave from both local and foreign investors,” Planning
and Investment Minister Bui Quang Vinh said in an interview in Hanoi June 18.
The revised laws on investment and enterprises “will make huge changes to
significantly improve our business environment and create strong momentum for
growth,” he said.
Vietnam
is facing competition for foreign direct investment from other nations in Asia,
with pledged FDI in the first five months of this year totaling only $4.3
billion, less than 20 percent of the total forecast for 2015. Prime Minister
Nguyen Tan Dung aims to sell a record number of shares in state-owned firms
this year as the government seeks to spur economic growth to a four-year high
of 6.2 percent.
The
benchmark VN Index gained 1 percent by its noon break Monday, heading for its
highest close since March 6. The dong was little changed against the U.S.
dollar.
Major Milestone
The
revised laws “are a major milestone to encourage foreign as well as domestic
investors,” said Alan Pham, Ho Chi Minh City-based chief economist at
VinaCapital Group, Vietnam’s biggest fund manager. “They represent a change in
the mentality of policy making -– more towards the market and less by
bureaucracy.”
Pledged
foreign direct investment in Vietnam fell 22 percent in the five months through
May from a year earlier, according to data from the planning and investment
ministry. Disbursed FDI rose 7.6 percent to $4.95 billion in the period.
That
compares to the Philippines’ approved FDI, which fell 41.7 percent in the first
quarter from a year earlier, while Indonesia’s approved foreign investment rose
14 percent in the first quarter.
“In
Vietnam, we are offering more incentives in areas such as taxes and land to
lure foreign investors,” Vinh said. “We aim to be among the top four Asean
countries for FDI by 2016.” He forecast pledged FDI would reach as much as $23
billion this year, from $21.9 billion in 2014, and predicted disbursed FDI to
be about $12.5 billion.
More Transparent
The
government will issue six decrees next month to provide detailed guidance on
the revised laws, Vinh said. A “large number” of permits and licenses will be
abolished “to make it a lot easier and more transparent for investors,” he
said.
The six
areas in which businesses will still be prohibited include prostitution, as
well as trading of illegal drugs and wildlife, according to the government’s
website. Vinh predicted economic growth would quicken to 6.1 percent in the
first six months of 2015 from 5.18 percent in the same period a year earlier.
“This is
the biggest change in business regulations since Vietnam allowed private
companies in 1990,” said Tran Dinh Thien, director of the Vietnam Institute of
Economics in Hanoi. “It’s significant, yet the implementation of the
regulations is crucial.”
Larger Stakes
Foreign
investors will have more opportunities to invest as more state companies sell
shares this year, Vinh said. “However, we should sell state stakes in larger
proportions, not just five, 10 or 20 percent as we have been doing,” he said.
The
government faces challenges in reaching its target to sell shares in 289 state
companies in 2015. Shares in 43 of these businesses had been sold by the end of
May, according to the finance ministry.
“We
should sell shares at larger proportions to make it more attractive, since
investors would want to hold the stakes big enough to allow them to be involved
in the companies’ management,” Vinh said. “Selling shares in such small
proportions won’t make any difference to the companies while improving
corporate governance is what we really need now.”
Uyen
Nguyen
This article was proposed into the Linkedin
group Linkin Vietnam
and received the following comment from Minh-Duc Pham
These
investment laws changes has been suggested by some lawyers to make Vietnam more
attractive to investors.
We all
know that between law and reality, there are big gaps that are discovered only
during IC application.
Will
obligations of foreign companies versus local companies will be aligned ?
How
investor's interests will be protected against (frequent) changes in law or
unfair local competition (product copy, rental fee increase, custom clearance
hidden fees, etc) ?
What
about labour law with this new social welfare tax ?
What
about immigration and especially visas and work permit for foreigners working
for the expected wave of FDI ?
What
about improving the education system ?
If you
invest in a country and cannot find suitable skilled employees.
What
about enforcement laws against corruption ?
The list
of unsolved issues preventing investment is very long.
Welcoming
foreign capital is one thing but there is still a long way to go for protecting
foreign investment.
I will
let other members to list what is missing to encourage a sustainable
investment.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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