Vietnam Economic Times(VET) sought the views of chambers of commerce in Vietnam regarding FDI.
When I have had the opportunity to meet with central and provincial leaders in Vietnam I am often asked: “What would it take to increase US FDI?” Despite the fact that the US is Vietnam’s largest export destination and second-largest trading partner, behind China, Vietnamese leaders believe US FDI should be higher. For example, total registered US capital invested in Vietnam amounts to roughly one-twentieth of South Korea’s total.
It is important to note, however, that investment in Vietnam by US companies is higher than the figure for the US, as numerous FDI projects in Vietnam are registered via a US company’s subsidiary based in a different country. Many companies from Singapore, Hong Kong, and the British Virgin Islands investing in Vietnam have a US parent company.
The government should eliminate barriers and restrictions in industries that are more likely to receive US investment. For example, operating, importing, distributing, warehousing, and transporting restrictions on foreign-invested pharmaceutical and medical device companies cause significant under-investment in Vietnam’s healthcare system. Another example would be banking or technology regulations limiting investment in financial services sectors.
As Vietnam opens its doors to US imports, ancillary US investments will also increase. US food and agricultural exports to Vietnam continue to break new records, growing at 15-20 per cent annually. Vietnam is now the eighth-largest export market for US agricultural goods, improving from eleventh in 2015. As these imports grow, so will the opportunities for US FDI to provide further processing and additional complementary aspects to respective supply chains.
As Vietnam continues to integrate with the ASEAN Economic Community (AEC) and implement reforms under the recent Bali WTO trade facilitation agreement, it will enhance its investment attractiveness. Vietnam is also wisely engaged in multiple free trade agreements and US businesses will recognize the importance of investing in Vietnam and other countries party to these agreements, so that they can remain competitive in these markets.
We have been impressed by most of the measures taken by Prime Minister Nguyen Xuan Phuc’s government recently. It is our belief that the government is pro-actively engaged in making Vietnam a better country to do business in and is also working so that it occupies its rightful place in the global market. EuroCham believes, however, that it is time for a new mindset in terms of increasing FDI in Vietnam, attracting not only traditional industry but added-value investment coupled with sustainability, innovation, and community impact.
Concern over sustainable development, smart cities, and adopting a modern approach to education and training has been noted in recent years. We believe these are fields that can make Vietnam more attractive and differentiate it from its neighbors as an investment destination. We hope that this is further reflected in concrete policy making. Our Greenbook discusses these topics and their link with European businesses, while policy issues and recommendations in this regard can also be found in our annual Whitebook publication (the next edition of which will be released in March).
Vietnam needs a better regulatory landscape. FDI attraction would certainly benefit from streamlining investment-related administrative and licensing procedures. Efficient administrative reform in this direction could position Vietnam one step above neighboring markets with similar potential. This is something EuroCham highlights regularly to the government in its various dialogue activities. On January 17, for instance, we were invited to a dialogue with the Advisory Council for Administrative Procedures Reform (ACAPR), initiated by Prime Minister Nguyen Xuan Phuc, where we relayed directly to policy makers the EuroCham community’s perspectives on areas such as legal framework, taxes, customs, healthcare, and consumer choice, among others.
We also highlighted infrastructure, not only in terms of its effective development but also in regard to the participation of foreign investors. While it is perhaps common sense that Vietnam needs proper infrastructure to become a leading investment destination, EuroCham has repeatedly added – on several occasions and statements – that Vietnam cannot do it alone at the desired speed. The country not only needs good and reliable partners, it simply does not have the capital to turn the country into an infrastructure-wise attractive investment destination in only a few years.
Vietnam requires progressively more open, transparent, and smart tendering processes. This would not only be effectively more inclusive towards a very willing private sector but could also project an image of Vietnam as a country that is eyeing the future in a strategic way. We believe such an approach would go a long way to bringing more European investors and their connected supply chains, which would not only increase the size of the economy per se but would also allow them to do something that is a trait of European business: participate in building the future of countries, in this case of Vietnam.
These are just some examples of the work that may lie ahead in order to increase Vietnam’s FDI attractiveness, and the government is already well engaged in some of it. We are certain the government will remain an open partner and continue to consider the private sector’s perspective, while building channels to this end. Vietnam can trust that what its European business community wishes for the country is exactly the same as the country itself does: a prosperous, transparent, sustainable, open, and innovative Vietnam.
Political and social stability, which is a strength of Vietnam, is still an attractive feature but investment in light industry based on abundant labor is losing its competitiveness. Therefore, it is time to pay attention to purchasing power in Vietnam, as people in their 20s and 30s account for 35 per cent of the population. Prime Minister Nguyen Xuan Phuc said during APEC 2017 that 60 per cent of the country’s 94 million are under 35 years of age. This indicates that consumption potential is high.
I think there are primarily three attractive industries for FDI. The first is high-tech. The government is aware of the imbalanced concentration of workers in labor-intensive industries and maintains a positive attitude towards skilled labor-training facilities and high-tech industries to enhance labor productivity. Secondly, education and the distribution industry have high demand for diverse items and services, such as children’s higher education, commodities and household appliances, and products for maintaining social dignity, which are increasing among the younger generation. Finally, demand for financial services is also rising, such as loans for the purchase of motor vehicles and real estate.
Japanese FDI has recently been focused on the service industry, including restaurants, retail, beauty salons, and many other services to enrich and make Vietnamese life more convenient as incomes and living standards increase. Consumers demand more and Japanese companies have developed the relevant experience.
Over the past 20 years, many Japanese companies such as Acecook, Kao, Rohto, and Ajinomoto have been trying to develop their business and are contributing silently but considerably to Vietnamese society.
The government should make greater efforts to improve the business environment and lower barriers for foreign investors. At the same time, it should strengthen Vietnam’s small and medium-sized enterprises (SMEs), which will be potential suppliers for foreign companies in the country.
There are still some challenges in FDI, such as improving infrastructure, power supply, and the vocational training sector. I think Vietnam has major potential in regard to human resources, with good university graduates and people in industrial mechanics and electronics. Above all, improving the vocational training system is one of the most important points for the future.
There are a lot of possibilities. I see potential in the automotive supply industry, in the food processing industry, in environmental technologies, and of course in green energy projects like wind energy, solar power, and bio energy. Right now, we see a lot of companies that invested in China 15-20 years ago now moving throughout Asia and ASEAN and also to Vietnam and setting up production.
I think right now Vietnam is a very attractive destination for foreign investment as well as German companies. It is a very good position in ASEAN, where German investors can come and set up their own companies from the beginning. Moreover, it’s a big market, with 94 million people, which makes it very attractive right now.
Vietnam’s business environment and economy makes solid strides forward every year, and with GDP growth of over 6 per cent is the envy of Asia. Investment laws have improved significantly since the early 1990s and investors are able to enjoy many perks, such as tax incentives, single point applications, and a streamlined licensing process. Overall, Vietnam has become a true destination for foreign investment and is no longer the Asian Tiger “Tail”.
Canada has a streamlined portfolio of core investment opportunities in Vietnam, which include agriculture, forestry, ITC, consulting and management services, and education. In 2017, Vietnam played host to the two largest Canadian education fairs globally, with Vietnamese education’s enrolment growing at over 30 per cent a year. the agri-business is also growing substantially, as is the ITC sector. With Vietnam’s abundant IT talent, there are huge opportunities for Canadian business in the country. Another focus is startups and incubator business support, where Canada has supported several new projects in Vietnam this past year. As a Canadian living in Vietnam for 23 years I would add that Canadians should have a close look at manufacturing in Vietnam, as the cost and the perks of operating out of an economic processing zone in Vietnam have potential benefits.
There is still work to be done when it comes to customs and tariffs in Vietnam and stronger levels of corporate governance are required to ensure investor opportunities. However, Vietnam is making positive inroads in all these and patience must be applied in any emerging economy.
Change for the better