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Investment Policy Review of Vietnam, October 2008 (Final Report)

Investment Policy Review of Vietnam (Draft), Nov 2007


Viet Nam is a relative newcomer in the world of FDI. It opened to foreign investors in the late 1980s under the Doi Moi policy of renovation and economic reforms. Although the opening has been decidedly gradual, Viet Nam managed to attract significant inflows of FDI quickly. The impact of these inflows has been very strong, and foreign investors have been a major force in the economic transformation during the past two decades and in Viet Nam’s integration into the world economy.

While FDI inflows have been notable so far, Viet Nam has considerable potential to attract significantly more foreign investment, which could further boost the economy and reduce poverty. The Government has pursued a strong agenda of reforms in recent years, which made accession to the WTO possible, sealing the integration of Viet Nam into the world economy. Yet, further reforms are needed to put in place appropriate and effective regulatory mechanisms under a market economy framework, promote innovation and sustainable development, and further reduce poverty. Underpinned by such policies, FDI could contribute to turning Viet Nam into a middle-income Asian Tiger in the near future. Foreign investment could also play a more important role in the future in developing new and dynamic services activities, and in enhancing the position of Viet Nam as a business and logistics hub for the Greater Mekong subregion.

Chapter I analyzes past trends in FDI and its impact on the economy. It notes that Viet Nam has undergone an impressive process of transformation from an isolated, poor and collectivized agriculture-based economy into a booming nation with a dynamic and diversified private sector coexisting with a large public sector, fully integrated into the world economy. It underscores that poverty has been reduced at one of the fastest rates in history. Foreign investors have played a major role in these outcomes, generating employment, wealth, diversification, and exports. Much of FDI inflows have been focused on manufacturing for exports, but Viet Nam has considerable potential in other sectors, some of which have been largely closed to FDI so far but are starting to be opened.

Chapter II examines the investment framework. It takes note of and commends the vast programme of legal and regulatory reforms that has been accomplished so far. It highlights a number of areas where Viet Nam could focus its attention for further reforms and makes concrete recommendations. A “Doi Moi 2” in investment policy and oversight should be considered to unleash the forces of innovation. A policy to ensure that the economy has the skills it needs as it evolves and develops is suggested, using foreign workers where necessary. Measures to separate clearly the State’s ownership and regulatory functions are also proposed, together with a rationalization and simplification of fiscal incentives on corporate taxes. It is also suggested to lift certain FDI entry restrictions selectively in order to allow the realization of the FDI potential in areas that could become bottlenecks for growth in the future and in areas with high dynamic potential.

Chapter III proposes a strategy to attract FDI in electricity, at the request of the Government. Electricity could become a bottleneck for growth if supply issues are not addressed properly, and the ongoing structural reforms in Viet Nam’s electricity sector are analyzed. A number of measures are suggested in order to enable Viet Nam to attract FDI in power generation and meet the rapid increase in electricity demand. Recommendations are provided with the view of minimizing the Government’s exposure to the risks involved in attracting independent power producers. Certain structural requirements needed in order to put in place a fully competitive power market by 2025 – as planned by the Government – are also underscored.

Chapter IV highlights the main findings and recommendations of the Review.