Preferential tariffs and incentives for land access are not enough to woo investors looking to move operations out of China, experts say.
In recent months, there has been much information about the departure of foreign investors from China in the movement to restructure global supply chains. These investors are expected to head for India and Southeast Asian countries, including Vietnam.
However, foreign investors won’t leave immediately and the process may last 2-5 years, according to experts.
India, Vietnam and Southeast Asian countries have run a race to lure investment.
According to Can Van Luc, chief economist of BIDV, since August 2019, Indonesia and Indonesia have stepped up activities to attract multi-national groups to the countries.
Indonesia plans to reduce the corporate income tax from 25 percent to 23 percent by 2021 and has committed to reserve 400 hectares of land for the investors. India has promised to exempt tax for 4-10 years, applied to investors in some business fields and reserve 461 hectares for investors leaving China.
Luc noted that the governments in the region are using five instruments to attract investors, including tax, land access, business environment improvement, training to produce skilled workers and barriers to prevent takeovers in some business fields.
|In Vietnam, Prime Minister Nguyen Xuan Phuc has established a taskforce in charge of promoting foreign investment. Deputy PM Pham Binh Binh is the head and Minister of Planning and Investment Nguyen Chi Dung is deputy head.|
In Vietnam, Prime Minister Nguyen Xuan Phuc has established a taskforce in charge of promoting foreign investment. Deputy PM Pham Binh Binh is the head and Minister of Planning and Investment Nguyen Chi Dung is deputy head.
The move, analysts say, shows the government’s strong determination to ‘receive eagles to Vietnam to nest’.
“Eagles’ is the word used by Vietnamese officials to refer to big foreign investors and multinational groups who are seeking to leave China.
However, experts believe that tax and land incentives are not enough to lure investors. They stressed that administrative reform, business environment improvement and the heightening of the nation’s competitiveness are also important factors in the eyes of investors.
Third wave of reform
Chair of the Vietnam Chamber of Commerce and Industry (VCCI) Vu Tien Loc believes that improvement of administrative procedures and the business environment is especially important for Vietnam to grab the great opportunity from the new FDI wave.
Two important reform campaigns have been carried out since the beginning of the government term.
In 2016, ministries eliminated a lot of business conditions believed to hinder the development of enterprises.
In 2018, Vietnam carried out the second reform when the government commanded ministries to cut 50 percent more administrative procedures and sub-licenses.
Loc said that this is the right time for the third reform campaign to turn Vietnam into an attractive destination for foreign investors.
In order to attract high-quality FDI capital from the US, Vietnam needs to commit to strong reform, analysts say.
A new wave of foreign direct investment driven by global uncertainty such as the US-China trade war and the COVID-19 pandemic is imminent in Vietnam,