Experts warn of bumpy road ahead
Trade ministers of 12 Pacific Rim countries earlier this month struck a deal to conclude negotiations in Atlanta in the U.S., heralding the possibility of Vietnam boosting exports to other TPP member states including the U.S. and Canada, and attracting more foreign investment.
However, the inherent weaknesses of Vietnam’s economy and the poor competitiveness of local enterprises will be major challenges the country will have to cope with, experts said.
An upsurge in FDI
Phan Huu Thang, former head of the Foreign Investment Agency under the Ministry of Planning and Investment, described the TPP as a free trade agreement (FTA) of the 21st century as it covers more sensitive areas than the global trade club WTO.
The TPP covers more fields enjoying tariff reductions, and helps open the services market wider, improve regulations on foreign investments and investor protection, protect intellectual property rights, and enhance transparency in competition. It also touches on sensitive labor issues.
Therefore, trade ties between Vietnam and other TPP member states will grow strongly when the comprehensive trade pact comes into force, thus enabling the country to woo many more investors from both TPP and non-TPP member states.
Foreign direct investment (FDI) from Japan and the U.S. will surge, Thang said, and this bodes well for Vietnam as these two TPP partners are strong in advanced technology, which Vietnam wants to have greater access to.
Industrial infrastructure developers said once the TPP takes effect, Vietnam will become as attractive to foreign investors as its competitors - China, the Philippines, Indonesia and Thailand. These four countries are not members of the TPP.
Developers of industrial park infrastructure including Becamex IDC, VSIP and Amata have focused more on developing new industrial-urban areas in Vietnam to make the most of the opportunities from the trade accord.
A recent report of the Vietnam Institute for Economic and Policy Research (VEPR) on impacts of the TPP on the Vietnamese economy showed foreign investments are projected to pick up by around US$13 billion when Vietnam joins the TPP.
According to the report, more investors will come to bank on Vietnam’s growing exports, cheaper labor cost and lower input costs than many other regional countries, and ample materials in agriculture and aquaculture.
Since 2013, many companies from non-TPP member countries have rushed to set up shop in the apparel and footwear sectors in Vietnam.
TPP also boosts FII
Vietnam is expected to attract much more foreign indirect investment (FII) as more foreign companies will enter this market via M&A (merger and acquisition) deals. Thang predicted the TPP would result in many more M&A deals in Vietnam.
Meanwhile, local firms said new liberal laws including the revised laws on investment, enterprise and real estate business coming into force in July would boost capital inflows into the country.
The acceleration of State-owned enterprise restructuring will help attract more foreign capital.
An executive of a securities firm told the Daily that securities companies were expecting more foreign capital to flow into the local stock market thanks to the TPP but there would not be massive flows as seen in the period after Vietnam became an official member of the WTO.
According to the State Securities Commission, the foreign investment portfolio on the local stock market was over US$14 billion by the year’s first half, indicating foreign investor confidence in the market.
Not all is rosy
According to VEPR, Vietnam’s further international integration will bring both opportunities and challenges.
The TPP will help Vietnam lure more capital and boost supporting industries but threaten the survival of many small local enterprises using outdated technology.
“It (the TPP) is an acid test. There will be no room for weak entities to survive,” said the executive of the securities company.
The country’s deeper integration will affect all sectors of the economy, and livestock, retail, and small and medium enterprises would face more challenges than others, according to experts.
How to control low-tech and polluting projects effectively is a major challenge and such projects should be rejected, according to experts.
To make the most of TPP opportunities, Vietnam should further improve the investment environment and increase its competitiveness to better compete, experts urged.