Vietnam remains a magnet for international corporations but there are calls for the country to revitalise government policies in order to make efficient use of foreign direct investment inflows. 

Vietnam is now giving priority to high-tech and environmentally friendly projects in its FDI attraction strategy

Last Thursday, at the conference in the southern province of Binh Duong on institutional consultation on foreign direct investment (FDI), Deputy Prime Minister Vuong Dinh Hue said that Vietnam is deemed one of 12 nations in the world to have successfully attracted and used this type of investment.

As of January 20, 2019, there were 27,463 valid foreign-invested projects in Vietnam with the total registered capital of $343 billion and the disbursed capital of $192 billion.

“FDI is seen as an important resource for socio-economic development in Vietnam, not only promoting economic restructuring but also creating a solid foundation for long-term growth and economic modernisation. The sector plays an important role in exports, gradually bringing Vietnam into the global value chain,” DPM Hue said.

However, he noted that after 30 years of FDI attraction, there remain big issues to be identified and tackled, such as the weak links between foreign and local enterprises, as well as the low rate of technology transfer.

The deputy prime minister said that Vietnam must change its approach to FDI mobilisation with the motivation to attract high-technology and high-quality labour. According to him, the country should actively solicit FDI capital and strongly decentralise to local authorities to lure multinational corporations to build nests, in addition to shifting the focus from the capital scale to the added value of FDI inflows.

Hue said that the new-generation FDI attraction strategy will call for investment and partnership with foreign companies actively engaging in high-technology, research and development, and modern governance activities.

According to Virginia B. Foote, co-chair of the Vietnam Business Forum (VBF), Vietnam has outperformed many of its peers in attracting FDI, with examples in manufacturing and infrastructure, services, consumer goods, and agricultural and industrial products.

“Today, there are tremendous opportunities in Vietnam for both the domestic and foreign business sectors,” said Foote. “Ongoing US-China trade tensions have highlighted the risk of concentrating production bases in a single country and are triggering supply chain reorganisation. Companies are considering shifting some production flows, and Southeast Asia will compete to gain some of that business.”

The question is how Vietnam can fully capitalise on these global opportunities in order to continue its rapid upward economic trajectory. To help Vietnam step up its policies in this area, Foote flagged some areas of concern for further improvement.

“First are the frequent and retroactive changes of regulations, especially including tax rates and policies. These represent significant risks for investors in Vietnam. Changes affect the investment business plans of already-licensed projects and can scare off new prospects,” Foote said.

“Another key area is the flow of goods. Vietnam has made improvements in customs clearance and efficiency. However, too frequent and often unnecessary post-import audits create burdens for companies. We encourage customs to adopt a more focused approach to target reviews on high-risk importers, rather than legitimate traders,” she added.

Meanwhile, Amanda Rasmussen, chairwoman of AmCham Vietnam, said that the government has made policy decisions on electricity price and sales that do not reflect the need to encourage efficiency and cleaner energy.

“Specifically, to capture the billions of dollars in private sector investment, job creation, and technology transfer that Vietnam needs in this sector, we need bankable agreements, more efficient and timely decision-making procedures for projects, a tariff and tax regime that reflect government priorities, and a market-driven power pricing road map for the next five years,” Rasmussen said.

Choi Heung Yeon, deputy chairman of the Korean Chamber of Commerce and Industry in Ho Chi Minh City, said that South Korean companies have heavily invested in Vietnam, expanding in various fields such as distribution, healthcare, education, services, and smart city construction.

According to current Vietnamese regulations, the range of the companies which should submit transfer price reports are those with annual sales turnover of about $2.24 million or more, and those with specially-related party transactions of about $1.35 million or more. This means that almost all overseas companies are included in the category. Yeon said that it is difficult to meet the requirements of the relevant regulations for small companies, and that this would become a heavy burden for foreign companies.

Another issue is related to the approval delay for the ­development projects by South Korean firms. Lotte Group, in particular, is awaiting the central government’s approval for the master plan for the Eco Smart City ­complex in Ho Chi Minh City.

According to Kyle ­Kelhofer, the International Finance Corporation’s country manager for Vietnam, Cambodia and Laos, Vietnam’s FDI inflows already exceed those of China, India, and most large ASEAN countries.

“Despite a large amount of foreign capital, value-added FDI inflows are not high. It is clear that Vietnam requires a next-generation FDI strategy to unlock the benefits that FDI can bring,” Kelhofer said.

Furthermore, according to him, Vietnam is in a good position to take ­advantage of the relocation of multinational corporations. The biggest challenges are the competitive advantages and costs. Vietnam needs a strategy, not only focusing on high incentives but also on domestic value-added inflows. In addition, Vietnam should build a conducive business environment in the era of the Fourth Industrial Revolution.”

VIR