Dr. Alan V. Phan by Hoang Tuong.

Vietnam’s FDI prospects bright for 2010

US$9.1 billion of FDI poured into Vietnam first seven months

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Some experts call Vietnam a “heaven for investment”. What do you think about this?

Dr. Alan V. Phan: In the global free-market economy, we need to think about FDI objectively. FDI should be seen as a product that we want to sell on many markets. The FDI product of a country is its investment environment with many internal factors: political mechanism, legal procedures, economic growth, infrastructure, labor cost and quality, logistics, natural resources, local market, the financial system, corruption, subsidies, and other secondary factors.

As all MBA students know, products must be marketed by 4P (price, position, place and promotion). Each country has special FDI products designed for specific customers, ranging from cheap to luxurious products.

Vietnam is not in the top 30 countries for FDI so it is an exaggeration to call Vietnam a heaven for investment. Europe and the US attract the highest FDI volumes and the reasons are simple: they have free political and financial systems, big domestic markets, perfect logistic systems, good labor quality, etc. Therefore, they attract long-term and serious investors with high technology expertise.

Nigeria has both abundant natural resources and a large scale of corruption, so while she attracts FDI, it only comes from short-term investors whose aim is to quickly seize their profit, while also sharing illegal profit with local officials (project brokers are popular in such markets). If there is high cost to attracting FDI through cheap labor, a country can only earn small money from processing industry.

Experts have warned that many FDI projects focus on selling natural resources. Do you think that when Vietnam’s industry develops, the country’s natural resources will be exhausted?

I have to say that investors are very wise with their pockets. They have 193 countries in the world or 193 products to choose. They will select the investment environment that brings in the highest profit in the fastest and safest way.

However, there are strategic investors, who want to be in  highly populated countries with a long-term market potential. They are willing to suffer loss for a certain period of time to nurture their projects.

Most of them are multinational corporations which have long-term visions. China, Indonesia and Vietnam have benefited from strategic FDI sources from leading consumer goods groups, banks, IT and telecom groups in the world.

Many National Assembly deputies said that the quality of FDI in Vietnam is low because Vietnam lacks a clear policy, and effectively nearly all investors are welcomed. What is your opinion about this?

The governments of European and American countries usually don’t set orientations for FDI. Anyone who wants to invest in any project in the US is welcome, as long as the projects obey the local rules, are safe for the environment and the people, and are honest and transparent in every aspect (except for projects associated with national security).

Governments usually don’t grant any subsidy or assistance without conditions.

In China and Vietnam, for black money they earn when they grant investment licences, local authorities often abuse FDI, especially projects related to land use. Finally, anyone who has money and spends money at the right place is welcome, even project ‘go-between’ which are heavily indebted.

Tran Dinh Thien, a famous economist, cited: “Half of FDI enterprises in Vietnam declared losses interminably.” Why is Vietnam called a “heaven for investment” while most of investors claimed losses? And why do they incur losses but still don’t go away? Does this loss make Vietnam a heaven for investment for foreign investors? How to control “invented losses, real profit” of FDI enterprises?

This is the matter of executing the law. There are hundreds of measures to detect tariff-related violations, environmental pollution or corruption. All experts in these fields know clearly about these tricks. But once officials can earn from these loopholes, we can’t do anything.

Actually, investors are always greedy. They are ready to pay 10 percent under the table to save 30 percent.

Many experts have warned Vietnam that it should start designing a new strategy for FDI early. What should the new strategy be so Vietnam can curb the losses?

Let FDI products compete freely in the capital market. In order to change the nature of the FDI flow, Vietnam’s investment environment needs to be changed.

If the investment environment is more honest, transparent, the labor and management quality is improved, violations are punished seriously, barriers in terms of administrative procedures are removed, and infrastructure is improved, we will have high-quality FDI investors.

Vietnam, with 86 million people, high growth rate, a strategic position in Southeast Asia and many business opportunities will be a real destination (not a hidden charm as the advertisements on CNN say).

I’ve said that every country has its own FDI products. Vietnam can’t imitate South Korea or Singapore because Vietnam’s historical conditions, financial and political systems and growth rate are different from theirs. Actually, we are imitating China’s FDI model.

I would like to cite some statistics as warnings: According to a report compiled by China’s Tsinghua University, China needs around $4.2 trillion to clean its environment bring back the level of pollution to what it was 30 years ago. The amount would double if expenditures for curing diseases caused by pollution are counted.

So who benefits from attracting FDI? Chinese people or foreign investors?

Besides FDI, FII is also an important source of capital for many economies. How will Vietnam benefit from opening its door for FII?

Like FDI, FII can also help economic development. FII investors share the same viewpoint with FDI investors on how to gain maximal profit in the quickest and safest way.

The difference between FII and FDI is liquidity. FII is short-term investment which need to be disbursed quickly.

Conditions to attract FII are similar to FDI: a free, transparent financial mechanism, assets of real values, high-growth potentials and over all, high liquidity.

A dynamic stock market will help businesses develop quickly and sustainably while relying on FII (often ten times higher than FDI) and improve their administration skills.

However, many people still worry about adverse impacts that FII can cause because FII is short-term capital which comes and goes quickly so it doesn’t bring high benefits to the economy. How to turn this capital channel into a useful one and how to control it to ensure safety for the financial system?

In the Asian economic crisis in 2008, officials of many countries blamed FII speculators of bringing down the Thai baht, the Malaysian ringgit and the Korean won.

Why speculators targeted these currencies? Just because they had virtual values that were higher than the real values. This weakness was caused by poor administration of economic officials, not speculators.

In short, FII is a two-edged sword, which can boost the quality of economic development but it can also kill the weak patients.

In the current situation, Vietnam is luckily protected by FII barriers.

TVN