Twenty-four years ago, Nicolas Audier came to Vietnam for the first time. At that time, the country was faced with hunger and poverty, with the poverty rate sitting at 50% of the population. No luxury cars, or even motorbikes, could be seen on streets, with infrastructure remaining in shabbiness.
“I have been so fortunate to witness the transformation of Vietnam, developing from a centrally-planned economy to a market-based economy open to global trade,” said Audier, who is co-chairman of EuroCham in Vietnam.
Indeed, since the launch of the Doi Moi (renewal) policy, Vietnam has gradually advanced from a low to a middle-income economy. Over this time, strong economic growth has created jobs, raised standards of living, and provided new opportunities for millions of citizens.
Foreign direct investment has definitely been the engine of this economic growth.
“Greater access to international trade, sound macro-economic policies, low inflation, and the commitment of the government to reform legislation to meet international standards have given foreign investors the confidence to invest in Vietnam,” Audier told last week’s Hanoi-based conference on “30 Years of FDI Mobilisation in Vietnam: New Vision and Opportunities in the New Era”.
Significant improvements
In early 2018, Takenaka, the biggest firm in Japan and the world’s fifth largest firm engaging in planning, designing and constructing urban redevelopment projects, established its company in Vietnam, after months studying the country’s investment climate.
“Takenaka is enjoying the most favourable conditions in Vietnam. Over the past few months, its revenue in Vietnam has reached double digits, which are expected for the whole year,” said Pham Thanh Long, deputy general manager of Takenaka Vietnam Co. Ltd.’s Business Development.
In fact, Takenaka used to do business in Vietnam 20 years ago, but at that time, the unfavourable business environment climate, together with a global financial crisis, forced the firm to leave the country.
“We are working with some local partners to build industrial park infrastructure. In the future, we will focus more on office buildings,” Long told Nhan Dan Online. “It is expected that we will open a representative office in Hanoi next year.”
According to the Japan External Trade Organisation (JETRO), Takenaka is just one of thousands of Japanese firms seeing improvements in Vietnam’s investment climate.
“A survey conducted last year by JETRO among Japanese businesses operating in Vietnam revealed that up to 70% of the businesses plan to expand their operations in Vietnam. This represents a high percentage compared to other countries in ASEAN,” said Hironobu Kitagawa, chief representative of JETRO Hanoi.
According to Prime Minister Nguyen Xuan Phuc, Vietnam’s business climate improvements have led to a rise in FDI, and it is now high on the radar of investors from Japan, the Republic of Korea, the US, and the EU.
As of September 20, 2018, Vietnam had 26,646 valid foreign-invested projects, registered at over US$334 billion. In this year’s first nine months, total disbursed FDI hit US$13.25 billion, up 6% on-year, the Ministry of Planning and Investment reported.
At the World Economic Forum on ASEAN 2018 organised on September 11-13 in Hanoi, Justin Wood, head of Asia Pacific and member of the Executive Committee of the WEF, told Nhan Dan Online that Vietnam’s position has been improving in the international arena.
“Vietnam has made steady progress in improving its investment climate, as evidenced by higher scores in the World Economic Forum’s competitiveness index (up five points to 55th in the world), and the 2018 World Bank’s ease of doing business ranking (68th in the world, up 31 places since 2014),” he said. “Vietnam also reduced the corporate income tax rate to 20% from 32% in 2003. All of these show that Vietnam’s business and investment climate is improving.”
According to foreign business associations in Vietnam like EuroCham, today, Vietnam’s favourable investment environment, competitive production costs, strong economic prospects, growing middle class, young, well-educated workforce, and superb location in South East Asia “make it an attractive destination for foreign investors.”
“However, after 30 years of this rapid economic development, Vietnam needs better investment that will leave more value in the country, create higher skilled jobs and that would support the government's policy of sustainable development respecting the environment and the society. The so-called “next generation of FDI” is needed for Vietnam to continue its impressive economic development path and upgrade the profile of its economy,” said Bruno Angelet, Ambassador and Head of the European Union Delegation to Vietnam.
“This is exactly what the European investment can bring to Vietnam. The EU investment can offer investment in high-tech, environmentally-friendly and low energy consuming sectors. European business does not only bring technology and quality jobs but also responsible business practices,” Angelet said. “This quality European investment can create useful linkages with local companies and integrate them in the global value chains.”
Challenges remain
Prime Minister Nguyen Xuan Phuc stated that despite great FDI achievements, almost all foreign-invested enterprises (FIEs) in Vietnam are using medium-level technologies. Multinational groups and corporations have not yet developed high or source technologies.
The rate of FIEs investing in research and development (R&D) in Vietnam remains humble.
According to the Ministry of Planning and Investment, as of late 2017, more than 80% of FIEs in Vietnam used the world’s medium-level technologies, 14% used low-level technologies, and only 5-6% used high technologies.
According to the Vietnam Chamber of Commerce and Industry, in the 2006–2015, only 4.28% of the total number of nearly 14,000 operational foreign-invested projects had contracts of technological transfer.
Angelet also shared a few recommendations for the government of Vietnam in its future FDI policy.
“Until now Vietnam’s FDI attraction policy relied heavily on tax breaks, concessional rates and import duty exemptions. Many investors have come to Vietnam because of the investment incentives and low labour costs. Attracting innovative, technologically advanced FDI requires a more sophisticated investment policy and tools,” he said.
Therefore, according to him, Vietnam should continue working towards removing existing trade and investment barriers and improving business climate. In this context, transparency is key for investors to know the regulations and procedures to follow. A fair, transparent, stable and predictable business climate tops in the EU businessmen's priorities when they mull on their investment plans.
“It’s also vital that Vietnam guarantees a stable legal framework for investors to operate within and a functioning enforcement system. We urge Vietnam to improve the recognition and enforcement of foreign arbitral awards and to set up a grievance system for investors to avoid disputes,” Angelet said.
