Vietnam fuelling ASEAN’s more favourable investment climate

With ASEAN’s economy bouncing back fuelled by a brighter investment prospect, Vietnam has committed to continue beefing up cooperation with the bloc to create a more regional investment climate for its own and for the whole bloc spurred on by the Regional Comprehensive Economic Partnership.
ASEAN including Vietnam is becoming an increasingly attractive investment destination
ASEAN including Vietnam is becoming an increasingly attractive investment destination

A few days ago, Prime Minister Pham Minh Chinh told the ASEAN Business and Investment Summit 2022 attended by hundreds of leaders big groups coming from the inside and ouside of the bloc that Vietnam welcomes all investments from ASEAN and its parner economies, as well as those from the wider world.

“Vietnam is opening its door wider to welcome your investments, and the country has been developing from strength to strength, with an increasingly improved business and investment climate,” PM Chinh said. “Vietnam consistently pursues a foreign policy of independence, self-reliance, peace, friendship, co-operation and development, multilateralisation and diversification of relationships, being a trustworthy partner and responsible member of the international community.”

“Vietnam always upholds and respects all principles and identity of ASEAN. The country has always worked for a united, strong and prosperous ASEAN Community; seriously fulfilled membership commitments and obligations, making important contributions to strengthening solidarity, building the ASEAN Community and realising the ASEAN Vision 2025,” he stressed.

Strong commitments

After more than 35 years of Doi Moi (renewal), the Vietnamese economy’s GDP is estimated to reach nearly 400 billion USD in 2022, with a per capita income of more than 4,000 USD and a trade size of as much as 750 billion USD, becoming one of the world’s top 20 economies in terms of international trade.

So far, Vietnam has already had 15 free trade agreements (FTAs) with 60 countries and territories, including the world’s largest markets. Its GDP grew 8.83% in the first nine months of this year, and the rate is expected to reach 8% for the entire year.

“We will create the best conditions for all enterprises and investors. Vietnam will maintain socio-political and macro-economic stability; eradicate all obstructions in terms of legal institutions, infrastructure and human resources; develop supply chains, decrease transaction costs, especially logistic and administrative costs; and build up a stable environment and policies, while exercising transparency and accountability,” PM Chinh committed.

He expected that businesses will continue cooperating with regional governments, and boost investment and trade flows to create more employment.

It has been suggested that ASEAN member states commit to adopt a holistic approach to creating a more competitive investment facilitation climate, which will enable them to attract more foreign direct investment (FDI).

According to the ASEAN Secretariat, investment facilitation should incorporate business facilitation and other measures not limited to foreign investment procedures alone. Synergies should be sought between investment facilitation efforts and the activities and tools of authorities other than investment promotion agencies.

“Investment facilitation should cover business registration and approvals, licenses and other administrative requirements and processes, and tax-related and social security procedures, for example. Investors will consider the efficiency and effectiveness of a country’s entire administrative process from obtaining investment permits, to incentives to the steps in registering and operating a business in the country,” said the ASEAN Investment Report 2022 released recently.

Investment facilitation will also be leveraged by advantages from the Regional Comprehensive Economic Partnership (RCEP) that ASEAN and its five FTA partners including Australia, China, Japan, New Zealand, and the Republic of Korea. The RCEP was signed November 2020 and became valid on January 1, 2022.

The RCEP covers a market of 2.3 billion people and 26.2 trillion USD in global output. This accounts for about 30% of the population worldwide and over a quarter in world exports.

According to pan-Asia consulting firm Dezan Shira & Associates, for investors operating across ASEAN, China, and other regions - RCEP offers good news.

“Streamlined customs procedures, unified rule of origin, and improved market access will make investing in multiple location – a much more viable and attractive investment strategy and likely bring “China + 1” business models to the fore. The common rule of origin will lower costs for companies with supply chains that span across Asia and may encourage multinationals to RCEP countries to establish supply chains across the bloc, thus growing the global value chain activity in the region,” Dezan Shira & Associates said.

Under the RCEP’s commitments, member states committed to remove 87.8 - 98.3% of tariff lines for Vietnam, and ASEAN countries pledged to do that with 85.9 – 100% of tariff lines. The longest roadmap for tariff elimination is 15-20 years as from the RCEP took effect.

Improvements

According to the ASEAN Investment Report 2022, it is expected that ASEAN will continue to receive a high level of FDI flows following the significant rebound. “Despite the worsening outlook for global FDI, several factors will support continued growth in ASEAN, including vibrant industrial development, regional integration momentum, growing numbers of middle-income consumers and a consistent policy push,” the report stated.

The interaction of internal (for instance regional integration, market attraction) and external factors (for example adjustment or strengthening supply chain capacity and regional corporate expansion strategies) favourable to the region will help sustain a high level of inflows, according to the ASEAN Secretariat.

ASEAN recorded a robust rebound in FDI inflows, surging by 42% to reach 174 billion USD in 2021. This increase to near pre-pandemic levels reverses the decline in 2020 caused by the COVID-19 outbreak and reflects the attractiveness of the region’s economy for global investors. With a large market and strong regional integration, ASEAN remains a major FDI destination in the developing world – second only to China – and will play an important role in driving global economic recovery.

Notably, the ASEAN Secretariat has highly appreciated the investment facilitation in Vietnam which it said boasts great potential to attract more FDI both inside and outside ASEAN.

“The investment environment in Vietnam has improved over the years, as corroborated by survey findings from foreign chambers of commerce based in the country,” the secretariat said. “The government has introduced measures to simplify requirements, reduce steps and streamline processes to facilitate investment.”

Specifically, the government promulgated Resolution No.19-2016/NQ-CP and Resolution No.19-2017/NQ-CP on improvement of the business environment and promotion of national competitiveness. These resolutions also target elimination and simplification of 50% of investment and business conditions, facilitating and encouraging the application of IT for administrative procedures and providing online services to stakeholders.

In another case, in 2016, the government introduced two regulations concerning employment of foreign workers. The law made it easier for foreign workers to work and live in the country. Circular 40/2016/TT-BLDTBXH allows foreign workers to move to different provinces without having to apply for new work permits. The circular only requires foreign workers to give a written notification to the labour authority of the province.

Vietnam has also been highly appreciated by the ASEAN Secretariat for transparency and provision of investment information.

Specifically, the government publishes information and updates on reforms, laws, policies and regulations relating to investment. Websites and online system for enquiries have been established and are in the process of being upgraded. The government has mandated the Foreign Investment Agency under the Ministry of Planning and Investment (MPI) to manage the National Foreign Investment Information System of web portals on procedures for issuance of investment registration certificates, and to post and update legislative documents, investment-related news, policies and investment conditions applied to foreign investors.

“In implementing the revised Investment Law, the government is transitioning from use of a positive list to use of a negative list of sectors in which investment is allowed. The transition is expected to help improve transparency and improve efficiency for foreign investors regarding information on sectors open for investment,” said the ASEAN Investment Report 2022.

According to the MPI, as of October 20, 2022, total registered investment capital into Vietnam from the Republic of Korea, Singapore, Japan, China, Thailand, and Malaysia stood at 80.61, 70.39, 68.34, 22.6, 13.1, and 13 billion USD, respectively.

Vietnam received 17.45 billion USD in disbursed FDI in the January- October 20 period, up 15% on-year. It is expected that the figure will rise to 22 billion USD for the whole year, up 11.5% from 2021.

Registered FDI, which indicates the size of future FDI disbursements, including newly registered capital, further investment in current projects and stake acquisition, decreased 5.4% on-year to 22.46 billion USD.

Of the pledges, 57.5% would go to manufacturing and processing. Singapore was the top source of FDI pledges in the period with 5.34 billion USD, followed by Japan (4.2 billion USD) and the Republic of Korea (USD3.9 billion).