More opportunities for foreign investment in Viet Nam
Representatives from the world’s leading companies and groups gathered in Ha Noi on 8 Jan. for frank discussions on investment policies and business climate with representatives from the Vietnamese Government and relevant ministries in the context of Viet Nam being hailed as one of the dynamic economies in Asia.
The first Business Roundtable with the Government of Viet Nam is jointly organised by the Economist Conferences from the UK’s leading The Economist and the Viet Nam Foreign Ministry’s World and Vietnam Report.
The international meeting themed “Viet Nam – A rising star in Asia” is a chance for foreign businesses to hear the Vietnamese Government’s guidelines and policies as well as raise their views.
“It will make people better informed, have a clearer view of the country and also opportunities to invest,” Vice President of the Hong Kong-Shanghai Bank Corporation (HSBC) in Viet Nam David Morton said.
Meanwhile, Director of the Dragon Capitla Dominic Scriven said the meeting would reflect the Government’s concern on the business circles. During the two-day meeting, participants will discuss issues reports relating to Viet Nam’s economy such as banking reform, creation of new opportunities for foreign investors and sustainable human resource development. A meeting between foreign and domestic businesses will be held within the framework of the event.
“For Viet Nam, the event will attract leading officials from foreign and domestic economic groups. Through the meeting, investors could continue expanding their operation, thus generating more jobs,” Hoang Anh Tuan, Development Director of General Electric International said.
In 2007, Viet Nam registered an economic growth rate of 8.48 percent, the highest in the past 10 years, with GPD per capital standing at 833 USD.
Viet Nam has become foreign investors’ destination as the country attracted a record foreign direct investment (FDI) of more than 20.3 billion USD, a year-on-year increase of about 70 percent.
Besides, pledged official development assistance (ODA) from foreign donors hit 5.4 billion USD last year, 20 percent higher than the previous year. The year 2007 marked the first time Viet Nam’s ODA disbursement surpassed its plan of 2 billion USD, a year-on-year of 10 percent. This has helped increase foreign investors’ trust in Viet Nam ’s investment climate.
VNECONOMY08.01

Foreign investors need better infrastructure

Many foreign investors attending a two-day international conference on Viet Nam’s economic policy in Ha Noi agreed that infrastructure development is an important requirement for further growth of the Southeast Asian country.
“Well-developed infrastructure will help Viet Nam make further progress,” Christian Fredrikson, Director of Nokia Siemens Networks in Asia-Pacific, said on the sidelines of the Business Roundtable with Vietnamese Government that opened on January 8.
According to Kamlash Patel, Strategy and Business Development Director of Nokia Siemens Networks, like other foreign businesses, his company expects a better infrastructure in Viet Nam , including telecommunications infrastructure.
Viet Nam had 33 million telephone subscribers in 2007 and the number of Internet users currently stands at more than 18 million. The impressed growth proves Viet Nam ’s progress in narrowing down the digital gap with other countries.
“However, infrastructure in both urban and rural areas need to improve as the economy now develops strongly,” said Patel.
Stuart Dean, President of General Electric, agreed that infrastructure development is an urgent need in Viet Nam and he would want to know how far the country will go in this area. Meanwhile, Charles Goddard, Asia-Pacific Editorial Director of Economist Intelligence Unit – a global information supplier, warned that insufficient and slow infrastructure investment may hinder the country’s economic development.
As part of concerted efforts to boost socio-economic development, the Vietnamese government is focusing on luring foreign investment into transport infrastructure and power projects.
Deputy General Director of KPMG Viet Nam Tim Aman praised Viet Nam’s new approach, saying it helped bringing more foreign investors.
VNECONOMY 09.01

Getting to business

One of the main strategies for boosting Vietnam economic development is improving its business environment. However, the process doesn't seem to be as fast as enterprises hope.
Since starting the reform process in 1986, Vietnam’s economy has made positive steps.
Economic growth was 8.48 per cent last year, the highest growth rate for the decade, making Vietnam one of the fastest growing economies in the world.
International companies are eyeing the country as one of the most attractive places for doing business while the new establishment of domestic enterprises is booming, a stark contrast to the state-subsidised economy of the 1980s.
The nation’s business environment - legal frameworks, infrastructure, administrative processes and labour force, is changing in line with the development of the economy. However, many domestic and international enterprises still believe that the changes are not doing enough to sufficiently boost their development.
According to the Doing Business 2008 report of the World Bank, which compares regulations in economies, Vietnam is ranked 91 out of 178 economies.
Although the country has closed the gap on its regional neighbours, the report highlights three key weaknesses: protecting investors, closing a business, and paying taxes.
Vietnam remains among the countries with the lowest protection for investors against directors’ misuse of corporate assets. The report says that although the new securities and enterprise laws introduce fiduciary duties for directors, they fail to provide a way to enforce those duties.
It is still difficult to close a business in Vietnam. According to the report, the current mechanism for dealing with bankruptcy in Vietnam is often difficult and time consuming. As a result very few enterprises terminate their business using official regulations and procedures.
The World Bank’s report says that enterprises must spend 1,050 hours per year, or the equivalent of 130 workdays, to meet tax office requirements.
The 2007 Business Environment Sentiment Survey, conducted by the Vietnam Business Forum Secretariat late last year, shows that inconsistent legal framework, poor infrastructure, lack of skilled workers and inflexible administrative procedures are limiting Vietnam’s business environment.
During the past years, Vietnam has been working hard to improve its social-economic legal system with a view to creating a level playing field conducive for the development of a market economy and in compliance with World Trade Organization’s rules.
The National Assembly has passed many laws such as the Law on Enterprises, the Law on Investment, the Law on Insurance Business, and the Law on Intellectual Property Rights, aimed at creating an environment suitable to economic development. In addition, the government has issued many decrees elaborating the laws and ordinances as well as regulating business activities where laws are still absent.
Yet despite the significant advances the country has made towards establishing a more comprehensive legal system, Vietnamese laws are still unclear. This is creating difficulties for enterprises and government authorities during the implementation process.
Nguyen Dinh Cung, head of the Macroeconomic Division under the Central Institute for Economic Management, said that the Vietnamese legal system was sufficient for a degree of economic development but lacked quality.
The lack of clear legislation and a proper legal framework has left critical problems including certain aspects of taxation and dispute resolutions, said Cung.
Investors in the country also complain about the problems of intellectual property rights protection, administration reforms, which have not been carried out as fast as anticipated and taxation administration and payment.
Not all plain sailing
Although the country applied a “one door” policy to reduce the time it takes to start a business, there are still differences between the implementation of the policy in various provinces.
With regards to infrastructure, investors recently noted improvements in market-entry and telecommunications services and power supply infrastructure.
However, improvements in transportation infrastructure have received much less positive feedback. The development of transportation infrastructure appears unable to catch up to the growth of the economy. In addition, delays in big projects, as well as incomprehensive development, have exacerbated the situation.
The availability of skilled labour is becoming a problem which needs urgent attention. Businesses showed their growing concern with the lack of skilled human resources, a factor already constraining the development and competition of enterprises.
The proportion of skilled labour in Vietnam accounts for 24 per cent of the work force while it ranges from 60 to 70 per cent in many other regional countries.
One possible reason for the shortage is that the application process to establish higher education or training institutions is slow and time consuming, a major obstacle faced by private educational suppliers.
At the Vietnam Business Forum held in Hanoi last December, investors asked the government to create clearer and simpler licencing procedures that outline minimum educational standards.
Cung said that the country should focus on short-term measures like simplifying legal documents and administrative procedures, in order to create conditions for implementing long-term measures including infrastructure development and building a skilled labour force.
He said the lack of connection between ministries and government authorities led to synchronous legal documents. Furthermore, he added, the legal documents met the requirements of state authorities but to many extents not the demands of enterprises.
Another reason for the delay in improving legal documents and administrative reform were the uncertainty about the role of enterprises in the reforms, Cung said.
Taking the short road
To raise awareness of the consequences of a weak business environment, the Ministry of Planning and Investment (MPI) is preparing a project to enhance the business environment and strengthen competition, which would be submitted to the government for approval. The project includes careful research into existing laws, ordinances, regulations and circulars in order to identify gaps or discrepancies in existing rules, boosting administration reform and creating new mechanisms to encourage investing in the fields of training and education and infrastructure.
United Nations Development Programme economic expert Peter Nelson said that these measures were not new and had been repeated many times.
“These measures are easier said than done. In my opinion, checking and rejecting unnecessary documents is very difficult if we just base it on the action of government authorities.” said Nelson.
According to the MPI’s project, a new agency would be established for checking the implementation of laws and supervising all legal documents issued by government authorities to ensure efficiency.
The MPI also plans to petition to reject about 50 per cent of administrative procedures that are not suitable for businesses. Dinh Van An, director of Central Institute Economic Management (CIEM), said all regulations on business conditions had to be reviewed and adjusted in order to create conditions for investors to do business in the conditional sectors.
Peter Nelson said that the government should let enterprises take part in the process of reforming legal documents and administrative procedures.
Regarding problems of infrastructure and the lack of skilled workers, CIEM economists also urged the government to open up these sectors, supporting private enterprises invest in infrastructure and education projects.
Speaking at a meeting at the MPI last November, Prime Minister Nguyen Tan Dung said pushing legal and administrative reforms would be one of the main objectives of the country in 2008. He asked government authorities to outline specific and drastic actions aimed at pushing the process of reform to improve the business environment.
The government’s efforts have given both local and foreign enterprises positive expectations for the next couple of years. The Business Environment Sentiment Survey 2007 shows that 90 per cent of enterprises have planned to expand their operations over the next three years and only 10 per cent reported that they would remain the same.
VNECONOMY 08.01

Dong creeps up on dollar after trading band widens

The Vietnamese dong has crept up on the US dollar since the trading band widened two weeks ago as part of measures to curb rising inflation. The exchange rate has fallen below VND16,000.
The currency has strengthened by as much as VND28 per dollar per week on average, a significant move given that the dollar has for years been hovering above VND16,000.
Yesterday, the central bank announced a daily inter-bank exchange rate of VND16,107. Eximbank listed an exchange rate of VND15,986/15,992 against VND16,018/16,040 after SBV allowed more flexible exchange rates for the US dollar.
Buying and selling exchange rates offered by Sacombank, Techcombank, BIDV, OCB and VP Bank yesterday were VND15,986/15,992, VND15,986/15,995, VND15,986/15,988, VND15,986/15,998, VND15,986/16,000 respectively.
The exchange rate for the greenback was 16,030 dong at the close of 2007, compared with 16,051 one year ago. The currency, at its most volatile, was still within the narrow range of 15,970 and 16,230 throughout the year.
Compared to an exchange rate against the dollar of 16,287.5 on August 21, the weakest point in at least 14 years, the exchange at this time has fallen 1.85 per cent.
With the dollar plunging against world currencies in recent months, the tight trading band has kept the dong artificially weakened with less liquidity in forex markets.
The widening daily trading band from +/-0.5 to +/-0.75 is intended to slightly loosen the dong’s relationship to the US dollar and reduce the pressure of the money supply on inflation.
Director of the Department for Monetary Policy Nguyen Ngoc Bao and director of the Department for Foreign Exchange Management Dao Quang Tuan were not available for interview yesterday.
Diversifying payments
"This story is by no means simple for any country forced to manage such strong capital inflows from offshore, as is the case with Viet Nam. Enterprises trading across borders should try to survive by themselves amidst global competition instead of relying all on support from the central bank," said Nguyen Quang A, director of the Independent National Economic Research Institute.
As many as 80 per cent of exports and imports from Viet Nam’s firms were paid with US dollars, which means the Vietnamese dong is strongly aligned with the US dollar, while the US currency is falling against other foreign currencies.
Though the dong had slightly appreciated against the US dollar, this did not mean that the dong was appreciating against other currencies, according to Quang A.
"I suggest that local enterprises should vary their payment currencies regarding different markets. It’s ridiculous to pay by US dollar when exporting to Britain," Quang A told Viet Nam News.
In this case, Viet Nam could lose competitiveness on the US market but not necessarily in other markets like Europe, Japan and Russia.
An economist with the Central Institute for Economic Management who asked to remain anonymous said that if the trend continued, the rising import surplus of Viet Nam might worsen.
Last year, the import surplus surged to $12.4 billion.
"These exchange rates will greatly hinder exporters, so it’s high time for them to change their US-dollar-based payment methods. They must learn something in order to remain in the market during unexpected exchange fluctuations," said deputy general director of Asia Commercial Bank Nguyen Thanh Toai.
Moreover, commercial banks reported the large abundance of US dollars whilst the central bank seemed to purchase no greenbacks as they have been blamed for making the exchange rate fall.
In another development, some economists suggest that if the central bank allowed some local luxury shops to trade in US dollars only, the currency would be withdrawn from the market and liquidity would improve.
"I know that the Government always tries to avoid dolarisation of the local market, but in this case, personally, I think this measure should be taken into consideration," a representative from the central bank said.
VNS 08.01