Corruption poses hurdle to Vietnam FDI inflows

By Ngan Anh, Thanh Nien News (The story can be found in the March 28 issue of our print edition, Vietweek)

Email Print

RELATED NEWS

A worker in an assembly line at a Samsung Electronics factory in Vietnam
Corruption is affecting Vietnam’s FDI prospects, and if the problem is not resolved, the country will become less attractive to foreign investors, Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, tells Vietweek.

According to the 2013 Provincial Competitiveness Index report from the Vietnam Chamber of Commerce and Industry, which studies provinces and cities in terms of ease of doing business, economic governance, and administrative reform efforts, only a small number of foreign investors want to expand their investment in this country. Is it worrisome?

Nguyen Mai: According to figures reported by the Foreign Investment Agency, many foreign investors registered to increase investment in their projects in Vietnam. More than one third of registered FDI in 2013 came from existing projects, which was not lower than that of 2012. Many large projects, including those of South Korean Electrics giant Samsung and Nghi Son refinery, saw investment increased last year. We should not be pessimistic.

But Thailand, Indonesia, China, and even Cambodia are assessed as being more attractive than Vietnam?

According to a report by the World Bank assessing the investment environment last year, Cambodia saw a rise of 23 places, and the Philippines and Indonesia, 19 places each. Meanwhile, the assessment of Vietnam remained unchanged. Our nontransparent and unpredictable laws and tortuous administrative procedures are obstacles to foreign investment inflows. Authorities do not implement policies strictly, also hindering FDI.

However, I do not think Cambodia is now a rival to Vietnam in attracting FDI because foreign investment in the former is mainly in garment and leather projects by Asian countries, including Vietnam. FDI in our country now is tens of times higher than in Cambodia.

It is the same with Myanmar. We highly appreciate Myanmar’s move to open doors to foreign investors. However, the country has only done it for a short time now. Vietnam opened its doors to foreign investors since we enacted the Foreign Investment Law in 1987. To date we have attracted FDI of more than $100 billion. Meanwhile, Myanmar has more unstable social issues than Vietnam. Thus, it is not one of our rivals in FDI attraction.

China is a rival for us. However, there is a trend that many foreign investors want to leave China for ASEAN member countries, including Vietnam. Thus, if we have a good business environment, we could attract investors who leave China for new markets.

"Corruption has affected Vietnam’s FDI inflows. If it is not resolved, Vietnam will become less attractive to foreign investors."
NGUYEN MAI

How do you assess Vietnam’s efforts in combating corruption, which is considered a big obstacle to attracting FDI?

Most of our foreign investors are members of the Organization for Economic Co-operation and Development (OECD), which bans their companies from paying bribes in countries which get their investment.

In Vietnam, corruption has become a national issue. Relevant authorities are investigating the charge that the president of Tokyo-based railway consultancy Japan Transportation Consultants, Inc. paid a bribe of nearly $800,000 to a Vietnamese official to get an official development assistance project in Vietnam. Many foreign firms want to win ODA project contracts, and pay bribes to Vietnamese officials [for this]. These cases are detected only when their countries do a tax audit and detect monies not used in a transparent manner.

Corruption has affected Vietnam’s FDI inflows. If it is not resolved, Vietnam will become less attractive to foreign investors. Attracting investment from OECD members is very important in the context that we want to lure higher quality projects. Obviously, corruption can be found everywhere in the world, but we should make more efforts to reduce it.

We plan to pass the Public Investment Law, which will stipulate oversight of investment from the commune to central levels by the Fatherland Front. The surveillance of public investment projects is one of the important measures to fight corruption.

There is an opinion that we offer too many incentives to foreign investors. Foreign investors could crush local private firms if we do not carefully consider the incentives. What do you think about it?

I have exchanged views with many economists on the issue. They said the entry of Thailand’s CP group has forced many small local livestock breeding firms to shut down due to their low competitiveness. Before CP group entered Vietnam in 1994, there were no firms that hired farms to raise chickens, provided them animal feed, and then purchased eggs and chicken to sell to retailers. CP group has developed the business model in Vietnam.

In fact, local private firms can develop in a competitive environment. The local market has many segments and foreign and local firms can participate in different segments. Some economists said the more capital foreign investors pour into Vietnam, the bigger losses the country has to suffer. I do not think so. Both Samsung and Vietnam can enjoy benefits when the firm invests in the country. The South Korean electronics giant has created 50,000 jobs in Bac Ninh Province. It exported products worth $23 billion last year. Why don’t we let Samsung invest in our country?

Obviously, there is also the dark side of FDI, but we should find ways to resolve it instead of curbing FDI.

What is the role of FDI in economic restructure?

FDI is one of important factors in our economic restructure. Many years ago agriculture contributed more than 80 percent of the GDP of Bac Ninh Province. In 2012 industrial production accounted for 73 percent of its GDP, mainly due to the contribution of foreign investors like Samsung, Nokia, and Canon. Thus, FDI is helping modernize our economic structure.

Like us on Facebook and scroll down to share your comment

More Business News