Foreign groups urge Vietnam to improve investment climate

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A pair of business groups has raised flags about falling confidence among foreign companies doing business in Vietnam.

European companies have remained patient and hopeful about the nation's long-term development, but their confidence has steadily declined since the beginning of 2011, Preben Hjortlund, chairman of the European Chamber of Commerce in Vietnam, said in a statement prepared for the Vietnam Business Forum in Hanoi on Tuesday.

Hjortlund pointed out that EuroCham's Business Confidence Index has declined from 70 to 53 points over the last year, and remains stagnant around this level.

Foreign direct investment (FDI) disbursement reached US$4.51 billion in the first five months of 2012 just slightly lower than the same period last year, according to the Ministry of Planning and Investment's Foreign Investment Agency.

Newly registered FDI, on the other hand, dropped by 25.3 percent to $4.12 billion. If pledges of additional capital for existing projects are included, registered investment actually fell 32.8 percent, to $5.32 billion in the January-May period, the agency said.

"Coupled with recent reduction in FDI and high inflation rate, it is fair to say that European companies remain concerned about the business and investment environment in Vietnam," Hjortlund said, noting that difficulties in accessing credit, a lack of adequate infrastructure and administrative burdens continue to pose challenges to foreign businesses operating here.

"EuroCham believes that the Vietnamese government has taken steps to stabilize the macroeconomic situation in the short term but that there remains a lot to be done to improve the longer term attractiveness of the Vietnamese market for foreign investment," he added.

The forum was held as part of a biannual dialogue held between the business community, donors and the government. During the meeting, foreign business executives said that Vietnam needs to improve its investment climate, particularly given that investors around would have become very cautious.

According to the American Chamber of Commerce, Vietnam has great potential and the investment environment has been "generally positive." However, the group said it is concerned that Vietnam may become stuck in the middle-income trap and may not succeed at the transition from low-skill and low value-added manufacturing to higher value-added manufacturing and services.

Meanwhile, the Nordic Business Association in Ho Chi Minh City complained that its members are still experiencing problems due to increased transportation and logistics costs. "In order for Vietnam to remain competitive compared with its neighboring countries it is important to reduce the current logistic cost and in particular for the exported goods," it said.

Members of the association, however, expressed confidence in their Vietnamese investments, in the long term. "Several new Nordic companies have increased their present investments and new companies have been established during the past year," according to Sigmund Stromme, chairman of the association.

Finland-based mobile phone maker Nokia Oyj began building a plant in the northern province of Bac Ninh in April. The firm hopes to begin handset production next year, following Intel Corp., Samsung Electronics Co., and Piaggio into Vietnam's growing manufacturing market.

On Tuesday, ANZ issued a report saying that FDI into Vietnam's electronics and telecommunication industries has increased significantly, suggesting that relatively low labor cost and government incentives to increase investment in the high-technology industries have attracted tech investors.

The bank said that Nokia will be joined by Wintek, a maker of panels for Apple's iPhone, and Japanese printer producer Kyocera in bringing large tech factories online in 2012-2013.

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