More reform needed to sustain foreign investor interest

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Workers of state utility group EVN repair electric grid in Hanoi. Experts say state companies should focus on certain sectors including public services, utilities and information technology

Vietnam's focus on developing some staple industries and those with high added value might not succeed in attracting foreign investment because of limited growth opportunities, experts said at the Vietnam Summit conference held Wednesday in Hanoi.

"Vietnam will focus on developing staple industries such as garments, footwear, and seafood processing to generate more jobs; fundamental industries, including energy and mechanics to meet basic demand of the economy; and industries with high added value such as electronics, IT and construction materials," Deputy Minister of Industry and Trade Tran Tuan Anh said at the conference held by The Economist magazine.

Vietnam will also continue to boost the finance, labor and technology markets, aiming to ensure effective operation of the industries, he said. "We call for investment from all economic sectors into these industries."

However, the development of spearhead industries, which are mostly in the hands of state-owned enterprises (SOEs), may be a wrong choice, Vu Thanh Tu Anh, director of research from the Fulbright Economics Teaching Program, told Vietweek on the sidelines of the meeting.

"Vietnam has followed a long-term industrialization strategy with a focus on key industries such as sugar, cement, shipbuilding, and steel. The industries are considered important to Vietnam's economy, but have not developed successfully," he said.

Vietnam has offered big support to SOEs in these sectors for more than two decades, but most of them have operated ineffectively, the economist said.

SOEs contribute just 20 percent of the industrial production value, while the rest comes from the private and foreign sectors, he said.

"The model of key industries that China and South Korea successfully applied in the 60s should not be used in Vietnam in the coming time," he said. "Our industrial activities should be fundamentally changed."

The state sector should not participate in industries like garments, rubber and sugar that private firms can perform well in. SOEs should develop in fields that the private sector cannot or do not want to participate in such as public services, utilities, road construction or information and communications technology, he said.

However, Tu Anh also said that SOEs could invest in agricultural fields like processing of seafood, rice and fruit that Vietnam has advantages in while competing in the world market. "The development of these industries would contribute to improving life of farmers, generate jobs in rural areas and reduce the pressure to migrate to urban areas."

The government should also create a fair business environment, offering incentives to private firms operating effectively, he said.

Stefaan Le Clair, chairman and managing director of Berenike Global Fashion Management, said Vietnam should improve its manufacturing technology. The country should have its own advantages in competition, and not rely on just a low-cost labor force, like its neighboring country, China, which also has it in abundance.

Instead of focusing on industries with demand for low-cost labor, Vietnam needs to offer more vocational training, because it lacks a highly-skilled labor force now, he said.

Poor implementation

Deputy Minister of Planning and Investment Cao Viet Sinh said Vietnam is calling for foreign investors to participate not only in industrial production, but also in the fields of agriculture and infrastructure development.

Investors in hi-tech fields, especially hi-tech industrial technology, would receive incentives from the government, he said.

But Gerardo Patacconi, chief of Clusters and Business Linkages Unit from the United Nations Industrial Development Organization, said foreign investors would not continue to pour their investment into industries with high added value in the coming time because of limited opportunities for their development.

To do effective business in these fields, it is necessary to have strong supporting industries, a good management system, and a highly-skilled labor force, which Vietnam still lacks, he said. It takes Vietnam a long time to develop them, he added.

Peter Ryder, CEO of Indochina Capital, said Vietnam, despite having a better legal corridor and banking system, still carried unfavorable factors for foreign investors such as a bearish stock market, high inflation and rising bad debts.

The government has built right policies, but it has not yet implemented them well. Investors would not believe in the investment environment unless they see results from good policies, he said.

Thanh Le, country chairman and general manager of Shell Companies in Vietnam, said the country could see much better development if it carries out half of its existing policies in an accurate and effective manner.

The country has not dealt with corruption very effectively, negatively affecting the investment environment, he said.

Former US Ambassador to Vietnam Michael Michalak also said the Vietnamese government should confirm its strong determination to fighting corruption.

He also called for Vietnam to facilitate private firms and create a fair environment for enterprises.

Dang Thi Hoang Yen, CEO of the Tan Tao Group, said: "In fact, there has not yet been a fair playing field for firms. This is a concern of both private and foreign investors. The government should offer private and foreign firms the same treatment as it does to SOEs."

Vietnam should also amend some laws, including the land law, to further facilitate investors, as some have delayed their projects due to difficulties in site clearance, she said.

Victoria Kwakwa, World Bank Country Director for Vietnam, said since SOEs have not operated effectively, they should be reformed.

Deputy planning minister Sinh said the government would accelerate the equitization of SOEs in the coming time, cutting the number of the firms to 700 from the existing 1,306.

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