Procedures too daunting for foreign investors, Vietnam warned

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Workers on an assembly line at a Ford Vietnam plant in Hanoi

If problems like tortuous administrative procedures are not resolved, Vietnam will struggle to attract foreign investors, or even keep existing investments, the chairman of the Vietnam Association of Foreign Invested Enterprises, Nguyen Mai tells Vietweek.

Vietweek: Vietnam attracted nearly US$10.5 billion worth FDI between January and June, 15.9 percent more than in the same period last year. What does this indicate?

Nguyen Mai: In fact, disbursed FDI has never decreased since 2008, often standing at over $10 billion each year. Only registered capital has decreased over the past few years. Disbursed capital is more important.

In the first six months, investors have poured big amounts into some important projects. For example, Samsung pledged to invest an additional $1 billion, raising its total in the country to $5 billion. It is very good that Vietnam can attract this big investor, which can help the country become a large producer and exporter of mobile phones.

LG also plans to invest some $1.4-1.5 billion in an electronics plant in Hai Phong. The most important is not the increase in registered FDI, but the investment by more big investors like Samsung, LG, and Nokia in hi-tech projects.

Many delegations of investors from the European Union, South Korea and the US have come to Vietnam to study investment opportunities here.

Investors are more interested in Vietnam as the country integrates more deeply into the global economy. Vietnam is negotiating a free trade agreement with the EU and the Trans-Pacific Strategic Economic Partnership Agreement with some countries. It will also join the ASEAN Economic Community by 2015. These show that Vietnam is continuing to open its door, which will result in lower import and export taxes. So investors think Vietnam has big investment potential.

Vietnam has recently seen more foreign investors entering the retail and automobile sectors. The European Chamber of Commerce in Vietnam recently assessed that Vietnam has improved investment prospects. The country's economy has improved from one year ago.

The Ministry of Planning and Investment has submitted a draft resolution on FDI with specific incentives for foreign investors in each locality and sector. This has made foreign investors more interested in Vietnam. I think registered FDI will continue to increase this year if the business environment is improved.

The increase in the number of large foreign projects can be very good for the economy. However, there are concerns if they will be implemented on schedule. Many of projects have been delayed "¦

Local authorities should be very careful in licensing foreign projects. We should not covet projects with big capital so much that we cut corners while assessing their feasibility.

Our country has seen hundreds of projects delayed due to failure to carefully assess before licensing them.
Local authorities and ministries have improved policies to attract more foreign investors. The Ministry of Planning and Investment is amending the Laws of Enterprise and Investment to make them more suitable to attract new FDI.

Which sectors are attractive to foreign investors?

We want more foreign investment in electronics, high technology, supporting industries, banking and finance, education, and health. However, what we want may not be what foreign investors want.
In fact, many foreign investors have invested in property. The sector will remain attractive to them when it recovers and the government loosens regulations on allowing foreigners to buy homes.

There is an opinion that another obstacle that could discourage foreign investors is the low rate of FDI disbursement. Could we increase the economy's ability of absorbing capital?

According to the Ministry of Planning and Investment, gross fixed capital formation is expected to fall to 30 percent of the country's GDP, which is estimated at some $140 billion this year. FDI disbursement is expected to reach $12 billion [this year]. So the issue is not increasing the disbursement; it is to improve disbursement quality. It means we should only target projects with high added value or those that are of great significance to the economy.

You say Vietnam is attractive to foreign investors. However, many investors, including Japan, our biggest investor, have only invested modest amounts in our country compared to some other ASEAN member countries like Indonesia, Malaysia, and Thailand"¦

Vietnam [has] emerged as an attractive destination for foreign investors. But there are still some shortcomings, for example tortuous administrative procedures. The number of our customs procedures is four times higher than in Singapore, and the time it takes to implement them is also two or three times longer.
If the issues are not resolved, Vietnam will not get any more foreign investors. We cannot even keep the current investment since investors could pull out. So Vietnam should consistently improve policies on its own, and not only when there is pressure from foreign investors.

 Confidence rises

"Recent economic data, the regulatory environment and the non-performing loans situation have reduced investors' confidence in the Vietnamese economy," Ken Atkinson, managing partner of business consultancy Grant Thornton Vietnam, says.

"However, a new wave of FDI capital flow into the country together with a stable and lower inflation rate are seen as positive signs for the economy."

A second quarter survey by the firm found respondents showing more confidence in Vietnam's investment environment, with 41 percent of them saying Vietnam is a more attractive place to invest compared with other destinations. It had been 27 percent in the previous survey.

Though the country is still in the throes of the economic downturn, 45 percent of the respondents expected to increase their investment in Vietnam, up from 29 percent at the end of last year.

The percentage of investors who plan to make no change to their investment in Vietnam remained at 38 percent.

According to 82 percent of respondents, corruption and red tape are issues of great concern when investing in Vietnam. Following them is concern about the legal system, which was mentioned by 78 percent, an increase of 5 percent.

The three have always been among the top four concerns in recent investor surveys.

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