Reform needs to be more than skin-deep to attract FDI: ex-official

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Workers at a foreign-invested electronic plant in Vietnam

Reform of just administrative procedures is not enough to attract foreign investment, and the government needs to reform the entire administrative system, former vice deputy planning and investment minister, Nguyen Mai, tells Vietweek.

Vietweek: Vietnam has seen FDI increase by 54 percent in the first 11 months to US$20.8 billion. What do you think about this?

Nguyen Mai: This is a positive result. Some investors have expressed interest in major projects and hi-tech ones in Vietnam. Samsung is an example. It has invested in a mobile phone factory in Vietnam, expecting to produce over 200 million phones annually in the future. The South Korean firm has also set up a research and development center in Hanoi, which is expected to employ nearly 2,000 software engineers.   

EuroCham (the European Chamber of Commerce in Vietnam), despite some complaints about Vietnam's investment environment, has also recognized that investment prospects in Vietnam are bright. Vietnam has made progress in facilitating FDI attraction.

NGUYEN MAI, former vice deputy planning and investment minister

Without the contribution of the FDI sector, we could not have achieved this economic development

However, we should pay attention to some issues. We are getting too much investment in refineries. We have lessons from getting too much investment in cement and construction steel, resulting in excessive supply. But we find it hard to export the products.

We would face an oil oversupply in future if we continue to get more FDI in the field. So we should reconsider licensing a Thai energy firm to build a refinery in Binh Dinh Province (Thailand's top energy firm PTT received the nod from the government to build the Nhon Hoi refinery at a proposed $30 billion, and the mega project is expected to churn out 30 million tons of oil products per year). We should not turn Vietnam into an oil refinery hub for export because of environmental pollution and profits are small.

We should also provide technology guidance to localities in attracting FDI. Some localities have ignored the need for environment-friendly technologies to achieve their FDI targets. Some others have got into unhealthy competition to attract FDI.

There is an opinion that long existing barriers to investments like poor infrastructure, complicated administrative procedures, and inconsistent policies have not been eliminated. What do you think about it?    

Infrastructure nationwide is not as good as in Thailand or Singapore. However, infrastructure in big cities like Hanoi, Ho Chi Minh City, and Bac Ninh, which have attracted most FDI projects, is not worse than in other countries.

Administrative processes like business registration and tax and customs procedures are complicated. The Ministry of Justice is now drafting a decree to reform administrative procedures. But reform of just procedures is not enough we need to reform the entire administrative system and restructure the state apparatus. With the current cumbersome state apparatus, it is impossible to reform administrative procedures.

There are concerns that the economy depends too much on FDI, and foreign firms, as they gradually get stronger, leave local businesses behind. Do you think these concerns are justified?

There are many concerns, including the presence of foreign firms in retail and animal-feed production, who could crush local ones. Local firms have to make greater efforts to compete with foreign rivals in the domestic market.

The biggest worry is not their entry, but our weakness. Years ago Chinese beer and ceramic products flooded the Vietnamese market. Within 2-3 years local beers and ceramics were better, and consumers chose local products, not the foreign ones.

We should not worry about the entry of foreign investors. Without the contribution of the FDI sector, we could not have achieved this economic development. The sector has helped Vietnam reduce its trade deficit, and [the country] has seen a trade surplus of over $12 billion this year.

Will the government's plan to restructure the economy satisfy foreign investors?

We need to restructure the economy not to satisfy foreign investors. Economic restructure is a requirement for Vietnam. We should have started in 2001. The resolution of the 9th National Congress of the Communist Party in 2001 mentioned the need for economic restructure. Countries often change their economic development model within 15 years after renovation (Vietnam began its economic renovation in 1986).

The FDI attraction strategy, which had been focused the number of projects, should have also been tweaked in 2001. We should have looked only for projects with high effectiveness and environment-friendly technologies. We did not change the FDI strategy until recent years.

Le Xuan Nghia, a member of the Government Advisory Board, said many investors complained about administrative procedures and the lack of discipline among workers.

Getting a bank loan took investors a few days in the US and the Netherlands but months in Vietnam.

Vietnam tried to reform administrative procedures, but the situation had not improved much, and the tortuous administrative procedures remained the biggest concern for both local and foreign firms. 

Vietnam had the advantage of having young workers and low labor costs, but the workers were not too skilled, well trained, or disciplined. Low labor costs would not be an advantage for Vietnam in the long term.

The high costs of transport, logistics, and port services were also a hurdle for foreign investors.

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