Workers sew clothing with sewing machines at the Esquel Group garment factory at the Vietnam-Singapore Industrial Park in Thuan An in the southern province of Binh Duong, which neighbors Ho Chi Minh City. Photos: Bloomberg
Prime Minister Nguyen Tan Dung has called for further reform of Vietnam’s business climate after acknowledging that red tape has continued to hinder the country's development.
The prime minister made his comments on Monday during a year-end teleconference that included cabinet officials and local leaders whom he had convened to streamline the country's business climate.
Dung urged provincial and central government agencies to eliminate superfluous formalities in the process of filing taxes, customs, social insurance, electricity access, and business licenses.
“In 2015, we have to forge ahead with the administrative reforms to roll out a favorable investment climate for the corporate sector and the people,” Dung said.
Given that Vietnam is home to 400,000 businesses, their smooth operation has become a prerequisite to luring further investment, he said.
Dung’s push for an improved business climate followed his address to the annual Vietnam Business Forum early this month, when he highlighted “the strong growth of the private sector and the role small and medium-sized enterprises played in making life easier for foreign investors seeking to enter Vietnam.”
Vietnam’s economy expanded 5.98 percent this year, beating the government’s 5.8 percent projection, according to data released December 27 by the General Statistics Office.
Vietnam attracted more than US$20 billion in foreign direct investment (FDI) between January and mid-December, a 6.5-percent annual decrease, according to the Foreign Investment Agency.
The country licensed 1,588 new projects to foreign investors with registered capital of $15.64 billion, up 9.6 percent annually, and allowed 594 underway projects to boost funding worth a total $4.58 billion, down 37.6 percent annually.
Although the total funding decreased compared to last year, it posted a 19-percent increase from the set target ($17 billion), thanks to some multi-billion projects such as three projects invested by Samsung and a project by Hong Kong’s Dewan International.
Among 60 countries and territories investing in Vietnam, South Korea is the top investor with $7.32 billion, followed by Hong Kong with $3 billion and Singapore with 2.79 billion. The top areas that attracted FDI this year are process engineering, real estate and construction.
At the Vietnam Business Forum, the business community also urged the government to focus efforts on improving the ease of doing business here and “addressing areas where inconsistencies, inefficiencies, and unfair practices persist.”
“For many companies and investors that need to fully comply with rules and laws, Vietnam is a very difficult place to be successful and government efforts to ‘manage’ business activity have caused numerous investors to rethink their business and expansion plans here,” said Gaurav Gupta, chairman of the American Chamber of Commerce in Vietnam.
Facing threats from foreign businesses to pull out of the country or scale down operations, analysts warned that Vietnam must be careful as it strives to accommodate corporations.
Dennis McCornac, a professor of economics at Loyola University in Baltimore (Maryland), warned of a scenario in which “companies convince the government to implement regulations or policies that only benefit [them].”
Analysts acknowledge that Vietnam’s abundance of cheap labor has played an increasingly pivotal role in wooing foreign firms looking to build factories in a country with a large, cheap work force as wages in China and Thailand continue to rise.
But they also warn that competing for low wages is a risky business.
A study released this month by the Hanoi-based Central Institute for Economic Management confirmed that the country’s cheap labor edge is fading.
“In the short-run, foreign direct investment may help create new jobs and attract redundant workers from rural areas. In the longer-run, however, low wages in industry may contribute to increased relative poverty,” said Pietro Masina, an associate professor of economics at the University of Naples "L'Orientale" in Italy.