Foreign investment review

Vietnam’s traditional “comparative advantages” – its natural resources, strategic location and low labor costs – were no longer considered such by foreign investors, experts told a conference in Hanoi Thursday. (Photo: Intel will invest US$1 billion in a chip assembly and testing plant in Vietnam. Its vice chairman, Brian Krzanich, receives the investment license from Pham Chanh Truc, head of the HCMC Hi-Tech Zone, in the witness of Prime Minister Nguyen Tan Dungin)

The flood of foreign investment, which has been a major contributor to economic growth, could slow to a trickle if the government did not address problems such the nation’s inadequate infrastructure, shortage of skilled workers and its laborious bureaucratic processes, the “20 years of foreign investment in Vietnam” conference was warned.

The grim warning prompted a government promise to overhaul the law to try to encourage foreign investment.

By the end of this year the government will review and simplify all existing laws and regulations in an attempt to make the legal system more conducive to economic and social development, Justice Minister Ha Hung Cuong said.

Vietnam’s foreign-invested sector has grown from only 6.3 percent of Gross Domestic Product (GDP) between 1991 and 1995 to 17 percent of GDP in the past two years, Minister of Planning and Investment Truong Van Doan told the conference of lawmakers and experts.

Since the first foreign investment laws were passed in 1987, Vietnam has attracted nearly 9,500 foreign investment projects, valued at US$98 billion.

In 2007 alone, foreign investment reached $20.3 billion, almost 20 percent of the 20-year total.

At present, the foreign-invested sector makes up more than half the country’s total export revenue and provides 1.26 million jobs, as well as a significant addition to the government’s annual budget.

Investors from 82 countries world-wide do business in Vietnam, with Asian investors accounting for 69 percent of the total investment.

Europe is second with 24 percent, followed by the US with 5 percent.

Of the 15 countries and territories with total investment valued at more than $1 billion, the Republic of Korea tops the list with $13 billion.

Of the countries with high levels of disbursed investment – investment actually put to use – Japan ranks first with $5 billion.

Though these figures told an encouraging story, Doan said there was also some disturbing data, including an increasing gap between approved and disbursed foreign investment and low growth in investment from major investor nations such as the US

Officials at the conference said the fundamental problems that were holding back new investment and hampering existing projects were the lingering issues of inadequate infrastructure, troublesome administrative processing and a low-skilled workforce.

Former Deputy Chairman of the State Committee for Cooperation and Investment Nguyen Mai said inadequate infrastructure was now the biggest barrier between Vietnam and foreign investors.

Tony Foster from Freshfields Bruckhaus Deringer agreed.

He said if the country didn’t upgrade its infrastructure in time, it would be difficult to maintain high levels of foreign investment and consequently, economic growth.

Foster said American investors also rated infrastructure, especially ports and electricity, as the most important factor when considering whether to invest in Vietnam.

In addition to infrastructure, Mai said Vietnam should also pay more attention to the quality of the workforce.

A vision is needed

“Though labor cost may still be a factor for foreign investors, labor productivity is even more so,” Mai said.

In the face of fierce competition from other countries trying to attract foreign investors, the nations that capitalized on their “comparative advantages” would win, he said.

Mai said Vietnam’s young and large labor force could become its comparative advantage – so long as it invested adequately in education and training to ensure a pool of “skilled workers, technical cadres, economic experts and high-level managers” to meet investors’ demands.

Political stability, rather than strategic location, was another advantage the country could exploit, Mai said.

He said in a world where geographical barriers were battered down by telecommunication and transportation advances, political stability was what mattered.

“While other countries worldwide are going through political turmoil, Vietnam must move fast to attract foreign investors before they all settle their troubles and become peaceful again,” Mai said.

As for natural resources, Mai said Vietnam had an abundance but only crude oil had so far been exploited for export.

In the years to come, though, the country’s crude oil resources would only be enough for domestic demand.

“Vietnam, therefore, has no major advantage in natural resources,” he said.

But the ultimate need, according to Mai, was for the government to adopt the right attitude towards foreign investors.

He said foreign investors sought profit while the government’s mission was to achieve economic growth and, ultimately, prosperity for its people.

“Thus, what we need to do is to harmonize these different goals and interests so that foreign investors do get something by coming to Vietnam,” Mai said.

He said this meant a variety of things ranging from enacting suitable and friendly laws and policies to providing foreign investors with up-to-date and detailed information about how to invest in Vietnam.

“The opportunity is greater now than ever before,” Mai said.

“If we don’t seize it now, we will lose it forever.”

(Source Thanhnien Daily ).