Encouraging Vietnam’s influx of foreign investment

07:06 | 25/07/2016
Whilst Vietnam has made considerable progress in enhancing its business and investment environment in recent years to magnetise foreign investors, the country is still lagging behind its regional peers in terms of competitiveness.

KPMG Vietnam’s deputy general director Nguyen Cong Ai discusses with VIR’s Tay Lan how Vietnam can further improve its investment settings to lure in a new wave of foreign investment in the future.

Vietnam has been attempting to enhance its business and investment environment in recent years through the renewal and updating of various policies that aim to encourage foreign direct investment (FDI). How effective has it been in attracting foreign investors?

The Vietnamese government has made significant progress in updating relevant legal documents governing investment issues such as the laws on Investment and Enterprises, and with the issuance of detailed guidelines by the government and its agencies, the legal framework for investment in Vietnam is getting more transparent and favourable. In addition, tax laws have also been revised to incentivise investors. For examples, corporate income tax (CIT) rate was reduced from 25 per cent (effective from January 1, 2009) to 20 per cent (effective from January 1, 2016). Regulations governing certain sectors such as the Law on Real Estate Business and the Law on Housing have also been updated to contribute to more transparency for doing business in these industries. According to the Global Competitiveness Report conducted by World Economic Forum, Vietnam ranked 56th out of 140 countries in 2015-2016, climbing 12 levels from our ranking in 2014-2015. The index showing ease of government regulation was up 11 levels, from 101st in 2014-2015 to 90th this year.

In your view, what improvements in terms of investment policies would foreign investors wish the government and local authorities to reconsider or revise?

Licensing and administrative procedures for business establishment and investment in Vietnam, though simplified and shortened, are still quite complex. Some conflicts or differences in various legal documents concerning the same issue can confuse the investor. To some extent, these factors have hindered their willingness to invest in Vietnam. In addition, the enforcement of laws and the effective work of the relevant officials on the ground are among the most important factors that can make Vietnam more attractive to foreign investors. 

Are there any other factors, apart from government incentives, that foreign investors should consider when making investment decisions in Vietnam?

There are several, including legal perspective, market perspective, and others. With regards to the legal perspective, foreign investors should take into account the restrictions and conditions required for foreign investment in certain sectors such as banking and finance, pharmaceuticals, and telecommunication. In the case of market perspective, market potential, market entry barriers, and market risks – including macro-economic and political risk – are areas that should be considered. Other factors, such as education, availability of skilled labour, utility, and logistics costs are also important for foreign investors.

Do you think there will be a new wave of foreign investment flocking to Vietnam in the coming years, as the country has been given a higher profile thanks to various bilateral and multilateral agreements signed with other countries and territories?

Vietnam’s stronger integration into the global economy through bilateral and multilateral agreements such as the Vietnam-EU Free Trade Agreement, the Asean Economic Community (AEC), and the Trans-Pacific Partnership (TPP) are expected to make it more attractive to foreign investors. However, if there is a “new wave of investment” or not depends a lot on the ability of the Vietnamese government to further enhance its business and investment environment, as well as an improvement in the quality of human resources. At the end of June, 2016, Vietnam witnessed a surge in FDI with the total registered amount of $11.28 billion, up 105.4 per cent compared with the same period last year.

What are the sectors that you think will welcome a new wave of FDI?

Recently there has been investment into the retail and consumer goods sectors. We expect that textiles, agriculture, logistics, and infrastructure are also becoming more attractive because of Vietnam’s integration. Last but not least, the government has been offering significant incentives to attract investors to the hi-tech sector and infrastructure, especially in less developed areas.

What do you think of the increasing competition from other regional countries to attract FDI and how could Vietnam prove itself more competitive?

Vietnam still lags behind several ASEAN peers including Singapore, Indonesia, Thailand, and Malaysia in attracting FDI. As FDI is an important source for economic growth, most ASEAN members are active with efforts to differentiate themselves in attracting more FDI. Going forward, Vietnam can strengthen its competitiveness by continuously improving the business environment, reforming the legal framework, and focusing on the quality training of its workforce.

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