US Investments in Vietnam in 2008: Opportunities & Challenges

Since Vietnam and the US normalised relations, bilateral economic and trade ties have been continuously promoted and reached good results. After the enforcement of the Vietnam-US Bilateral Trade Agreement (BTA), trade revenue increased eight folds compared with 2001 before the agreement had taken effect. In 2007 bilateral trade turnover is estimated to reach US$12 billion. Currently, the US is the largest export market of Vietnam (with 23 per cent) and more than 1,000 American businesses are doing business in Vietnam. Also in 2007, the US was estimated to invest US$5.1 billion in 369 projects, ranking 6^th out of 80 countries investing in Vietnam.

 

Together with the dynamic economy, political stability, WTO entry and non-permanent membership in the United Nations Security Council; hosting APEC 14 heightened the position and reputation of Vietnam and helped attract more foreign investors, especially Americans, into the country.

 

The seeking of business opportunities and partners can be seen in all diplomatic, economic and exchange activities between the US and Vietnam. The highlights were the official visits led by former Prime Minister Phan Van Khai in June 2005, President Nguyen Minh Triet in June 2007 and Prime Minister Nguyen Tan Dung in September 2007. The most noteworthy efforts of the two governments were the negotiations and signings of the Bilateral Trade Agreement (BTA) and Trade and Investment Framework Agreement (TIFA) – a symbol of the successful 10-year relationship between Vietnam and the US.

 

Last year, a number of US business delegations visited Vietnam to explore the investment environment. From their visits, we can see their interest in fields of finance and banking, infrastructure, energy, minerals and seaports. Currently, US businesses are interested in specific issues in Vietnam and request the introduction of Vietnamese partners, business opportunities and others. They also want to understand how American capital flows enter Vietnam, in direct and indirect investment methods through the capital market and cooperation with Vietnamese partners. US government organisations such as Eximbank and OPIC, which are responsible for promoting and ensuring private investment abroad, affirmed that they will encourage investment activities in Vietnam, especially by small and medium enterprises, carry out infrastructure, housing and office projects in Vietnam.

 

In fact, immediately after Vietnam entered final negotiations on WTO accession, US businesses like Merrill Lynch, East-West Bank, United Commercial Bank, Orland Port and Standford Clinic saw investment opportunities in Vietnam and lobbied for finalisation of WTO negotiations and the ratification of PNTR status for Vietnam.

 

In May 2007, 17 leading US groups, including Abbott International, Agilent Technologies, Alcoa, Apco Worldwide, Boeing Company, Chevron, Conoco Phillips, Exxon Mobil, Ford Motor, General Electric, Hewlett-Packard, IBM, JHPIEGO, Raytheon International Inc., Time Warner, UPS, Vietnam Partners and Universal Telecom Services Inc, visited Vietnam to study development strategies and plans, commercial policies as well as investment potential in Vietnam. All spoke highly of Vietnam’s potential and considered Vietnam a “promising land” in the world. US businesses expected to find high quality FDI projects and focus on infrastructure, financial, IT and education, fields that also of Vietnam’s top concerns.

 

After the Vietnam-US Trade and Investment Framework Agreement was signed on President Nguyen Minh Triet’s visit to the US, nearly 100 investors and businesspeople from Texas were quickly present in Ho Chi Minh City to seek investment opportunities in industry, commerce and IT sectors.

 

Many have been affirmed their positions in the Vietnamese market, including Intel and IBM.

 

Most US investors and businesses are giant global groups, which have experienced and professional workforces and receive support from US authorities (via lobbyism). Because they are doing business in a well-structured legal environment, when they do business in a foreign nation their first concern is the legal environment and risks. In Vietnam, they always carefully study legal issues and information. Presently, investors are still worrying about legal procedures and instructive document systems.

 

Because they understand the Vietnamese legal system clearly, they usually contact Vietnamese authorities to ensure their benefits when they carry out their projects in the country. Moreover, US businesspeople and investors also cooperate to have a stronger voice to the Vietnamese government and authorities through AmCham, US-ASEAN Business Council, US-Vietnam Business Council and US Chamber of Commerce.

 

Normally, American investors are very careful in investment decisions but when they invest, with strong financial and technological capacity, they carry out projects very quickly. When US businesses invest in Vietnam, they usually make reasonable efforts to collect information, work with authorities and negotiate with Vietnamese partners. They usually spend 1-2 years on average per project, but they carry out very quickly. Besides, US investors and businesspeople are very straight and always require transparency and fairness in management. On the visit to Vietnam in November 2007, US Commerce Secretary Carlos M. Gutierez said the economic connection between the two countries is being developed extensively and intensively and the relationship is an achievement of successful economic cooperation. On this occasion, he also expressed the desires of US businesses about the business environment, growth encouragement, efficiency and transparency in State management and the implementation of intellectual property laws. He said US companies are willing to become partners of Vietnamese companies.

 

The US is forecast to become the largest foreign investor in Vietnam in the near future. When the legal system and business environment in Vietnam are improved, the investment capital from the US will multiply.

 

The US is the home of many trans-national corporations (TNCs) and multinational corporations (MNC). They have strong financial capacity, modern technology, global markets and good business administration. If these advantages are combined with the advantages of Vietnam, both sides will gain big practical benefits. Vietnam will approach and attract investment capital from US trans-national corporations to carry out big export-oriented hi-tech projects and facilitate these corporations to build research centres, develop technology and train human resources for Vietnam.

 

At present, large US firms are keen on infrastructure projects such as bridges, industrial real estate, power plants, seaports, communication, telecom and high tech. These are also fields where Vietnam needs foreign assistance for economic development.

 

Currently, many US private enterprises want to work with Vietnamese authorities and key economic zones to promote private investment activities and contribute capital to infrastructure development.

The attraction of foreign capital in general and US capital in particular strongly relies on renovation effectiveness, infrastructure development, human resource, capital absorbability, corruption prevention and implementation of WTO commitments of Vietnam.

In the coming time, US investment forms will vary. The capital inflows to Vietnam will go through all three forms: direct investment, indirect investment and financing. Indirect investment is seen in the purchase of stakes in Vietnamese enterprises to become strategic investors. Besides, US investors are also keen on investing through investment funds and the stock market. Thus, the improvement of the legal system, business and investment environment, financial and banking service infrastructure, capital market, stock market and corporate governance are crucial tasks.

 

Mammoth investment and business projects usually have significant capital and generate big changes in products, services and investment environment. Hence, quick and effective project implementation is the top mission. US investors will pick the best destinations. China, India and Vietnam are proven the best in Asia. We need to improve the investment atmosphere and the absorbability of big investment projects.

 

In the current context of economic development and integration, the presence of big US investors in Vietnam will help improve the quality and quantity of investment and business activities in Vietnam, turning it into a regional economic and investment centre. However, before deciding on a big project, we need to put it in the overall national economic development planning and strategy, sector development strategies and regional development strategies to ensure long-term national benefit.