Vietnam Clarifies Investment Environment

Vietnam Clarifies Investment Environment

Continued growth - Prime Minister Phan Van Khai

Vietnam has both opportunities and challenges ahead. The biggest challenge is the danger of lagging behind in terms of economic development. To continue economic growth, Vietnam will focus on four major tasks: ensuring a stable environment for domestic and foreign investment; reforming and upgrading State-owned enterprises (SOEs), accelerating the equitisation of SOEs and promoting non-State enterprises; perfecting market mechanisms and developing markets for capital, stocks and real estate; and continuing the integration process, implementing commitments and plans for WTO accession. In addition, Vietnam will improve its socioeconomic infrastructure, especially in the fields of information technology and telecommunication.

In recent years, Vietnam has maintained its high economic growth rates (7.2 per cent in 2003 and 7.5-8 per cent expected this year) thanks to the Vietnamese government having applied correct economic policies promulgating the Enterprise Law and Foreign Investment Law, and having established a stock market. Singapore fully supports Vietnam's accession to WTO and it will be an important step in the industrialisation and modernisation of Vietnam. The economic cooperation between Vietnam and Singapore can be seen in five main fields: financial, air and sea transport, information, services and investment connections. The cooperation will help the two countries make the best use of each other's comparative edges to attract more investment in many areas. Continued cooperation is not only in the interests of the two countries but also in the interests of stability and prosperity in ASEAN as a whole.

Vietnam regards foreign direct investment (FDI) as part and parcel of its economy. With the enforcement of the foreign investment law, the foreign investment sector has accelerated economic growth and restructuring in Vietnam, increasing technology transfer, international cooperation and integration. This dynamic development, together with socio-political stability and rich human resources, has created comparative edges and a firm foundation for foreign investment. Efforts are being made to remove the constraints on investors, such as lower input costs, the application of a single price and the perfection of the legal framework. Vietnam is implementing the Vietnam-Japan initiative to improve the investment environment. Vietnam and Singapore are developing initiatives to attract investment from third parties.

Investors need more information before deciding on their investment. Although Vietnam is the country with the highest economic growth rate in South East Asia, little is known about its political, cultural and social developments. This is an obstacle to foreign investors when seeking business opportunities in Vietnam. We are fully aware of this importance and carrying out a comprehensive programme to promote foreign investment in Vietnam with the participation of all government agencies, trade and investment organisations. We are also conscious that introducing the investment and business environment in Vietnam does not mean speaking only of advantages and potentials but also of constraints and difficulties so that investors can make more effective and well informed choices.

Vietnam has answered some 2,000 questions on policy transparency in 8 meetings of multilateral negotiations. The country has committed itself to implementing eight obligations. Three remaining obligations need more time. Vietnam has conducted bilateral negotiations with some 20 countries with 3-6 meetings with each country.

Vietnam is second only to China in terms of growth rate and has seen a sharp increase in its exports. However, the press has recently reported varying rates of inflation in Vietnam. Our research shows that inflation has resulted from the price hike in foodstuffs domestically and in the world market. The almost fixed exchange rate between the Vietnamese dong and US dollar has also partly caused inflation. The inflation rate is quite low, 3-5 per cent.

Vietnamese enterprises are still dependent on the decision of the government to conduct business activities. This does not help efficiency and even hampers the development of businesses. Dependence will end following the transformation to a market economy. Vietnam is already headed in that direction by accelerating the equitisation of its SOEs. Among low-income countries, Vietnam has emerged as a success story. We predict that Vietnam will join WTO by the end of 2005 or the first quarter of 2006.

Vietnam is transforming its accounting system to bring it in line with the world accounting system. This itself will stimulate economic growth. According to some press reports, Vietnamese bad debts are estimated at 70 per cent. Our estimate is much lower at between 15 and 25 per cent. As we know, the Vietnamese government and banks are working on solutions to avoid big losses to the economy. It is expected that the debt management company AMC will be established in order to solve the problem.

• Nguyen Thoa