Vietnam Needs to Do More to Improve Business Environment

According to EuroCham, the government continues to display an ambivalent attitude towards free market pricing. For instance, in energy industry, prices of petroleum, electricity and coal are controlled at lower prices than free market rates. In other industries, price changes also require approval. “This type of price control is clearly worrying for investors who expect to be able to set prices themselves within the normal boundaries created by cost and competition.

 

This creates uncertainty for investors because if prices are not enough to compensate cost and bring in a reasonable profit, foreign investors will not invest in Vietnam,” said EuroCham.

 

It is estimated that 40 per cent of the economy is in the hands of the state sector, which in itself is not a problem. However, in those areas, state companies generally receive favourable treatment – through loans, access to land, limited profit targets etc. and are inefficient. This is hampering growth of the economy. The Government’s continued acceptance of this situation has created an unequal playing field in many industries where the state-owned enterprises hold an important position. This again limits Vietnam’s attractiveness to FDI.

 

Another concern EuroCham mentions is intellectual property rights. Vietnam is currently competing internationally based on low labour cost. The Government has expressed the desire and need to move away from a labour intensive economy into technology and value added areas. But unless there is real, implemented protection of intellectual property rights, investors are unlikely to bring their technology to Vietnam, according to EuroCham. “Unfortunately, although the intellectual property rights laws are enacted, in practice, real protection of intellectual property rights remains very limited,” said EuroCham.

 

According to the 2013 White Book, the Vietnamese Government had achieved much in the last year in terms of controlling inflation, but many issues remained, which needed to be addressed, and which were acting as a brake on European direct investment.

 

The ninth quarterly report on EuroCham Business Climate Index (BCI) conducted in October 2013 showed that European businesses’ perception of Vietnam as a business destination has further declined this year to a record low of 45 points. EuroCham members participating in the survey report showed their growing concerns on current business performances, future prospects as well as impacts of tax rise, fines and authoritative supervision.

 

Another issue of interest is Vietnam - EU Free Trade Agreement negotiations. It seems that economic advantages generated by future agreements will not be as much as previous ones because markets have been opened. According to the White Book 2013, it is a regret that Vietnam has not complied with the agreed membership framework to the WTO. So, Eurocham proposes protocols that it thinks the best for Vietnamese negotiators to use in free trade agreement negotiations: Vietnam needs to fully implement any free trade agreements without resorting to protectionist measures then as it did after joining the WTO. Only by fully implementing these agreements, FDI inflows into Vietnam will increase. It is important to maintain current markets and ensure market expansions with a number of areas, such as the textile industry, but also to adapt to new challenges, such as textile market without endless subsidy. Entire reliance on cheap labour advantage is not an effective strategy for Vietnam in the medium term. By quickly signing and fully implementing the Free Trade Agreement with the EU, Vietnam will benefit from access to technology and skills, two factors that support Vietnam to get rid of dependence on cheap labour.