Investment Environment Needs more Improvement for High Economic Growth

Investment Environment Needs more Improvement for High Economic Growth

Parallel with Vietnam’s international integration and transition to a market economy, the country’s investment environment has been remarkably improved and is more transparent thanks to positive changes in the legal system and tariff and customs policies, and the narrowing of the discrimination between economic sectors. VIB Forum would like to introduce the ideas of some economists and high-ranking officials in a bid to facilitate the environment as well as the economy as a whole.  

The next five years will see Vietnam's transition to a market economy completed

Mr. Klaus Rohland

Country Director of the World Bank in Vietnam

We expect economic growth to remain strong in 2005 and, more generally, over the next few years. Our concern is not so much about the quantity of growth in the immediate future, as it is about its quality. And quality is fundamental for the long- term sustainability of growth. The next five years will see Vietnam’s transition to a market economy completed. Doi Moi (Renovation), almost twenty years ago, was about lifting the country out of poverty. The next five year will be about laying the foundations of a modern economy.

Success in this task will very much depend on decisions and choices to be made in 2005. WTO accession will ensure competition across most markets for goods and services, not just in terms of increased integration with the world economy, but also in terms of modernisation “behind the border”. The five-year Socio-economic Development Plan (SEDP) in 2006-2010 period will have to rethink the role of government in a market economy, not as a producer of goods and services, but rather as a leader in the development process.

New investments should ideally be maintained at around 35 per cent GDP

Bradford Philips, Asian Development Bank Country Director for Vietnam

On the macroeconomic front, prudence is required to ensure stability and sustain high economic growth and poverty reduction. The next Five-year Socio-economic Development Plan should aim at achieving economic growth from more efficient utilisation of existing stock of capital; and efficient allocation and use of new capital investments.

New investments should ideally be maintained around 35 per cent GDP, above this level may mean excess money supply leading to high inflation and other associated problems as economy may find difficulty in absorbing the additional capital deployment of that extent. The incremental capital to output ration is already high at slightly higher than 5 (i.e., 5 units of capital to produce 1 unit of output).

Vietnam Needs to Absolutely Reform Tax, Customs Policies

Le Khac Triet - Standing Vice Chairman and General Secretary of Vietnam’s Association for Rural Small- and Medium-sized Enterprises

The investment environment in Vietnam has been improved considerably over the past time but there still remains inadequacies. Tax and customs policies have made real value of national assets decrease greatly. Vietnam’s import tariffs are higher than other countries’. For example, Nubira car of the Deawoo has a selling price of US$10,000 in South Korea but US$19,700 in Vietnam due to an import tax rate of 150 per cent and other fees.

Credit policies need to be more open and clearer for investors to easily carry out business in the country. With prevailing lending mechanism, investors are still short of investment capital and they have to borrow money from the black credit market with very high interest rates (2-3 times higher than bank loans) while local commercial banks see their money staying idle.

            To further attract investment from all economic sectors, Vietnam needs to completely reform administrative procedures and policies on land, tax and customs, focus on reducing corporate income and import taxes, remove protection on domestically made products, and create more favourable conditions to develop business associations.