Vietnam Needs Thorough Preparation for Redirected Investment

9:07:51 AM | 27/7/2020

Trade and investment cooperation has made spectacular progress and become the center of the overall Vietnam-U.S. relationship in the past 25 years. Vietnam Business Forum has an interview with Prof. Nguyen Mai, President of Vietnam Association of Foreign-invested Enterprises (VAFIE), on this topic. Thu Ha reports.

How do you assess Vietnam - U.S. investment for the past 25 years?

After 25 years, Vietnam and the U.S. have become important partners of each other in many fields. The U.S. is rated as a quality investor of Vietnam. U.S. businesses have been actively cooperating with and supporting the Vietnamese business community through many high-value projects, contributing to many social activities.

Over the past 25 years, Vietnam has witnessed four investment waves from the U.S., with the first from 1994 to 2001, after the latter announced normalization of relations with the former and before the Bilateral Trade Agreement (BTA) was signed. The second wave was during 2001-2006 when Vietnam and the U.S. developed bilateral trade relations. The next wave was from 2007 to 2010 after Vietnam joined the WTO - the period witnessing the strongest growth of FDI flows from the U.S.. The fourth came after the two countries established a comprehensive partnership in 2013.

According to statistics from the Ministry of Planning and Investment, by the end of 2019, U.S. businesses registered to invest more than US$11 billion in Vietnam, ranking 11th among countries and territories with investment projects in the country. The U.S. has invested in 17 out of 21 industries. The accommodation and catering services have drawn 17 projects with a combined registered capital of approximately US$4.68 billion, accounting for 42.3% of total investment value. The processing and manufacturing industry has attracted 323 projects with US$2.24 billion, accounting for 20.3%.

Most U.S. investors have adopted the form of wholly foreign investment, with 599 projects with nearly US$8.27 billion, accounting for 74.8% of the total registered capital. 111 projects have opted for the form of joint venture investment with nearly US$2.6 billion, accounting for 23.5%. U.S. investors have projects in 42 among 63 provinces and cities in Vietnam, with Ba Ria-Vung Tau province receiving 18 projects and US$5.3 billion, followed by Hai Phong City with 13 projects and US$1.2 billion, Binh Duong province with 970 projects and US$780.6 million.

Many famous brands such as Citigroup, American Group, Intel, Chevron, Ford, Starwood Hotel, AIA, Dickerson Knight Group, Coca-Cola, Pepsi Cola and KFC have secured a strong foothold in Vietnam.

Besides direct investment, the U.S. has indirectly invested into Vietnam through third countries such as Singapore and some European countries. Taking direct investment into account, the U.S. does not stand among top 10 investors. However, with the total investment capital taken into consideration, the U.S. may rank 6th or 7th among investors in Vietnam.

Despite the impressive growth after 25 years, U.S. foreign direct investment (FDI) in Vietnam is still quite modest compared to US$4 trillion global investment by the U.S. So, the opportunity to promote bilateral investment in the coming time is still enormous. To date, the largest U.S. FDI project in Vietnam is a US$4.1 billion 5-star resort invested by Winvest Investment Co., Ltd. (Vietnam), licensed in 2006, in Ba Ria - Vung Tau province.

Why was the U.S. investment into Vietnam still modest?

Although Vietnam's investment environment, political security, economy and investor protection are highly appreciated, there are three issues that do not meet U.S. (and EU) investors’ requirements:

First, the legal system of publicity, transparency, stability, and predictability which needs to be strictly enforced throughout the country is a principle requirement of U.S. transnational corporations (TNCs) when they invest in Vietnam.

Second, the protection of intellectual property rights that Vietnam has committed in many investment agreements where stricter regulations and broader scope are imposed is an emerging issue in FDI attraction. Meanwhile, intellectual property infringement, piracy, copyright violation and counterfeiting are still a problem in Vietnam.

Third, it is necessary to reduce the time for conducting administrative procedures from granting investment certificates to implementing projects. Bribery is unacceptable for U.S. and (EU) TNCs.

So, what do you think Vietnam should do to attract foreign investors, especially those from the U.S.?

Vietnam has many advantages to attract investments. For example, in March, U.S.-based Apple started to shift production from China to Vietnam and increased headphone production in Vietnam (with about 4 million headphones made in the second quarter of 2020). Google and Microsoft are also moving some production lines from China to Vietnam. Especially recently, world media reported that the U.S. defined Vietnam as a priority partner in its supply chain.

The opportunity is apparent for Vietnam but it is facing a lot of heavy rivals in the race to catch investment flows moved out of China. Thus, to catch the investment wave, Vietnam needs to take faster action.

First, Vietnam needs to prepare ground for investors. The Government must direct localities and management boards of economic zones, industrial parks and export processing zones to prepare ground and locations for investors. Not only preparing the ground, Vietnam also needs to have the simplest land lease procedure and preferential land rental rates for investors. Never raise the land rent when we are seeing investors coming to us.

Second, Vietnam needs to have highly qualified human resources to meet investors’ requirements.

Third, the infrastructure including utilities, information and logistics must be best prepared.

Fourth, Vietnam needs to streamline administrative procedures and reduce business investment procedures to cut the time needed to deploy their projects. For big investors, apart from tax incentives, what they need is time, because time is money for them.

Anticipating the redirected investment flow is also an opportunity and prospect for promoting cooperation relationship between Vietnam and the U.S. Therefore, Vietnamese enterprises need to improve their competitiveness and capacity to proactively seize opportunities.

Source: Vietnam Business Forum