Proactively Removing Bottlenecks, Further Improving Investment Climate

10:13:55 AM | 1/31/2024

Vietnam has made significant improvements in the investment environment, becoming a favorite destination for many foreign investors. However, there are still challenges that need to be overcome to make the investment environment truly attractive and sustainable.

The Government of Vietnam consistently places a high priority on engaging with and supporting businesses and investors, including those from Korea

Attractive investment destination

According to a report by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), in 2023, Vietnam attracted US$36.61 billion of foreign direct investment (FDI) capital by December 20, up an impressive 32.1% year on year.

This success was attributed to a combination of many causes, according to economic expert Nguyen Minh Phong. The first and foremost was political stability and positive economic growth. At the same time, the effort in implementing multilateral, peaceful foreign policy and creating good relationships with other countries also contributed significantly to this success.

According to the Vietnam's Association of Foreign Invested Enterprises (VAFIE), in the face of difficulties and challenges, siding with businesses, the Government, central and local agencies have provided favorable legal conditions to actively eradicate bottlenecks and barriers to help companies to invest and do successful business; support companies to access new markets, boost exports and promote domestic consumption; accelerated administrative procedure reforms, improved the investment environment and reduced procedure time for businesses; and prepared necessary conditions to attract investment such as clean premises, infrastructure, energy and labor.

Along with constantly improving the business and investment environment, aiming for a harmony of interests and strictly adhering to international commitments, Vietnam's favorable geopolitical and economic position, outstanding consumer market and a dense population have made Vietnam a safe and attractive investment destination, especially amid increasingly complicated global fluctuations.

However, despite significant improvements, a lot of problems in the investment environment in Vietnam need to be resolved. The government has taken many measures to simplify the investment processes to facilitate businesses. Although administrative procedures have been improved, the issuance of investment and construction licenses remains difficult and cumbersome.

In addition, although the Government continuously promulgated and revised laws such as the Investment Law 2020, the Enterprise Law 2020, the Law on Management and Use of State Capital Investment in Production and Business at Enterprises 2020, the Law on Public Investment 2019, the Law on Tax Administration 2019, the Customs Law 2014 and 2021, and many other documents, there are still a lot of incomplete, ambiguous and indiscernible points in tax, labor and land regulations.

Infrastructure investment in Long Thanh International Airport, Van Don International Airport, Cai Mep - Thi Vai Seaport, highways and high-speed railways has created a synchronous infrastructure system that helps stimulate economic development and investment attraction. Nonetheless, infrastructure in some localities is still not synchronized and disrupted transportation and logistics activities.

Leaders of Hai Phong City award the investment certificate to representatives of LG Innotek, Korea

Reviewing and revising foreign investment cooperation policies

To improve the investment environment, according to many experts, Vietnam needs to further simplify administrative procedures and comprehensively review the legal system. Infrastructure investment, especially in the transportation sector, is very important to create a flexible and favorable investment environment.

To further facilitate and build a secure, transparent and competitive business and investment climate for the business community and investors, including foreign investors, to feel secure in effective, long-term and sustainable investment in Vietnam, Prime Minister Pham Minh Chinh asked central and local agencies to focus on implementing a number of key tasks and solutions in the coming time, including the serious and effectively implementation of Party and State guidelines, policies and laws, especially Resolution 41 of the Politburo on building and promoting the role of Vietnamese entrepreneurs in the new era, to create an enabling business and investment environment.

At the same time, they were told to further review, revise, supplement and complete foreign investment cooperation policies in accordance with the practical situations, high competitiveness and international integration in line with national development orientations, plans and requirements; continue to focus on improving the business and investment environment and facilitating and reducing costs for businesses; effectively introduce debt restructuring and debt rescheduling solutions, interest rate exemptions and reductions; and tax, fee and land rent payment rescheduling.

The Prime Minister emphasized that wherever there are problems, they will be resolved there. The country will boost public-private partnership, facilitate and effectively use all resources for development, use public investment to lead and catalyze non-state investment, including foreign investment; and develop strategic infrastructure systems aligned with institutional improvement and high-quality human resources training.

For the business community and investors, the Prime Minister proposed researching and constructing a long-term, sustainable, environmentally friendly development strategy that is consistent with national plans, industry plans and regional plans of Vietnam; and proactively reform production and business models and restructure companies towards green economy, digital economy, circular economy, knowledge economy and response to climate change.

In the context of global competition, Vietnam needs to remain active and consistent in solving challenges. Close cooperation between the Government and businesses is emphasized as an important factor in building a strong and sustainable investment environment.

Growing Confidence in Vietnam's economic outlook amidst challenges

Mr. Gabor Fluit EuroCham Chairman Gabor Fluit

“Confidence among the foreign business community in Vietnam is clearly on the rise. New data for 2023 support this. Last year, foreign direct investment reached $36.61 billion, jumping 32.1% from 2022. This is a clear illustration of growing faith in Vietnam's economy.”

Tourism also rebounded strongly. By welcoming over 12.6 million visitors in 2023, Vietnam has more than tripled international tourist numbers from the year before. This global spotlight on Vietnam as a top destination for business travellers and tourists also signals broader economic recovery.

While these figures are indeed promising, it's crucial to maintain a cautious outlook. It's noteworthy that the BCI still remains below the midpoint, and more than one-third of businesses still expect to underperform.

Given the intense economic competition in the region, Vietnam should stay vigilant. It's crucial for the country to keep refining its policies and strategies to draw and maintain European foreign direct investment. One vital area to focus on is simplifying administrative procedures, a well-known obstacle for businesses. At the same time, investments in infrastructure to reduce logistics costs and upgrading the skills of the workforce are equally essential. This will help Vietnam stay competitive and maintain its growth trajectory.”

“Considering this, as we look towards the future, the importance of Vietnam leveraging the EVFTA only increases. This agreement, together with Vietnam's various bilateral and regional trade pacts, is expected to play a key role in transforming the current economic recovery into long-term, balanced growth. Throughout this ongoing process, EuroCham Vietnam remains wholeheartedly committed to playing a supportive role.

Confident about investment expansion in Vietnam

Mr. Binu Jacob, Managing Director of Nestlé Vietnam

“Since our inception, we have kept our commitments to long-term and sustainable investment in Vietnam. In January 2024, we invested an additional US$100 million to double the coffee processing capacity of our Nestlé Tri An factory, Dong Nai province and brought the company’s total investment fund in Vietnam to more than US$800 million. This is a clear demonstration of our confidence in the potential and investment environment in Vietnam as well as our long-term investment commitments.

With this investment, we aim to turn Vietnam into a high-value coffee production and supply center to domestic and world markets, create many job opportunities, and contribute to sustainable and prosperous economic development of Vietnam.”

Vietnam is an important market in LiuGong's international development strategy

Mr. Luo Guobing, Vice President of LiuGong Group (in charge of Overseas Sales & Marketing Division)

Vietnam is a dynamic economy in the Asia-Pacific region. During the past 20 years, Vietnam has always been a key market for LiuGong Group. When the economy is strongly transitioning, with the commitment to economic development of the Vietnamese government by investing in infrastructure, commercial real estate and housing, LiuGong finds an opportunity to expand the market for construction machines by further strengthening partnerships and developing local dealers.

That is also the reason why Liugong established LiuGong Vietnam, to further tighten partnership, cooperation and business development between the two sides. Pursuing future business development, we will invest more resources in Vietnam to better serve customers.

LiuGong has more than 30 product lines, including quarrying, mining, road and highway construction, agriculture and forestry, ports and other applications in Vietnam and all products meet Vietnam’s bridge construction requirements. With 65 years of technology, we are confident that LiuGong's equipment has passed the testing of Vietnamese customers with outstanding reliability and durability. It also has higher work performance efficiency and lower fuel consumption. LiuGong's intelligent iLINK management system can help customers optimize operating programs and create higher economic value.”

Firmly consolidating supporting industries in Vietnam

Mr. Nguyen Van, Vice Chairman of Hanoi Supporting Industry Business Association (HANSIBA)

Vietnam is expected to be a main beneficiary from the shift in global manufacturing and supply chains to competitive production centers in Southeast Asia. However, Vietnam's manufacturing and export sectors will still face significant obstacles due to weak growth in the US and EU, two key export markets, which account for 42% of Vietnam’s merchandise export value.

To develop supporting industries, the Government needs to build and issue a law on supporting industry development soon. In the near term, it is necessary to issue a resolution on pilot policies for Vietnamese supporting industrial companies; and work out a specific plan and roadmap supporting industrial companies, which will account for 5-10% of total companies by 2025-2030. Supporting industrial companies will help make Vietnam a high-income country by 2045.

In addition, it is essential to specifically plan each economic region across the country to develop supporting industries and assign clear tasks for each region (like automobile, electronics, shipbuilding, agriculture, fishery, footwear and textile).

In particular, there is a need for an urgent, specific funding solution package (interest rate, loan term, loan limit and security assets) because regulations on loan conditions (security assets for loans, counterpart capital, lending interest rate and loan period) are still obstacles for manufacturers of supporting industrial products. Companies need to be supported to easily access capital. Authorities also need to study and consider easing borrowing conditions and loans, especially collateral requirements; back special mechanisms and incentives to attract investment funds for established industrial zones; and minimize and improve inadequate administrative procedures for domestic and FDI firms.

We suggest assigning tasks to the Vietnam Development Bank (VDB) as a coordinator for financing preferential loans for Vietnamese supporting industrial companies; allowing private supporting industrial and high-tech supporting industrial companies to access ODA loans to purchase foreign equipment, machinery and technology; connecting large international corporations in Vietnam with supporting industrial companies to enable them to join supporting industrial production chains.

If Vietnamese businesses do not self-reform while State support is limited and untimely, we may once again miss the opportunity to form a modern industry by 2030 and become a high-income developed country by 2045 when we celebrate the 100th founding anniversary of the of the Democratic Republic of Vietnam, now the Socialist Republic of Vietnam, which has the best-ever position in the international arena.

Waiting for approval of important legal frameworks to attract FDI into the real estate market

Dr. Su Ngoc Khuong, Senior Director, Investment Consulting Department, Savills Vietnam

Vietnam still has a powerful magnetism for foreign investors. First, Vietnam's population is over 100 million people, of which Ho Chi Minh City and Hanoi have more than 10 million residents. This leads to relatively large demand for housing and offices in these two cities. In addition, the Vietnamese Government's commitments to attracting foreign direct investment (FDI) and supporting industrial parks has created the appeal of the Vietnamese market to foreign investors.

From my experience of working with foreign investors, views on the Vietnamese real estate market, in my opinion, can be divided into two main directions: Project-level investment and company-level investment. Under a corporate-level lens, investors focus on listed real estate companies. Despite some long-standing challenges in the Vietnamese market, such as legal procedures, Vietnam still attracts foreign investors on its strong economic growth and stable political institutions.

Although Vietnam's GDP is still modest, its high growth rate has attracted attention from investors. However, the complexity of legal ownership of residential property in Vietnam still places limitations on the participation of foreign individual investors in the mid- to high-end segment.

Land funds in large cities like Ho Chi Minh City or Hanoi seem to have run out. But recently, the Government has promoted public investment in urban area and infrastructure projects in satellite cities around Ho Chi Minh City and Hanoi. Hence, domestic investors can join larger projects than before. Investors who own large land banks in satellite cities are ready to deploy, especially in 2024 when they can get interest from monetary policy, accessible interest rates and expanded space for real estate business growth.

Investors are currently still waiting for clear legal policies to boost development and provide products for social needs.

By Giang Tu, Vietnam Business Forum