Higher quality FDI focus for Vietnam

Approaches to FDI are changing in Vietnam, as part of efforts to attract a higher quality of investors

Vietnam is working on amending the Investment Law and Enterprise Law as part of its institutional reforms to better attract and manage foreign direct investment.

   In addition to the legal changes, new approaches to the issue are vital, said participants at the FDI workshop in Ho Chi Minh City.

MPI Deputy Minister Nguyen Van Trung told the workshop that Vietnam had shifted foreign direct investment (FDI) attraction efforts to green technology, hi-tech, and capital-intensive sectors, and now discourages polluting FDI projects and firms employing obsolete technologies.

The Vietnamese government last August issued the Resolution 103 on measures to improve the efficiency of FDI attraction, use and management in the coming period. The resolution confirmed that FDI remained a key resource for the Vietnamese economy, and the foreign-invested sector was  a significant element in the domestic economy but Vietnam needed to better deal with signs of using transfer pricing and other forms of tax evasion.

Quach Ngoc Tuan, deputy director of the MPI’s Department of Legislation, said the draft revised Investment Law was compiled on the basis of continuing to improve the investment environment, and to raise the quality and efficiency of investment attraction. The draft aims to improve the law’s provisions to solve investor difficulties, especially the application of regulations on investment conditions and procedures. It also aims to improve the efficiency of state administration on investment activities and complete the decentralisation of this task.

He added another goal was to ensure Vietnam met its commitments to further open the market and liberalise investment in line with the international agreements to which Vietnam was a signatory.

Singaporean national Seck Yee Chung, partner at law firm Baker & McKenzie Vietnam, said that while Singapore was a small island it remained very open and had achieved great success in human capital development. His advice for Vietnam’s FDI attraction efforts included embracing human capital development, and the new Investment Law should provide a level playing field to foreign invested enterprises (FIEs) and Vietnamese enterprises. Openness is another factor for attracting FDI, he stressed.

Dr. Christian Kamm, president of the US-based Kamm Investment Inc., said research across the world has proven that countries with a long standing policy of promoting FDI were the great beneficiaries of FDI. “It’s easy to see that countries which do not place attracting FDI at the top of their priorities through the formulation of laws and regulations conducive to attract FDI will not normally attract a great deal of it,” he said.

However, Kamm stressed one important consideration, that any country must take a balanced approach to FDI.  He said “large apparitions” in FDI from year to year would only result in a highly uneven economy which would further cause large fluctuations in currencies, GDP, trade, inflation and deficit numbers. 

Likewise, high-profile FDI expert Prof. Nguyen Mai said it was necessary for Vietnam to conduct a sound assessment on the role of FDI today. He added it is necessary to have a new approach to FDI, to correctly assess the impact of FDI, and address opinions that FDI had caused some obstacles to local businesses and Vietnam should shift its focus to promoting local enterprises.

As for policy, the former deputy chairman of the former State Committee for Co-operation and Investment (now the MPI), emphasised that it is necessary to amend and supplement preferential policies for FDI projects in the principle of offering incentives based on sectors and regions.

Mai said a survey on more than 8,000 Vietnamese private firms and 1,540 FIEs announced last March by the Vietnam of Chamber of Commerce and Industry showed that the local and foreign firms shared a view that administrative procedures in business registration, tax, customs, land, environment, construction and some others were bottlenecks that should be removed to improve Vietnam’s investment environment.

The MPI Minister Bui Quang Vinh has continuously reiterated that the ministry would try its best to better attract and manage FDI in line with the Resolution 103.

He told VIR that the Vietnamese government had been aware that institutional reform remained key to further success, and the reforms aimed to continue to improve the investment environment. One of the goals of institutional reform is to create a level playing field for state-run and private companies, for FIEs and local firms. Another is equality for all enterprises to get access to resources. Institutional reform includes many issues that relate to the investment environment. Institutional reform also aims at increasing much-needed transparency.

Regarding identifying FIEs and Vietnamese businesses through the law, the minister said such identifications were just for better administration because all the firms operated under Vietnamese laws, paid taxes and performed their corporate duties.

About the identification issue, Dr. Nguyen Dinh Cung, acting director of the Central Institute for Economic Management, told the workshop that regulations needed to simply determine what foreign investors were allowed to do and what other regulatory restrictions were in place regarding their activities.

“Normally, in many countries, foreign investors are prohibited from or restricted to investing in several fields in accordance with international commitments and national laws. Therefore, defining the concept of foreign investors is essential,” he said.

Regarding attracting FDI based on quality or quantity, he proposed Vietnam combine the two approaches. A new Investment Law would specify foreign investment activities Vietnam needed to attract and decide appropriate preferential policies. Other foreign investment activities should be considered “natural” activities with similar attraction measures as domestic investment activities.

 Do Nhat Hoang, director of the Foreign Investment Agency said orientations on FDI attraction in the future were clearly stated in the Resolution 103, and included selecting high quality and added value projects using modern and environmentally friendly technologies.

Another angle is to promote FDI attraction inside of Vietnam by focusing promotion activities in localities as Vietnam’s FDI promotion missions overseas had not been effective.

In terms of better FDI administration, Hoang said intensifying the inspection and supervision of investment activities was a must. The investment certification agencies must strengthen inspection and supervision of foreign-invested projects, the licensing process and post-licensing management.

To overcome overlapping and inefficiencies in investment promotion activities over the past period, the government has assigned the MPI, to annually and periodically issue sets of criteria guiding ministries, agencies and provinces to draft their investment promotion plans. The plans must be sent to the MPI for an overview and these activities needed greater co-operation to avoid overlapping.