Indonesia looms as a tough FDI competitor

Vietnam needs to heat up its investment climate to remain an attractive target

EuroCham chairman Alain Cany said European investors considered Vietnam less attractive than Indonesia.

“Investors are stunting their investment in Vietnam, because they are concerned about Vietnam’s macroeconomic woes. Meanwhile, Indonesia is becoming a good destination for them as its business climate has recently improved,” Cany said.

The EuroCham’s fifth quarterly Business Climate Index Vietnam survey, conducted in early October 2011 over nearly 200 European firms in Vietnam, showed that European firms’ business confidence and outlook in Vietnam continued to fall for a fourth consecutive quarter to 50 points, from 79 points of total 100 points in the year’s first quarter to 70 points in the second quarter and 63 points in the third quarter.

Meanwhile, the European Business Chamber of Commerce in Indonesia’s Indonesian Country Report for 2011’s third quarter issued last month said: “The recent visits of numerous senior European company representatives and surge in foreign investment indicate that Indonesia is becoming a priority country, for the European companies, mainly due to a massive consumer market, but also as a production hub for ASEAN and greater Asia. There are still abundant opportunities for European business in Indonesia.”

Mayu Morimoto, general director of Japanese-invested Accord Biz, told VIR Vietnam faced stiff Indonesian competition in attracting foreign direct investment (FDI), particularly Japanese capital.

She, who is an investment lawyer providing legal consultations to Japanese investors, noted that in the recent decade, Vietnam experienced some obstacles resulting in the withdrawal of some Japanese investment.

Some examples were the breakout of malicious diseases as SARS and bird flu, electricity shortages causing countless blackouts, and factory workers’ illegal labour strikes preventing the smooth operation of businesses and causing many headaches for Japanese manufacturers in Vietnam, she said.

“Due to the recent natural disaster in Japan and Thailand, Japanese companies have started to consider shifting more towards other countries, namely Vietnam and Indonesia as potential destinations for investment,” she said.

“However, through our recent experience, Japanese companies are now taking much higher considerations of the country risks and region risks when assessing investment in a certain country. Considering such risk factors, Vietnam is definitely not an exception,” she said.

Cany forecast Vietnam might see FDI disbursement of $10 billion in 2012, down from this year’s $11 billion due to the world’s expected gloomy economic situation and foreign investors’ sinking confidence in Vietnam.

“Vietnam’s investment disbursement in 2011 is still fine. But I am afraid that in 2012-2013, it would be more difficult, because the FDI commitment is slowing down significantly,” he said.

But Deepak Mishra, lead World Bank economist in Vietnam, said the country remained an attractive destination for FDI, especially flows from the Eastern Asian and South East Asian region.