Cracks in investment promise

The current downturn of the economy, which accelerated only 4.38 per cent in the first half of this year, is often blamed for the continuous decline in foreign direct investment (FDI) commitment in Vietnam. However, many foreign investors operating in Vietnam said the biggest challenge barring FDI inflows in Vietnam is the inconsistency of business-related legislation.

The new FDI commitment in the first seven months of this year hit $8.03 billion, dropping 33.1 per cent from a year earlier. There were 698 new projects registered in the country at the same time, down 16.3 per cent year-on-year.

“A long-standing difficulty is in the lack of clarity in business and business-related legislations, compounded by the economic downturn, the current investment climate is not too rosy, despite the vast opportunities still available in Vietnam,” said Bobby Liu, president of the Singapore Business Association of Vietnam, addng some legislation passed this year had made it even tougher for businesses.

The Labour Code, which was passed by the National Assembly in June, is an example. Under this Labour Code, worker overtime remains generally limited to 200 hours per-year. Investors claim that provision will restrict flexibility and reduce productivity of factories and of Vietnam.

A EuroCham survey released two weeks ago found out that new Labour Code coming into effect on the May 1, 2013 is causing uncertainty and concern among European businesses in Vietnam. The vast majority of 42 per cent of respondents expected the new Labour Code to have a negative effect on their business. Meanwhile, 28 per cent stated they were unsure what the new legislation would entail, hinting at a lack of information available about the new legislation and what exactly it will mean for day-to-day business.

The regular change of automotive industry-related policies is another evidence of inconsistencies in Vietnam’s legal framework. Over the past years, the Vietnamese government and provincial authorities have many times changed tax and fees relating to automotive industry. The latest movement is the increase of registration fees for cars in Ho Chi Minh City and Hanoi up 15 or 20 per cent, respectively.

Laurent Charpentier, chairman of the Vietnam Automobile Manufacturers’ Association and Ford Vietnam’s general director, said the demand in this market was growing rapidly, but the regular changes of government policy was worrying automaker in Vietnam and deterring spare part suppliers from investing in the country.

In fact, the government is trying to reduce administrative obstacles and policy risks for foreign investors, aiming to attract more FDI into the country. The specific actions are the implementation of the Project 30 to simply administrative procedures and the current implementation of prime minister’s instruction for enhancing investment climate.

Still, foreign investors complain of sluggish improvements. Japan’s Itochu Corporation is a victim of the sluggish step. The firm recently complained that the delay in promulgating a legal system to introduce fuel ethanol to Vietnam was a barrier for Itochu and its Vietnamese partner, PetroVietnam Oil, to sell bio-fuel in this market, causing losses.

Hari Achuthan, managing director of New York-based ACO Investment Group, said Vietnam had huge potential for investment. But if Vietnam failed to keep its policies consistent, investors would eye other markets.

According to the “World Investment Report 2012” released by the United Nations Conference on Trade and Development last month, Vietnam remains keeping its position at 11th most prospective economy for investments in the period 2012-2014. The ranking is based on the respondents of 174 validated transnational companies.

Vietnam was also ranked in the most attractive 20 emerging market for investments by US-based consulting firm A.T. Kearney.