Enticing legal changes lure in foreign investors

On the back of new laws coming into effect next year, Vietnam’s investment climate seems promising for many

The European Chamber of Commerce in Vietnam (EuroCham) has just announced the Business Climate Index (BCI) for the second quarter, showing confidence after COVID-19 among European business leaders in Vietnam.

Specifically, the positive sentiment of European business leaders began to bounce back, recording a 7 per cent jump between February and April to reach 34 per cent. Meanwhile, more than half of executives predicted that Vietnam’s macroeconomic climate would “stabilise and improve” in the next quarter – a significant rise compared to the first quarter, when just 10 per cent anticipated an improvement.

The BCI found that more than a quarter of European enterprises had benefitted from the government’s postponement of tax, while around one fifth had benefitted from a reduction in rent and a suspension of social insurance contributions.

EuroCham chairman Nicolas Audier told VIR, “European enterprises have been growing their investment in Vietnam for some time. The country’s strong economic growth, large consumer market, and positive legal reforms have made Vietnam an attractive destination for European investment. Continued legislative modernisation will help to attract greater EU investment in the future.”

“This trend is set to accelerate with the imminent implementation of the EU-Vietnam Free Trade Agreement (EVFTA) on August 1. The EVFTA will offer new opportunities to European investors in sectors ranging from higher education to environmental services and from telecommunications to maritime transport. So, we anticipate that European investment will continue to rise over the course of the agreement’s decade-long implementation period,” he noted.

In a similar trend, some Singaporean investors have moved into Vietnam in recent years, including the Blue Circle SHS Holdings, Sinergy Holdings, Koda Ltd., and Kwan Brothers Pte., among many others.

Jeffrey Wandly, vice president of the Singaporean Business Association Vietnam (SBAV) told VIR that, “Investment trends are increasingly visible in innovation and technology-based businesses, start-ups, and small and medium-size enterprises (SMEs), taking advantage of investment incentives and focusing on the consumer market, manufacturing, infrastructure, and urban solutions.”

Meanwhile, 15 Japanese firms have registered to move to Vietnam as part of efforts to diversify their supply chains.

There is no doubt that recent legal reforms have spurred the trend, and new efforts in rationalising the public-private partnership (PPP) framework, the new laws on investment and enterprises will facilitate further business and investment activities from international financiers.

“The new Law on Investment is expected to set out regulations to facilitate investors in carrying out administrative procedures, investment, land and construction, thereby attracting foreign investment in Vietnam,” Wandly noted.

Despite the positive signs, some concerns remain among the international business community. Audier elaborated that some aspects of the new Law on Investment, such as the increased amount of discretionary scrutiny from the administration, in particular on the approval of foreign investment and mergers and acquisitions – even in sectors which Vietnam has committed to liberalise – and the suspension or termination of foreign investors’ projects, have the potential to make the business environment less predictable.

Meanwhile, SBAV vice president Wandly is worried about the fact that the new Law on Investment for foreign investment focuses on technology, innovation, and research and development. However, the addition of national security as a criterion for investment review creates some uncertainty as to how far this reason could cover and deter foreign investments in sensitive and protected sectors.

Regarding the law on PPP investment, he added that the minimum investment capital requirement for PPP projects is very high and only very large-scale foreign direct investments (FDI) can participate in these, excluding those with limited financial capacity.

Vietnam’s new laws are expected to take effect on January 1, 2021. Till then there are several months for the Ministry of Planning and Investment (MPI) to complete draft decrees guiding them.

According to statistics from the MPI, Singapore, Japan, South Korea, and the EU remained the country’s biggest foreign investors in the first half of 2020, contributing to the country’s $15.67 billion worth of newly-registered FDI and stake acquisitions, equal to 84.9 per cent of the same period last year. Experts projected a new wave of foreign investment inflows into the country in the months to come, with the above-mentioned foreign investors to lead the tide.