Law provisions open doors for development

Safety and compliance are just two of the main factors directing freedom of business in the country, photo Le Toan

The new laws on enterprises, investment, and investment under the public-private partnership model, passed by the National Assembly in June 2020 and took effect on January 1, are all components of Vietnam’s revised economic institutions.

Nguyen Dinh Cung, a member of the Prime Minister’s Economic Advisory Group, however noted that the initial provisions of these laws “were still sketchy”, as enterprises could only do business in areas that the state allowed. In the future, Cung said, enterprises could “participate in many more sectors as the state slowly opens up.”

Four factors

Investment and business are now based on the pillars of freedom of business, equality in activities, safety in operations, and compliance costs. In today’s Vietnam, freedom of business is relatively high, but “enterprises still lack reliable tools to protect their interests and rights,” Cung pointed out.

For example, large-scale inspections can cause businesses to shut down. Vietnam already has a Law on Inspection that regulates such operations, thereby helping to avoid arbitrary actions or abuse of authority of agencies and officials. However, overlaps with other laws still exist.

Up to now, Cung said that policies and enforcement risks are still high and complex, leaving many businesses in an unpredictable situation that makes even complying with the law a challenge.

The cost of compliance, although significantly reduced, also remains high, according to annual reports on the Provincial Competitiveness Index. Moreover, the reduction of compliance costs is only enabled by administrative reforms as there is no suitable institution to systematically reduce such costs.

Many businesses that want to implement investment projects “do not know where to start, and which regulations should be implemented first,” Cung explained. Complicated regulations on procedures for implementing projects may have caused many businesses to give up and halt their investments. While a project may only take 6-12 months to complete, some companies have not completed their investment procedures for several years, thus missing out on opportunities and facing increasing costs and lost profits.

With procedures for licensing projects often leading to conflicts because of overlaps and ambiguities, “investors are practically scared away from taking on new projects,” Cung said. “As a result, they may not dare to engage in large-scale investment projects and rather focus on smaller endeavours.”

As the investment and business laws move into effect, Cung said that the biggest challenge is now complying with them, citing some industries’ remaining limitations in business freedom such as in legal services, finance and banking, and other areas.

Finding the way

“The new laws largely focus on defining what kind of businesses can be participated in, while the question of how to execute these properly and in compliance with the law remains to be considered,” Cung argued.

A survey by the Central Institute for Economic Management under the Ministry of Planning and Investment across many localities showed that to carry out procedures related to an investment project, it usually takes businesses from six months to three years.

This lengthy time is required to carry out land, construction, and environmental procedures in licensing activities, which deprives business often from apparent opportunities and increases costs while reducing possible profits. Those shortcomings have been pointed out by analysts previously but still exist, with some even arguing that they tend to increase.

Among such limitations, procedures for implementing investment projects are related to a system of nine different laws, regulating investment, construction, land, and environmental issues, thus creating several barriers for enterprises to execute their projects.

Dau Anh Tuan, head of the Vietnam Chamber of Commerce and Industry’s Legal Department, said that there is still room for further reforms of investment procedures. “The new Law on Investment solves many problems for businesses, but how they can actually apply the law’s provisions will largely depend on the guiding decrees that are to be issued soon,” Tuan said.

Meanwhile, the new Law on Enterprises continues to reform business registrations towards the protection of low-capital investors. Yet, there remain debates about the mechanisms for business households as well as price appraisal regulations and other issues.

Policy analysts believe that there are three groups of significant issues that need to be remedied to guarantee the highest efficiency in Vietnam’s investment and business environment. They relate to market entry procedures; how to manage import-export procedures like customs and specialised management; and procedures for investments.

“It is necessary to tackle these various issues as they represent a real bottleneck within the business and investment environment, currently hindering the mobilisation and disbursement of investment capital,” Cung of the Prime Minister’s Economic Advisory Group said.