New database set to boost investment

Foreign-invested firms will be compelled to submit updates on their operations on a monthly basis

Every quarter officials at the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA), who are in charge of conducting statistical reports on foreign direct investment (FDI) into Vietnam, have to send a written document to all provincial people’s committees asking for reports on FDI projects.

Although the officials are careful to enclose samples of what the reports should include to the committees, what they get back often fails to meet expectations. For example, by the end of November, 14 out of the 63 municipal and provincial people’s committees had made mistakes in their replies and four submitted reports 20 days after the deadline.

This explains why the FIA’s monthly reports are based on an estimated number of FDI capital inflows into the country. The final annual report on FDI statistics is only announced every February of the next year, due to delays in paper work. For many years, this has acted as a constraint on providing accurate forecasts on FDI trends.

However, this should soon change. On January 1, 2015, the MPI will officially debut a national foreign investment information system. The national foreign investment information system is a part of e-government development plan of Vietnam, aiming to simplify administrative procedures in the country. The system allows local authorities and investors to make reports online. This should aid cost cutting and promote better use of labour for both investors and state management authorities. And of course, it helps FIA to receive reports more quickly and with improved accuracy.

Foreign investors planning to invest in Vietnam can submit their project information to the system before filing applications for an investment certificate. This supposedly means local authorities will process the applications more quickly.

The system also allows foreign companies make online reports to state management authorities instead of sending written documents.

More importantly, people and enterprises can access the system to find public information for any foreign invested enterprises in the country.

But policy makers have bigger expectations from the system. While Vietnam intends to improve the quality of FDI inflows, the system allows policy makers to enhance their post-licensing monitoring of foreign invested projects that it has neglected for many years.

Dang Xuan Quang, FIA’s deputy director, said with a comprehensive database of FDI projects nationwide and regular update information from investors and also local authorities, policy-makers should be able to keep an eye on the development of every licensed project.

Phan Huu Thang, FIA’s former director, said the increase of post-licensing monitoring activities of FDI projects would benefit not only the government but also investors.

“When we watch closely the development of each project, we will recognise if the investor has implemented their commitments. So we will know exactly whether the project deserves incentives or not,” said Thang. Through tightening post-licensing monitoring activities, Thang added, state authorities would realise difficulties faced by investors and give the appropriate support.

Vietnam has tightened the appraisal of foreign direct investment projects in the pre-licensing period, such as business plans, construction schedule and environmental impact assessment reports. Poor post-licensing monitoring however has unintentionally cultivated abuse.

The government acknowledged the importance of post-licensing monitoring mechanism several years ago. In 2010, Prime Minister Nguyen Tan Dung signed Decision No77/2010/QD-TTg forcing foreign invested enterprises to report their revenues, production, legal capital, sources of disbursed capital, recruited labourers, manufacturing technology and tax payments every month to local statistics offices. According to the decision which took effect on January 15, 2011, enterprises with more than 10 per cent of foreign capital also had to implement these reports.

However, this regulation has not been implemented seriously so far. Thang said that was because there had been no strong sanction forcing investors to comply with the regulation, and because of the weak co-operation among local state authorities. It could also be argued that asking for monthly reports could be regarded as too cumbersome and unrealistic.

Nguyen Mai, former vice chairman of the State Committee of Investment and Co-operation – now the MPI, said for a long time, state authorities had just focused on luring new investment but not monitoring the operation of foreign companies after they obtained investment certificates.

Mai, who is also chairman of the Vietnam Association of Foreign Invested Enterprises, said the new database would be a landmark in FDI management, that would contribute to improving the investment climate.

“Without a comprehensive information system, it is very difficult to know the real situation of FDI in the country. Therefore, it is difficult to introduce the right policy to support foreign investors,” said Mai.