Vietnam-Singapore trade and investment likely to flourish

Minister of Planning and Investment Nguyen Chi Dung (front, left) and Minister for Manpower and Second Minister for Trade and Industry Tan See Leng sign a Memorandum of Understanding (MoU) on the establishment of digital economy–green economy partnership in the presence of Vietnamese Prime Minister Pham Minh Chinh and his Singaporean counterpart Lee Hsien Loong, Singapore, February 9, 2023 - Photo: VGP

These are crucial queries we often encounter from new investors from Singapore, which perhaps partly stems from their perspective on certain barriers in establishing new business here. LNT & Partners takes great pride in being one of the two Vietnam-based law firms marking their presence in Singapore’s central business districts.

To navigate the Vietnamese market effectively, it becomes imperative to engage a local agency well-versed in the investment landscape, particularly for Singaporean investors, and other foreign counterparts. This prudent approach promises enhanced efficiency and practicality when entering the Vietnamese market.

Being one of the founding nations of ASEAN, Singapore consistently upholds its central role within the organisation and maintains strong relations with fellow ASEAN member countries, including Vietnam. The year 2022 witnessed the signing of five agreements and numerous MOUs between Singapore and Vietnam, solidifying cooperation across various sectors such as trade, digital economy, cybersecurity, clean energy, sustainable development, and intellectual property rights. Both nations actively participate in multiple trade liberalisation agreements and multilateral pacts, further fostering their economic ties.

In terms of investment, Singapore consistently ranks among the top investors in Vietnam. As of December 2022, Singapore maintains its top position among ASEAN countries and secures the second spot among the 141 countries investing in Vietnam. Singapore’s investment ventures span across 51 out of the 63 provinces and cities in Vietnam, and conversely, Vietnam boasts 140 valid investment projects in Singapore, amounting to a total registered capital exceeding $586 million.

With the robust investment momentum from Singapore, a provision of proactive support and assistance from reliable local partners serves as an effective means of accelerating the investment process for Singaporean investors in Vietnam, which includes the vital role of Vietnam-based law firms with offices in Singapore.

While foreign investors seeking to invest in Singapore typically rely on specialised businesses that offer general corporate services, Singaporean investors in Vietnam primarily turn to law firms as their primary focal point to directly engage with state agencies and navigate the intricate regulatory landscape. This streamlined approach helps Singaporean investors navigate the regulatory landscape more effectively and ensures a smoother investment process.

Notwithstanding the notable achievements, we have also encountered and supported our clients in addressing significant challenges within Vietnam’s investment landscape. These include impediments such as restrictions on foreign capital, investment conditions, administrative procedures, and the resolution of disputes arising from lawsuits filed by Singaporean investors.

To illustrate, in a recent case being handled by LNT, a Singaporean client entered into a letter of guarantee with a local bank, but the bank declined to honour the guarantee as agreed upon in the contract. This matter was escalated to the Supreme People’s Court, yet for one year the petition was not accepted for trial. Another instance involved an investor considering the application of the ASEAN Framework Agreement on Services (AFAS) instead of the World Trade Organization as the legal basis for an investment licence. Despite both treaties being signed, the investment agency did not accept the AFAS application, citing its unprecedented nature and the need for higher-level authorities’ approval.

Perhaps these stories may not only be found in Vietnam, and each environment has its positive aspects and inherent challenges. But despite these burdens, we believe the commitment to reducing administrative procedures and alleviating investment conditions remains unwavering for both countries.

Despite its relatively small size, Singapore plays a pivotal role in connecting investments and facilitating trade within the region. Renowned as a major free trade port with minimal import restrictions, Singapore is home to multinational corporations, commercial giants, and logistics powerhouses. Its business-friendly legal environment and prosperous economy have positioned it as a premier transshipment hub, leveraging its strategic location on vital shipping routes linking Asia and Europe.

With robust customs systems and efficient logistics capacities, Singapore attracts global enterprises seeking to tap into Asia’s largest international seaport and establish a foothold in Southeast Asian markets, including Vietnam.

The investment impact of Singapore in Vietnam has never cooled down. Since the 1990s, Singapore has been at the forefront among the four pioneering ASEAN countries in exploring Vietnam’s investment market.

As of December 2022, Singapore has made investments in 18 diverse industries, contributing to an 11.6 per cent increase in the import-export turnover between Vietnam and Singapore compared to the previous year. However, amid the overall economic decline in 2023, sustaining the growth of trade value between the two countries at levels equivalent to or surpassing 2022 will pose significant challenges. Despite the complex global economic landscape, the progress in investment from Singaporean investors cannot be denied.

Consequently, to ensure optimal protection of the domestic market and uphold Vietnam’s commitments in international trade agreements, a concerted reform effort is imperative within the administrative apparatus and legal system.

In terms of administrative reform, it is crucial for the government to establish efficient and seamless collaboration among relevant agencies, facilitating smooth business operations.

In addition, ensuring transparency, clarity, and uniformity in the application of legal regulations by agencies is an essential solution to address decision-making challenges. This approach is necessary to firmly open the gateway for foreign investors, ensuring a feasible and reliable pathway created by government agencies in Vietnam.

(*) Le Net, Vu Thi Thinh, and Nguyen Hai Giang LNT & Partners