Crumbling infrastructure deterring investment

The poor state of Vietnam’s roads and other infrastructure poses a major obstacle for foreign investors as the country struggles to boost exports, business leaders said on Tuesday.

Unless the government takes stronger remedial actions “the country’s infrastructure status will act as a deterrent to foreign investment and the enhancement of Vietnam’s export sector,” according to a survey presented to the Vietnam Business Forum.

Almost 96 percent of foreign trading firms rated the country’s infrastructure as “bad” or “very bad” according to the survey report.

The figure is “staggering”, said Tony Foster, who heads a Business Forum sub-committee that includes multinational corporations.

The Vietnam Business Forum brings together the government and business community to help develop an environment likely to attract foreign investment and stimulate economic growth.

Frequent gridlock on Vietnam’s crumbling roads poses major difficulties, particularly for exporters transporting goods, Foster told the gathering of government officials, foreign diplomats, businessmen and aid agencies on Tuesday.

Thomas Siebert, chairman of the Ho Chi Minh City chapter of the American Chamber of Commerce in Vietnam, urged the private sector to participate in the development, finance and management of infrastructure, especially of power generation and deep-water seaports.

Vietnam has already seen a precipitous drop in foreign direct investment this year. At about US$19.7 billion from January to November, the total was barely a quarter of the amount registered over the same period of 2008.

After burning through its reserves, Vietnam last week devalued its currency, the dong, as it fights to contain inflation and bolster trade.

Intellectual property rights protection, the effectiveness of the court and arbitration system and access to foreign exchange were also given low ratings.

The Business Forum’s annual survey questioned 291 firms, 30 percent of which were foreign. More than 80 percent of both domestic and overseas firms rated infrastructure as bad or very bad.

A separate survey of more than 600 Japanese firms found weak infrastructure, especially roads, electricity and ports, to be the most pressing issue, Japan Bank for International Cooperation representative Noriyasu Yuge told the forum.

Rising labor costs were also an issue, the survey found.

Laborious paperwork

The business community also asked for stronger administrative reforms in Vietnam.

For many foreign companies, the “complexity of administrative procedures and the “uncoordinated and inconsistent implementation of laws and regulations” between different authorities can be a serious hindrance, said Alain Cany, chairman of the European Chamber of Commerce in Vietnam.

He said there was strong feedback from across the business community that the approval procedure for setting up business in Vietnam is still laborious and unduly time consuming.

Paul Fairhead, president of the Hanoi chapter of the Australian Chamber of Commerce in Vietnam, said many administrative procedures in Vietnam were overly complicated, inefficient and gave rise to unnecessary costs, which impede economic activity.

Siebert said Amcham companies will be closely watching the government’s actions on recommendations from the business community concerning a national administrative reform program.

“If the Prime Minister takes the action as he promised, then the world will know that Vietnam is serious about reform and creating a better business climate,” he said.

Deficits posing risks

Vietnam’s budget and trade deficits also pose risks to the economy, said Siebert.

Vietnam may report a fiscal deficit of as much as 10.1 percent of gross domestic product this year, according to the Asian Development Bank. Vietnam posted a $1.97 billion trade deficit in November, according to preliminary figures from the General Statistics Office in Hanoi, which would be the highest number since the first half of 2008.

“The economic situation facing Vietnam is still difficult,” Siebert said. “There are risks in the fiscal deficit and the external trade deficit.”

BUSINESSES UPBEAT

Companies in Vietnam are more upbeat about the business environment than last year and 83 percent are planning to expand, but the country stands at a crossroads with regard to competitiveness, the survey by the Vietnam Business Forum showed Tuesday.

The overall business environment was considered to be between “satisfactory” and “good”, averaging 2.21 out of 4. Last year it rated 1.9.

Nearly 62 percent of respondents expected the economy to regain its high growth rate, and the survey said many expressed “high levels of satisfaction” with the government’s macroeconomic management in the past year.

Economists say the economy has begun to stabilize and officials say it is on track to achieve the government’s target of 5.2 percent growth this year.

Despite sunny economic prospects, some respondents felt Vietnam had not taken advantage of the economic crisis to press on with reforms, restructure the economy and enhance its competitiveness.

REBALANCING THE GREENBACK

Vietnamese monetary authorities should work to narrow the gap between the official and black market exchange rates for the nation’s currency, an Australian business group told the country’s government.

The gap has narrowed since last week, when the State Bank of Vietnam devalued the dong, cut the daily trading band for the currency and increased its benchmark interest rate.

While these moves “have somewhat alleviated the downward pressure on the Vietnamese dong, there remains a large imbalance in supply and demand for US dollars,” said Paul Fairhead, president of the Hanoi chapter of the Australian Chamber of Commerce in Vietnam.

“In order to neutralize the gap between the official and the black market rates, we recommend that the government adopt policies that allow the demand and supply of US dollars to rebalance,” he said.

The supply and demand for dollars in Vietnam is not aligned, putting pressure on the dong and the country’s balance of payments, Fairhead said.

VietNamNet/Thanh Nien

Tags: Vietnam Infrastructure