Vietnam Business Forum: Improving Investment Attractiveness

Infrastructure, human resources and administrative reform are three major subjects of concerns at the Vietnam Business Forum, a side event ahead of the Mid-year Consultative Group Meeting 2010.

Themed Enhancing Efficiency & Competitiveness of Vietnam’s Economy, the forum focused on assessing outcomes of the Vietnamese economy in the first months of 2010 and challenges it will face in the future. The forum was jointly held by the International Finance Corporation (IFC), the World Bank (WB) and the Ministry of Planning and Investment in Hanoi on May 26.

Little progress

“Fundamental problems of upgrading Vietnam’s infrastructure have been put forth by AmCham and other business associations at all Vietnam Business Forums in the past five years. Presently, there are still many shortcomings and deferrals in developing basic infrastructure, specially inter-provincial roads, bridges, including approaching roads, electricity, strategically located ports and inland infrastructure works, including inner-city traffics. As long as Vietnam has not improved the infrastructure, it will lag behind,” said Jocelyn Tran, President of the American Chamber of Commerce in Vietnam (AmCham) to delegates at the forum. And, these are the very weaknesses Vietnam is tackling.

Mr Olivier Jacquet, Vice President of EuroCham, said: Vietnam is expected to need US$70-80 billion for infrastructure investment in only the next 5-10 years. A major challenge for Vietnam is the synchronisation of its different infrastructures to increase the circulation of goods in product supply chains. Thus, according to Mr Olivier, the participation of foreign private sector in both technology and finance will be the key to ensure the growing demand for infrastructure in Vietnam. Particularly, public-private partnership (PPP) will be an important element to upgrade infrastructure when Vietnam integrates deeper into the world economy.

According to EuroCham, Vietnam has a developing seaport system, especially Cai Mep – Thi Vai Port. However, it is important that Vietnam must have a clear seaport strategy. The country may need 4-5 good ports in the southerner region, 2-3 in the north and 1- 2 in the central region. “Perhaps, it is better for Vietnam to have 11-12 good ports instead of 50-60 small ones spotting in different localities as now. The Government should weigh up before deciding investment locations to allocate its scarce resources. The port upgrading allows large ships to anchor directly in Vietnam instead of transiting Singapore, Hong Kong and Tanjung Pelepas ports,” Olivier stressed.

Regarding energy and electricity sectors, Vietnam’s electricity consumption grows 15 percent annually, much higher than economic growth, and is estimated to increase 3.5 times by 2020 in comparison with 2009/2010 data. According to Eurocham, Vietnam has not developed a competitive electricity market. This issue remains unresolved due to several reasons but the most important is possible the vitality of electricity price in the country. Irrational pricing mechanism, with EVN being the monopoly distributor, distresses foreign investors, leading to a capital shortage in this industry.

Apart from weak infrastructure, human resources are another problem for Vietnam. According to Amcham, Vietnam needs to improve skills of the workforce. About 65 percent of the Vietnamese labour forces are unskilled and about 78 percent of the population aged 20-24 are untrained or lack of necessary skills. Mr Ha Van Hien, Chairman of the National Assembly Economics Committee, blamed this reality to the weak education system of Vietnam. “Universities, high schools and vocational schools teach only what they have, not what the society and companies need. Many subjects of study are impractical and inapplicable,” Hien said.

According to Amcham, modernising the education system is one of the most important components in the globalization process of a nation and is a factor directly affecting the choices and prospects of future generations. Maintaining the status quo of the Vietnamese higher education system is fundamentally inconsistent with requirements of the international integration process.

As regards administrative reform, Vietnam has not witnessed much progress. According to EuroCham, the process of ratifying investment procedures and business establishment in Vietnam remains difficult and time-consuming. For many foreign companies, complex administrative procedures, especially in implementation, sometimes result in a successful business in Vietnam. Investors have to wait 5-6 months to obtain investment licences in Vietnam while it takes 5-6 weeks in other countries in the region. Time-consuming and cumbersome administrative procedures may cost the competitiveness of Vietnam in the eyes of foreign investors.

Remain attractive to investors

According to Mr. Hiroyuki Moribe, Chief Representative of JETRO Hanoi Office, in a report on business environment in Vietnam, in spite of certain problems, the investment environment in Vietnam is very attractive, especially labour costs. Although the minimum wage was increased in January 2010, Vietnam still has high competitiveness in labour costs. Among ASEAN countries, wages in both manufacturing and non-manufacturing sectors in Vietnam are very low. Many Japanese companies in Vietnam have exceeded sales gained before the global economic crisis. The percentage of Japanese companies planning to expand their business in Vietnam in one or two years is the highest in the region, according to the report.

However, office rents in Hanoi and Ho Chi Minh City, the two largest cities, are too high in the regional scale. Besides, at present, Japanese companies difficultly recruit workers because of poor skills and senior staffs are more difficult to hire. Worse, it is very hard for Japanese companies to find domestic supply of spare parts and raw materials. These shortages in addition to many others make Japanese investors hesitant to do business in Vietnam.

VCCI

Tags: Consultative Group Meeting 2010, Vietnam business forum