Inadequate business environment reducing competitiveness, investment attraction

Customers are learning about household products in a supermarket in HCMC. (Photo: SGGP)

The State has aimed at fair treatment to all businesses; yet the reality shows that there is injustice in various aspects, at different localities, the most infamous being tax imposition.

Chairman of Le Thanh Group’s Board of Directors stated that while foreign companies enjoy 10-year tax exemption when pouring money in Vietnam, domestic counterparts are not eligible for this policy. Director of Vietsteel Machinery Co. Ltd. worried about inadequacies in implementing machine import-export tax. In particular, the tax rate for an FDI business importing full machines is 0-10 percent whereas domestic machine manufacturers are subject to a 15-percent tax when importing parts to assemble equipment of the same type.

In the education field, this injustice is even clearer in procedures to register for a business permit. An FDI company, stipulated in Decree No.73/2012/ND-CP about partnership with foreign entities in the education field, needs a minimum capital of VND300 billion (US$12.7 million) and is allowed to rent an office site to operate. Meanwhile, a Vietnamese enterprise, stipulated in Decree No.46/2017/ND-CP, needs a capital of VND1 trillion ($42.4 million) along with a minimum surface area of 5ha for constructing facilities.

Vice Chairman Truong Chi Binh of the Vietnam Association of Supporting Industries commented that the Government’s regulations on preferential policies for national and international companies show no differentiation. It is regulation implementation of localities that creates this injustice. For instance, in Hiep Phuoc Industrial Park (sited in HCMC), it takes a year for a foreign business to register and build necessary facilities for operation. The needed time for a domestic one is more than a triple.

Claudio Dordi, Director of the Trade Facilitation Program (run by USAID), informed that nearly 59 percent of Vietnamese enterprises have encountered at least one difficulty related to administrative procedures.

“This injustice might seriously weaken the competitiveness of domestic businesses regardless of their scale”, stressed Dau Anh Tuan, Deputy General Secretary of Vietnam Chamber of Commerce and Industry (VCCI).

Dr. Su Ngoc Khuong, Investment Director of Savills Vietnam, said that Vietnam’s export volumes mostly come from FDI enterprises. This is attributed to three factors of technology, capital, and human resources. Although the third has been improved, the first two are insufficient. To upgrade technologies needs capital, but the economic potential of the country is not high and domestic companies are even unfairly treated. The State should introduce more specialized policies to Vietnamese companies, especially small and medium-scaled ones which account for the majority of the total enterprises.

Dr. Bui Duy Tung from RMIT University commented that the high proportion of FDI enterprises’ export volumes reveals the right investment attractive policy of the Government. However, too much dependence on FDI companies gives trouble either in general decisions of the Government or the national economy when those enterprises change their investment strategies as well as manufacturing scale.

He suggested preferential mechanisms or policies for domestic businesses in the five aspects of

_agriculture, produce processing;

_supports for R&D activities of local companies and their ability to access to financial and technological aids, promotion of partnership between these enterprises and foreign investors in the fields of electronics, machine manufacturing, texture;

_investments in infrastructure and marketing to attract more tourists and increase the values of tourism products;

_concentration on domestic IT businesses so that they can provide technological solutions to both national and international markets;

_investments in renewable energies, especially solar and wind ones to reduce dependence on fossil fuel, to stimulate the growth of local industries.

Vietnam's Association of Foreign Invested Enterprises (VAFIE) last week announced its annual FDI report for 2022, themed ‘Toward Green Development and Digital Transformation’. VAFIE’s Chairman Nguyen Mai said that Vietnam is a successful case of an FDI-driven economy as it has become a center for electronic production manufacturing in the last two decades.

In 2022, despite negative impacts of the Covid-19 pandemic, Vietnam was able to attract over $27.7 billion of FDI capital (89 percent of the one in 2021). The disbursed capital reached $22.4 billion, a rise of 13.5 percent compared to the previous year. Nearly 70 percent of surveyed FDI businesses considered Vietnam as a favorable investment location thanks to low overhead costs and laborer quality, tax rates, the ability of the Vietnamese Government in coping with emergencies.

They then pointed out that corruption, complicated administrative procedures, outdated infrastructure, low public service quality are the weaknesses. Therefore, the statistics for investment registration at the beginning of 2023 are not promising with a significant reduction in additional registered capital.

Chairman Nguyen Mai mentioned a proposal of surveyed businesses that the Government should urgently review and adjust foreign investment policies to keep up with economic fluctuations in the world as well as changes in FDI attraction strategies of countries with similar conditions to Vietnam.

While the global economy is predicted to see more trouble, Vietnam might still enjoy positives because it is now negotiating large-scaled projects that can more effectively attract FDI. Many renowned international organizations and investors still forecast a high potential of the Vietnamese market as long as it applies sensible, timely, and comprehensive regulation adjustments.