Vietnam must review investment environment

A business delegation of more than 50 well-known US corporations arrived in Vietnam last week to survey the market and look at possibilities of investing in viable projects.

However, in order to receive more investments from companies in the United States, Vietnam needs to review and reform its investment environment, improve the quality of human resources in domestic enterprises, and revise its current tax incentive policy.

Reforms necessary

American enterprises investing in Vietnam currently have two means of capital flow. The first is the official stream for investment in Vietnam which is basically the same amount every year, at about US$1 bln per annum. This is a very low figure when compared to investments from other countries and territories such as Japan, South Korea, Singapore, Taiwan, and Hong Kong. The second capital flow is the capital that comes from US companies that invest in businesses in other countries through joint ventures, mergers, and acquisitions. These companies look to invest in Vietnam as a third-world country.

American companies are all mostly large and multinational corporations with extensive production and supply chains. These corporations still see Vietnam as a third-world country and not as a strong base for investment capital. However, there are many other reasons for them to study the Vietnamese market such as favorable tax incentives. Now with the introduction of a global minimum tax of 15 percent, there may be more chance for direct investment.

The good news is that American companies have maintained a positive view of the investment environment in Vietnam. Their projects also focus on areas that Vietnam desperately needs in the medium term, and not just in the short term. According to the survey data by the American Chamber of Commerce in Vietnam (AmCham), nearly 80 percent of the companies surveyed gave a very positive assessment of their medium and long-term prospects for Vietnam, and are now considering additional investment in the country. The presence of leading names such as P&G, Coca-Cola, Apple, Google, and Intel shows the priority given by US investors for Vietnam.

The recent US business delegation to Vietnam was represented by many powerful companies from many different fields. However, to actually see investments by these companies in Vietnam may still take a long time. But before that, the first thing that Vietnam needs to do is improve its own industries, including technology for manufacturing components, semiconductors, and chips. These are things that the world market is in dire need of, and Vietnam has enough potential and ability to cooperate with US businesses to supply the products.

The second factor that Vietnam needs to look at is the logistics sector. This is an area where Vietnam has a lot of potentials and can completely cooperate with American companies. The third factor is an investment in the field of finance and banking. This is an area that the US has expertise in, and which Vietnam can benefit from.

Better infrastructure

In order to attract large American companies, businesses in Vietnam must be stronger. First, in order to receive investors from the US, Vietnam needs better infrastructure and qualified human resources who can get absorbed in high-quality projects. This is a very important factor. In the past, the Intel company had serious issues in dealing with human resources when it had just entered Vietnam. The highly qualified human resource here must complement a high production and quality level required by American companies, and not just with mere technical labor. Vietnam is seriously lacking in quality human resources and this factor needs to be tackled without delay.

Second, businesses in Vietnam also need to improve the quality that is compatible with the production chain of American companies. If we do not have good policies for domestic enterprises to develop and grow, or have access to the latest technology, then we cannot develop. In the past, we were warned about the situation that Vietnamese enterprises linked to production and value chains in the low segment mainly outsourced production in stages such as for packaging and simple components. We need to have appropriate policies so that Vietnamese enterprises can cooperate more with foreign companies.

Another factor that US investors are looking into is transparency in governance, finance, and the legal framework. There is a need to minimize several hidden costs for businesses. In other countries in the southeast region there are still many hidden costs and expenses that add to the costs for FDI companies. In order to improve competitiveness across Vietnam and attract more quality foreign investment, Vietnam needs to first improve the overall investment environment in the country.

Lastly, Vietnam needs to consider other preferential mechanisms for FDI enterprises in general and US enterprises in particular. Incentives are not about taxes, but about coordinating with companies to train their manpower. Vietnam needs to create a strong and effective legal framework to build innovative technology centers, such as those operated by the Samsung company in Vietnam.