Developing Infrastructure to Promote Investment, Business, Economy and National Defence

Economic integration is happening around the world with bilateral and multilateral cooperation, free trade and investment areas and communities of countries and regions. For its part, ASEAN is going to establish an economic community by 2015. The current trend, together with the science and technology revolution, is making the world increasingly small and flat.

Becoming a WTO member after 20 years of renovation, Vietnam has established its position and played its part in the international community, honouring WTO commitments for opening commodity and service markets and meeting the opportunities and challenges of development. Vietnam will cut import taxes from the present 17.4 per cent down to 13.4 per cent in 5-7 years, and will open markets for 11 services with 110 out of 155 branches.

 

One, the first advantage is in expanding export markets for commodities and services. This is a key for Vietnam, as exports make up 60-70 per cent of GDP and investment potential to foreign countries is increasing.

 

Two, in compliance with WTO commitments and principles, Vietnam will continue building a more equitable and transparent business and investment environment, facilitating the development of markets such as capital and manpower. Those factors together with market expansion will boost investment in all economic sectors: private, foreign direct investment (FDI) and foreign indirect investment (FII).

 

Three, as a WTO member, Vietnam can play an equal role in mapping out global trade policy and in settling disputes to protect the interests of Vietnam and its businesses. As a result, Vietnam’s political status is enhanced and it has been elected as a non-permanent member of the United Nations Security Council in 2008-2009.

 

Four, as Vietnam opens up its market, Vietnamese consumers have a wider choice of high quality commodities and services, upgrading their material and intellectual lives and developing the market economy.

 

Five, WTO membership and the consensus principle in multilateral relations will enhance Vietnam’s political and diplomatic role in the international arena. It is equally important in diplomatic relationships of all types, bilateral or multilateral, regional or global.

First, Vietnam is exposed to fiercer competition even in its domestic market. Foreign commodities and services will gain market share. This heightened competition will occur throughout the economy.

 

Second, the infrastructure (technical, financial, education, legal, social) must be upgraded to international standard, especially the legal system, to deal with difficult disputes such as the increasing number of disputes between China and other WTO members. This is especially critical as Vietnam had to accept the status of non-market economy for 12 years.

 

Third, the open economy will increase mutual dependence of different economies. Fluctuations in the world market will have stronger and faster impacts on the domestic market, especially as the world economy faces more complications and risks. Without correct economic policy, planning capacity, forecasts, analysis and effective measures, the economy and businesses will be in a great danger.

 

Fourth, integration also causes problem for sustainable development regarding environment, society (unemployment and income disparity), security and cultural identity. In this regard, the State has the main role. However, it will be more challenging as the State budget faces import tax decreases in the process of integration.

 

To build a strong nation and civilized society given these opportunities and challenges, Vietnam must mobilize all resources at home and abroad to upgrade the infrastructure (technical, financial, education, legal and social) to international standard, especially technical infrastructure. Regarding improvement of the business and investment environment, people often think of improving mechanisms, management, policies, training and legal framework. However, according to economists, those are ‘soft environment’ features while the ‘hard environment’ - technical infrastructure like transport, communication, construction and urban development - are the main factors in improving the business and investment environment and achieving national socio-economic objectives.

 

Also according to economists, expenses related to technical infrastructure (transport, urban development, distribution network) account for larger part of the cost of products, services and investments. The income gap between urban and remote areas is exacerbated by the level of infrastructure development. At the national level, it directly affects competition and sustainable development.

 

No one can deny the importance of FDI. However, with the sharp increase of FDI in 2007 to US$20 billion, Vietnam’s technical infrastructure has become the biggest hurdle to disbursing these resources. Statistics show that most business activities concentrate in the cities. Bangkok accounts for 40 per cent of Thailand’s GDP. Manila contributes 30 per cent of the Philippines’ GDP. Shanghai makes up 11 per cent of China’s GDP. In Vietnam, 20 per cent of GDP is from Ho Chi Minh City, and 60 per cent of FDI is invested in Dong Nai, Hanoi and Ho Chi Minh City. Moreover, these cities are also the concentration of people, masterminding economic activities.

 

Technical infrastructure is closely related to the quality of public service. It shows the management capacity and policy efficiency of government. In urban centres, slow growth in public transport and management causes big economic losses. In 2003, traffic jams in 85 American cities cause a loss of US$63 billion in term of time and fuel.

 

With international economic integration, national borders are no longer barriers but become connections for expanding markets. International ports - sea, land and air, connect key markets and facilitate economic development. This also helps secure national defence.

 

2008 is most important for economic development in Vietnam. According to ADB’s 2007 report, Vietnam’s economy continues annual growth of 8.5 per cent and integration will be deeper and broader in the world economy. Vietnam is negotiating a free trade agreement with Japan and a trade and investment agreement with the US. Therefore, development of the hard environment is most important for the business and investment environment. The following measures can be considered:

 

One, the nation’s position must be defined strategically in the international arena, and economic development should focus on improving the business and investment environment. Consequently, soft and hard environments must both be taken into account.

 

Two, technical infrastructure requires several inputs, especially international experience, finance and land. The broad international cooperation and ever higher political, economic and geographical position of Vietnam, together with State-controlled land resources and abundant workforce (43 million people, 45 per cent under 35 years old) are important guarantees to attain this goal. The mobilization of capital should be from both diversified and primary sources.

 

Three, it is important connect infrastructure projects with economic centres at home and abroad. Links must be developed between domestic urban centres, satellite cities and remote areas, while ports (sea, land and air) should be built for international cooperation. Studies must focus on regional strategies, such as with China under the “one axle and two wings” or “two corridors and one ring” strategies, and with Japan on trans-Asia cooperation, to ensure regional security.

 

Four, it is equally important to encourage the private sector to participate in the development of technical infrastructure. First of all, there must be policy to facilitate private participation in open and transparent bidding instead of setting criteria for bidders.

In short, technical infrastructure is the key to improving the business and investment environment, competitiveness and productivity. It also helps promote investment and economic expansion in the regional and world markets, sustainable development and national defence, as well as socio-economic objectives of 2020. With strategic vision and determination, Vietnam can integrate successfully and ensure rapid and sustainable development. Vietnam Chamber of Commerce and Industry is eager to cooperate with the Government and businesses for this national cause.