Vietnam Business Forum 2010: Business with Government Build Economic Development Model

The Vietnam Business Forum (VBF) 2010 was an annual event organised ahead of the Consultative Group (CG) Meeting by the World Bank (WB), International Finance Corporation (IFC) and the Vietnamese Ministry of Planning and Investment. Under the overarching theme of “Competition and Sustained Growth,” the forum focused on assessing the Vietnamese business environment, with special concerns for the development of private sector.

Delivering a speech at the forum, Mr Vo Hong Phuc, Vietnamese Minister of Planning and Investment, said the Vietnamese economy is projected to expand 6.7 percent to 6.8 percent in 2010, the social security is guaranteed, and many sectors enjoy favourable development conditions. However, Vietnam still faces many challenges, particularly macroeconomic stability and inflation easing (the country’s consumer price index climbed 9.58 percent in the first 11 months and was forecast to grow at a two-digit rate in 2010). Vietnam is also building a five-year and 10-year social and economic development strategies where it set a high annual economic growth rate of 7.5 percent. However, there are three difficulties that Vietnam will give priority to in the coming time, including infrastructure, human resources and institutional reform, institutional perfection in the direction of market economy.

 

“To achieve these, Vietnam hopes domestic and foreign businesses to get involved with the Government to build economic development models, perfect institutions, invest in infrastructure construction, train human resources, etc. for joint development objectives,” Mr Phuc asserted.

 

According to Ms Victoria Kwakwa, World Bank Country Director for Vietnam, the private sector assumes an important role in the upcoming phase of Vietnam’s development when Vietnam becomes a middle income country. Therefore, Vietnam needs a more favourable, competitive business environment, especially improves the quality of ‘hard’ infrastructure as well as ‘soft’ infrastructure like policy framework and new regulations, etc to be as simple, clear, transparent and anticipatory as possible. Therefore, Vietnam needs to take strong steps.

A survey on business sentiment about the business environment in 2010 carried out of the Secretariat of the Vietnam Business Forum showed a higher degree of business optimism in Vietnam over 2009 and a brighter outlook for business in the coming years. As many as 227 companies joined the survey in 2010, of which 80 percent were domestic and 20 percent are foreign-invested.

According to survey, prospects of the Vietnamese environment business in the coming years are relatively high. Business conditions and environment in 2011 are rated 2.88 points on a 4-point scale (four points mean excellence). In the 2011 - 2012 period, prospects are even higher. This indicates that businesses believe in Vietnam’s ability to withstand challenges, maintain economic recovery process, continue with reforms and improve the business environment.

Highly rated fields included access to data, legal documents and plans necessary for doing business; legal environment; macroeconomic management; access to finance; and regional competition.

Like in the 2009 business sentiment survey, worse-rated fields consisted of Lack of intellectual property right protection; poor infrastructure; poor enforcement of laws; unavailability of skilful labour at competitive costs.

According to the survey result, 76 percent of respondents planned to expand business in the next three years and foreign enterprises were more optimistic than domestic ones. Nearly 80 percent of foreign companies planned to scale up business in the next three years while 75 percent of domestic companies planned to. The optimism for service sectors (information technology, finance, insurance, education, law, etc) is the highest.

The main reasons for companies to increase investment/business in Vietnam are positive economic outlook (67.84 percent); expansion of domestic and regional markets (59.06 percent); market opening and reforms implemented under WTO and other international commitments (50.29 percent); and export opportunities (38.60 percent). These were also the most important drives for enterprises to expand business in the 2009 survey.

However, 3.11 percent of respondents planned to reduce business scope. This year, none had the plan to shut down their business. Among companies with intention to cut down the scope, there was only one foreign company.

Companies recommended that the government immediately take actions to improve the business environment. Instead of complaining about common drawbacks like human resources and infrastructure, they pitched up executive measures like administrative procedure reform, corruption prevention and control, law-compiling and issuing procedure reform.

Domestic companies continued place the top priority to administrative procedure reform. This indicates that they pinned high hopes on efforts to reform administrative procedures.

For foreign enterprises, the top recommendation is to prevent and control corruption in addition with other requirements like administrative procedure reform, infrastructure improvement and upgrading, education reform, etc.

 

Currently, in legal documents and the socio-economic development strategy mapped out in draft document of the 11^th Party Congress, Vietnam continues considering the state-run economy play the major role in accordance with the motto of the state orienting and adjusting the economy, contributing to stabilize macro economy. The strategy outlines a target to build the economy of fair competition, transparency and equality among economic elements, comprehensive development and gradually modernize the markets in order to reach the strategic breakthrough in completing the mechanism of socialist-oriented market economy with a focus on fair competition and administrative reform.   

 

The target of creating a strategic breakthrough by building the fair competition is a sound and necessary policy. However, the target and the current manner of maintaining the major role of the state-run economy seem to contradict each other. Continuing the prolonged contradiction and unsuitable methods can make the strategy and the target of stabilizing macro-economy meet difficult and even fail to fulfil. 

 

Thus, Vietnam needs to apply the fair policy among different economic elements and to assess the role of the elements via their efficiency and specific contribution instead of putting the decisive role on certain economic element which has not yet ready or unable to take over the task. Changing the policy will also finish the real situation that the state must follow and issue new regulations in mass in a bid to help the decisive element complete its mission.  

 

The process f approving for investment and establishment of businesses in Vietnam remains difficult and time-consuming. For many foreign businesses, the complexity of administrative procedures and sometimes the inconsistency of execution and incoordination of laws and regulations by authorities may bar a company from being operated successfully in Vietnam. We want to emphasise that obligations of investors with respect to accessing to a number of government agencies has made progress a more time-consuming than necessary.

 

Vietnam has recently combined the process of applying for business certificate and the process of applying for tax code. This is the first good sign. Eurocham would like to further recommend that Vietnam adopt the single-window model for approving business registration and investment licensing procedures. Then, concerned ministries will be responsible for coordinating with other government agencies if necessary. In many ASEAN countries like Thailand, Indonesia, Singapore and Malaysia, this model has proved extremely useful and effective. Investors must wait from five to six months to obtain an investment licence in Vietnam (while they need only five or six weeks in other countries. This does not mean only wasting time but also money.

Over the 20 years of doi moi (renewal), almost all of Vietnam’s non-state enterprises have still imported technologies from China, North Asia, and ASEAN. However, the enterprises have also gained remarkable achievements in production of consumer goods, supporting industrial products to replace imports. The debt scandal of the state-owned shipbuilder Vinashin Business Group (Vinashin) has made tens supporting industrial firms for the shipbuilding sector distressed. In foreign countries, the supporting industries are always in the top priority and reshuffled most actively. In conditions of Vietnam and characters of Vietnamese, the government should learn from the model of Japan which has gone up from war ruins to become a powerful country by boosting and supporting credit, production places and income tax priority for small and medium enterprises to develop the industry particularly supporting industries. The country’s financial source should be invested in many different fields and small-scaled firms rather than only focus on big economic groups because that can lead to the imbalance and cause vast damages to the whole economy if any big group suffers a defeat.