Increased Optimism about Vietnam Business Environment

Business optimism in Vietnam in 2010 was higher than 2009, and there is a brighter business outlook in the coming years, according to a survey about the business environment in 2010 carried out by the Secretariat of the Vietnam Business Forum.

According to the survey, prospects of the Vietnamese environment business for the coming years are relatively high. Business conditions and environment in 2010 are rated 2.88 points on a 4-point scale (four points mean excellence). Prospects for 2011 - 2012 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 in the coming time.

 

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, the lowest rated fields consisted of lack of intellectual property right protection; poor infrastructure; poor legal enforcement; and unavailability of skilled 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.

 

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

 

According to the Doing Business 2011 report released last year by the World Bank (WB) and the International Finance Corporation (IFC), Vietnam moved up 10 places in the global rankings to 78 among 183 economies in the ease of doing business for local firms, overtaking China to rank 11^th within Asia. According to the WB, Vietnam decreased the cost from 13.3 percent to 12.1 percent of per capita income and reduced the duration to start up a business from 50 days to 44 days. These were elements steps forward for Vietnam.

 

Mr Janamitra Devan, World Bank’s Vice President, said: Vietnam has made considerable progress in the business start-up registration; thus, its ranking moved from 116^th to 100^th. Dealing with construction permits leaped from 69^th position to 62^nd. We believe that Project 30 has brought in particular results, but Vietnam needs to make more effort because many criteria are near the bottom of the rankings.”

 

Strong institutional reform, in which the reform of administrative procedures is stressed in accordance with Project 30 initiated by the government, has significantly contributed to creating a favourable business environment.

 

However, according to experts, Vietnam needs to accelerate the reform of tax and customs administrative procedures, especially completing the simplification of 256 administrative procedures to further reduce time and administrative costs, to raise many criteria currently near the bottom. At the same time, the country needs to take care of small and medium enterprises and quicken the equitization of State-owned enterprises.

Vietnam has declared its intention of becoming a full member of the Trans Pacific Partnership Agreement (TPP). Amcham hoped this will help strengthen the harmony and help ease business activities in Vietnam. However, many areas in the business environment need to be improved to enhance Vietnam’s competitiveness.

 

Vietnam’s success in attracting foreign investment has largely been built on the expectation of economic and political stability. Unfortunately, the government’s approach to economic and monetary policy has not raised credibility and confidence.

 

Vietnam's currency system has undermined confidence - both among local and foreign investors - and there is no anchoring of expectations on the value of the Vietnamese dong. Moreover, Amcham feared that rising inflation and the lack of an effective inflation policy were pressuring the dong’s depreciation. Amcham looks to the government to communicate monetary policy clearly and transparently to help build confidence in their macroeconomic management.

 

Besides, more evidence is needed for the willingness of the Government to reform State-owned enterprises, which have been inherently inefficient and considered the source of macroeconomic instability by analysts. Corruption and conflict of interest are factors associated with the State-owned sector. If basic management issues are not resolved, development progress will remain a challenge.

Australia takes the lead in the number of Vietnamese overseas students and cooperates broadly with Vietnam in education and vocational training. However, AusCham members are seeking more clarification and transparency of the current status and expected date of passing the new Decree on foreign-invested educational institutions and related regulations. AusCham understands the importance of this Decree to new educational institutions, as well as operational ones in Vietnam in expanding their business, developing new facilities and hiring staff. AusCham is also very concerned about the rigidity of the current draft Decree, particularly when it relates to the area of school buildings and facilities, the seniority of foreign teachers and work permits.

 

AusCham members propose that the Government should stress transparency in designing and administering the enforcement of these laws, making educational institutions feel confident in expanding investment in the Vietnamese education system.

 

We call upon the Government of Vietnam to build a closer relationship with the business community to ensure that education and training meet the requirements of the Vietnamese economy. AusCham members expect the development and improvement of the education system in Vietnam and are always ready to help when necessary.

In 2010, Vietnam successfully transited from the status of a low-income country to a middle-income one. More clearly, Vietnam achieved this by promoting major economic advantages, including relatively low labour costs, natural resources, geographic advantage, political stability and the attraction of a new broad untapped market. Previously, Vietnam received large amount of official development assistance (ODA) from major bilateral and multilateral sources.

 

However, Eurocham believes that Vietnam cannot expect the current competitive advantages to last forever because wages will increase, natural resources are limited and ODA for Vietnam will eventually reduce or be interrupted. Eurocham believes that the key to achieving long-term sustainable economic development is to shift from exporting low added-value products to high value-added or more complex ones, especially high-tech and innovative items. Thus, in 2011, Vietnam should focus on economic competitiveness while seeking solutions for the sustainable development of the country.

 

Eurocham thinks that Vietnam's ability to sustain high economic growth over the long term will depend on how the Government will implement and maintain actions from now on in some key areas like infrastructure. Vietnam needs to further modernise roads, seaports, power plants and other infrastructure to maintain economic development.

 

Eurocham believes that the five main issues for Vietnam in 2011 are: improving the legal investment framework, particularly the timely and predictable licensing of investment projects; protecting and enforcing intellectual property rights (IPR) more effectively; improving working skills and productivity in Vietnam, particularly improving vocational and university education; upgrading infrastructure and energy supply sources and further encouraging long-term executable public private partnership projects; and continuing administrative reform at the national and provincial levels. In general, structural changes aimed at enhancing the efficiency of the economy in the long term must be maintained in Vietnam’s action programmes, particularly in continuing the equitization of State-owned enterprises (SOEs).