1:32:09 PM | 5/26/2022
Foreign direct investment (FDI) enterprises highly appreciate positive improvements in the Vietnamese investment environment such as easing burdens of inspection and examination and positive changes in administrative procedure reforms.
However, Vietnam still needs to work harder to further reform the business investment environment to be an attractive destination for FDI flows.
The survey of foreign-invested enterprises in 2021 conducted by the Vietnam Chamber of Commerce and Industry (VCCI), a part of the business survey for the Provincial Competitiveness Index (PCI), showed that, despite being negatively impacted by the Covid-19 pandemic, Vietnam continues to be an attractive destination for foreign investors. In 2021, FDI inflows to Vietnam rose 9.2% year on year to US$31.15 billion.
Optimistic business prospects
The 2021 survey showed that 47.7% of FDI firms planned to expand operations in Vietnam, significantly higher in 2020 when only 40.8% planned this for the next two years. The renewed optimism of FDI enterprises was observed in most industries, both export-oriented and domestic.
According to the report, Among the 22 provinces where the survey was administered, three in the Red River Delta had the highest share of firms planning to expand: Ha Nam (65.4%), Quang Ninh (65%) and Hai Phong (60%).
The two others in the top five on this list were the northern mountainous province of Thai Nguyen (59.3%) and Bac Giang (58.1%). It is noteworthy that some provinces with a large concentration of foreign firms reported a below-average share of firms planning to expand, including Ha Noi (46.1%), Binh Duong (45.9%), HCMC (44.6%), and Bac Ninh (44.1%). Some provinces recorded rates of planned FIE expansion significantly lower than the national average, including Binh Phuoc (21.4%) and Da Nang (34.4%).
In addition, the Covid-19 pandemic changed the customer structure of FDI enterprises in 2021. The proportion of customers in Vietnam and exports to the country of origin decreased while there was a significant increase in the share of exports to third countries. According to the survey, the majority of FDI firms exported back to countries of origin (27.3%) or to third countries (31.2%).
The share of FDI firms supplying State-owned enterprises (SOEs) in Vietnam declined significantly from 9.2% in 2020 to 5.2% in 2021. The main customers of FDI firms are still other FDI firms in Vietnam, accounting for 48.4% in the face of a certain decrease from the previous year.
About 32.8% and 13.1% of FDI companies supply their products and services to domestic private enterprises and Vietnamese consumers, respectively.
Obstacles
Foreign investors reported mixed experiences with the regulatory burden in 2021. The median number of inspections dropped to zero in 2021, down from one visit in 2020 and two visits in 2019. The share of firms undergoing harassment (five inspection visits or more) drastically declined from 6.3% in 2020 to just 3.2% in 2021. These remarkable improvements likely resulted from the Vietnamese government’s Resolution 01/NQ-CP, dated 1 January 2021, on the key tasks and solutions to implement the socioeconomic plan and estimated state budget.
However, in 2021, when the pandemic developed complicatedly, companies were hard hit due to different understanding and interpretation of pandemic prevention and control regulations from locality to locality.
This caused many companies to incur an increased burden of compliance costs even though the central government always advocated effective adoption of the "dual goals" of pandemic prevention and socioeconomic development.
The share of firms spending more than five% of executives’ time to ensure bureaucratic compliance leaped sharply from 32.9% in the previous year to 60.6%. The median time for export clearance increased from one day in 2020 to two days in 2021. Similarly, the median number of days for imports to clear customs rose significantly from 2 days in prior years to 3 days in 2021.
While some areas saw easing administrative procedures, others were still exposed to more problems in 2021 than in 2020. Businesses struggled with such procedures as obtaining construction permits (36.9%), securing appraisal of fire prevention and firefighting (36.4%), writing environmental impact assessment reports or getting approval of environmental protection plans (35.7%), and decision on investment policy (28%).
The burden of informal costs tended to decrease but 1.7% of firms still reported paying more than 10% of business revenue in bribes in 2021, marginally increasing from 1.2% the preceding year.
Similarly, 5% of firms in 2021 spent five to ten% of revenue to pay informal charges while only 2.1% did so in 2020. These findings indicate the continued necessity of the administration’s stronger commitment to combatting corruption.
Specifically, the report showed that informal costs incurred by FDI firms were involved in import and export procedures (38.9%) and inspection (25.4%).
Notably, up to 21.1% of FDI firms had to pay informal charges for land procedures, a sharp increase compared to 10.3% in 2020. Pessimistically, according to the survey, 60.4% of respondents said that the work was solved as expected after paying informal charges.
Another difficulty faced by FDI companies was underestimated worker quality. Only 15% said that local workers are completely satisfied, 37% said that the quality of labor is acceptable and about 5% reported that it fails to meet employment demands.
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Despite making many improvements, Vietnam still needs to focus on reforming administrative procedures that are relatively troublesome for businesses, particularly relating to example, tax, fire prevention, import and export, investment registration and social insurance. Vietnam also needs to create more favorable conditions for businesses to carry out procedures for investment projects with constructions: Building permits, fire prevention, and environmental impact assessment. The fight against corruption and bad deeds should be further intensified, especially in some areas such as import and export, inspection, court proceedings and land administration. Infrastructure quality also needs to be further improved in the coming time. The quality of human resources needs to be further enhanced to ensure labor supply. These are also expectations of FDI enterprises on localities. VCCI's survey continued to reflect the fact that a majority of FDI firms are still small and medium in size, showing that many foreign investors are aiming to become satellites for large ones in Vietnam. The survey also recorded declining rates of FDI firms using three groups of domestic suppliers in 2021 as compared to 2020 and 2019. This signal showed that domestic companies are struggling to take part in supply chains led by FDI firms in Vietnam. Therefore, Vietnam needs to have more effective policies to facilitate domestic enterprises to integrate into global value chains as well as to take advantage of opportunities to connect with FDI firms to access modern technology and governance. |
By Dau Anh Tuan, Director of Legal Department, VCCI
Vietnamese
