H.E. MINISTER VO HONG PHUC
MINISTRY OF PLANNING AND INVESTMENT OF VIETNAM
Question 1: Thank you for talking to www.business-in-asia.com. You are the Ministry of Planning and Investment in Vietnam. For those not familiar with this title, can you describe what your Ministry’s mandate is? Can your also explain how your Ministry interacts with cities and provinces in Vietnam in terms of promoting investment, licensing and overseeing business development in Vietnam?
Answer 1: The Ministry of Planning and Investment (the MPI) is the government agency that performs the state administrative function over planning and investment. The Ministry is responsible for: (i) giving a general advisory for strategies and helping to create a master plan for socio- economic development programs of the whole nation; (ii) mechanism and policies for economic management; (iii) domestic and foreign investment; (iv) industrial and export processing zones; (v) management of Official Development Assistance (ODA); (vi) bidding ; (vii) enterprise and business registrations; (viii) state management of public services with respect to the areas under the management of the Ministry.
According to the new Government Decree on the function, duties, power and organization of the MPI, the Foreign Investment Bureau and three Centers for Investment Promotion in three regions of the country have been set up in order to unite management of foreign investment, and heighten the effectiveness of investment promoting activities.
The MPI has responsibilities of conducting, co-coordinating ministries, branches and provincial People's Committees in formulating plans for calling for foreign investment; building up the investment promotion program; evaluating and granting licenses for investment projects that are under the Ministry’s authority; managing and assisting foreign invested enterprises in their operations; collecting information, data; analyzing and evaluating the foreign investment situation in order to make the foreign investment become an important finances in the development plan.
Since 1997, the authority to issue investments licenses has been delegated to the provincial People's Committees and Management Boards of Industrial and Export Processing Zones to grant investment licenses and manage investment operations. At present, there are 93 licensing points, comprising 61 provincial People Committees and 32 Management Boards of Industrial and Export Processing Zones that have been delegated the authority to issue investment licenses .
At the same time with decentralizing and authorizing to issue an investment license and manage foreign investment operations in order to simplify the administrative procedures and reduce fees for investors, Viet Nam has built up a mechanism to co-coordinate closely between the licensing points so that it can create an unity in the policy for attracting and using foreign investment
Question 2: Could you give us a little background about the Vietnamese economy this year? Specifically how did Vietnam do in terms of economic growth in 2002 and what are you projections for economic growth, inflation and trade in 2003?
Answer 2: Viet Nam’s economy has many effective changes in 2002. All the targets stipulated by the government have been achieved and over-fulfilled; the qualification of development in each branch and each economic region has been raised.
The growth rate of the economy in the year 2002 was at 7.04%; in this figure, the fishery, forestry and agricultural sector increased 4.1%. The industrial and the construction sector increased 6.5%. It is the highest growth rate in the last five years (1998: 5.8%; 1999: 4.8%; 2000: 6.8% and 2001: 6.9%), since East Asian financial and economic crisis.
The structure of economic sectors and regions has continuously been changing in an effective direction, bringing into full play the advantages of each industry, economic region, and economic sector. The share of the agriculture, forestry and aquaculture sector in GDP has dropped from 24.5% (2000) to 23.2% (2001) and 23% (2002). The figure in the industrial and construction sector has increased from 36.7% (2000) to 38.1% (2001) and 38.5% (2002). The figure in the service sector is about 38.5%.
The active and dynamic operations of enterprises of all kind like the private and public, domestic and foreign, are taking place in every part of the country. At the end of the year 2002, there were 56,737 enterprises consisting of 5,231 state owner enterprises, 49,492 private ones and 2,014 foreign invested capital enterprises in the whole nation. The State economic areas account for 38.3%, private sector takes 47.8% and foreign investment sector is 13.9%.
The investment for development continues to increase quickly (10.4% in comparison with the year 2001) and now accounts for 34.3% of GDP. This is also an important factor that created a better growth rate in 2002’s economy in there, the foreign investment capital accounts for about 30% (including ODA and FDI). Thanks to the active and flexible implementation of monetary and financial policies, pursueing closely the market situations altogether prices were stable; 2002’s consumption index increased 4%.... Accordingly, along with the economic development, the people’s purchasing power is raised, increasing 11.4% in comparision with the year 2001.
During the first six months of the year 2003, Vietnam’s economy continues to develop in an active way, although it has coped with a lot of great difficulties and challenges, especially the bad economic effects of the Iraqi War, SARS epidemic, and droughts that occurred in some areas
The economic forecast shows that GDP will maintain a good growth rate in 2003. GDP is estimated to increase over 7%. The industrial manufacturing value keeps raising and the figure is capable to reach over 15% (the highest level in many previous years) because of an increase in manufacturing of products which have a favor by consumers and have their own markets for sale.
In respect of the agriculture sector, we continue carrying out the solutions for restructuring production, taking the initiative in preventing natural disasters and assisting in providing investment capital for people. Because of this, the production value of the agricultural, forestry and fishery sector is predicted to increase by over 4.5% in comparison with the year 2002, taking parts in improving lives of the rural area where is the home of 75% population of the whole nation.
For the service sector, we have been pushing the rate of development of tourism, air cargo, oceanic shipment, telecommunication, financial and banking services. In this regard, we concentrate on promoting the services for the 22nd SEAGAMES which is organized in Viet Nam in December 2003. It is forecast that the services value will increase around 7% in comparison with the year 2002.
In 2003, in the context of implementing Vietnam – US Bilateral Trade Agreement, AFTA’s tariff cut down, and other trade agreements as well, we continue developing the great value export items, first of all are aquatic products, sewing and knitting wear, leather for shoe-making, crude oil, rice, coffee, fossil coal, electric products and spare parts, engineering products, fruit and vegetables and handicrafts. At the same time we will expand exporting some new items like: electric lines and cables, plastic items, bicycles and spare parts, wood work. We also intend to intensify our efforts to increase profits from huge powerful purchasing markets, especially the US and EU’s markets. We concentrate to explore more new ones in Africa (It is predicted that Vietnam will export from 500,000 MT to 600,000 MT of rice to this market). As a result of this, according to the forecast, the export turn-over would achieve 18.7 billion USD, an increase of 11.9% in comparison with last year.
The government would continue to implement flexible monetary and financial policies; consumption price index would be controlled at the level of 4 to 4.5%.
Question 3: From my six years living in Vietnam and working with Vietnamese as well as my many trips there, I know how competent and hardworking most Vietnamese are. What are the comparative advantages Vietnam offers a foreign investor looking for a site to relocate his or her manufacturing or other operations? Given the above factors, which types of business has Vietnam been most successful in attracting? Could you give examples of factories that have recently relocated or commenced operation and the size of investment and sectors represented?
Answer 3: First of all, I would like to confirm that the Vietnamese Government has considered the foreign investment sector as an integral part of the Vietnamese economy and created favorable conditions for long-term development of this sector on an equal basis with the other economic sectors. Foreign investors may find the following comparative advantages of Vietnam's investment environment:
While the political and economic situations in many countries in the Southeast Asia region -as well as the entire world -have gone through a number of complex changes, Vietnam has emerged as a safe and attractive location for investment with a stable social and political environment. It is not by coincidence that one Australian newspaper spoke of Vietnam as "a safe heaven for ships during storms." Moreover, we are proud of our dynamic economy, which has had high and continuous growth rates. In the last ten years, Vietnam has doubled its Gross Domestic Product while its export growth rates have increased by 20 percent per year -one of the fastest in the world. The continued growth of domestic savings is an important condition for Vietnam to bring into full play its advantages in attracting foreign capital resources.
When coming to our country, you will have access to all the resources you need to foster business success and profit growth. We possess not only a profound amount of natural resources, but also a young, skillful and motivated labor force of approximately 45 million people. To wit, Vietnam is very suitable for those wanting to find affordable labor in Asia: the average salary of Vietnamese workers and engineers is equal to 60 to 70 percent of that of Thailand and China; 18 percent of Singapore; and three to five percent of Japan.
Meanwhile, Vietnam is committed to building up an attractive, transparent, stable and equal business environment for all of its economic sectors. The market economy structure has been formed, has developed comprehensively and is heading towards further trade and investment liberalization. The renovation in financial and monetary sectors have been stepped up through the restructuring of the banking system and flexible adjustment of exchange rates, reform of expenditure and collection of revenues for the budget, renovation of the tax system and so forth. The policy of development of economic sectors has and creates conditions to raise many resources for socioeconomic development, especially after the promulgation of the Law on Enterprises. Administrative reform continues to be implemented, aimed at enhancing the efficiency of State administration and transparency and openness of the system of laws and policies.
With the goal of joining the World Trade Organization by 2005, we are moving toward a stable, transparent and free trade and investment relationship with every country and region in the world. And by fulfilling the commitments within the framework of the free trade agreement of the Association of Southeast Asian Nations, known as AFTA, Vietnam will serve as a gateway to what is to become a free trade region of more than 500 million people and a bridge to a massive market of 1.3 billion Chinese consumers.
Finally, the framework of laws and policies on foreign investment in Vietnam continues to be improved and is evaluated as an attractive and competitive one in comparison with other countries in the region in terms of accessibility to the market and system of incentives applicable to investments.
During recent years, there have been newly licensed projects, which are under operation, of which the followings are worth mentioning: -
- Contract for building and operation of Nam Con Son gas pipelines, with total registered investment capital of USD 607 million.
- Metro Cash & Carry Vietnam Co., Ltd. (processing, reservation and wholesales of agricultural products), with total registered investment capital of USD 120 million.
- Canon Vietnam Co., Ltd. (manufacturing printing machines for export), with total registered investment capital of USD 76.7 million.
- Phu My 3 Power Company (operating a power plant of 716.8 MW), with total registered investment capital of USD 412.85 million.
- FORMOSA Co., Ltd. (operating an industrial complex including power plant of 150MW, water treatment plant, textile fabric materials plant), with total registered investment capital of USD 270 million.
- The 21st Century International Development Company (building and operating a resort and associated services), with total registered investment capital of USD 48.7 million.
- Saigon Sports City Co., Ltd. (building and operating a center for recreations and sports trainings), with total registered investment capital of USD 130 million.
- T2 Danang Global Co., Ltd. (processing information technology software, electronics, semi-conductors), with total registered investment capital of USD 30 million.
Question 4: Obviously Vietnam competes directly for Foreign Direct Investment (FDI) with China, Thailand and other countries in the region? What benefits does Vietnam offer over China or Thailand as a place to locate a factory or manufacturing operation? No country can expect to be the top choice in every field; Thailand has targeted the Automobile and Spare parts field, Agriculture and food processing, Fashion and certain other sectors. What fields in Vietnam targeting and which areas would you point out to investors as the best opportunities for their investments?
Answer 4: We are well aware that in order to attract more effectively foreign investment in the present situation when competition for attracting investment capital is extremely competitive that the environment for investment in Vietnam needs to be improved in a better manner than not only in the past but also in comparison to other countries in the area. With a view to realizing such a target, we have been taking following measures:
a. Improving the business and investment enviroment as followings:
- Continuing to revise legal instruments on foreign investment in a manner that creates attractiveness, stability, and transparency by gradually building a common legal framework for both domestic and foreign investors.
- Building a system of policies and mechanisms to improve comprehensively the business environment towards continuing to reduce the costs, fees of a number of goods, services; amending the policies of land, foreign currency and tax.
- Diversifying investment forms to deploy more channels for attracting investment through conversion of a number of foreign invested enterprises into operation under the form of shareholding companies; progressively opening markets for real estate business, commerce and services in accordance with the Vietnam's process of international economic integration.
- Investing for infrastructural improvement of electric power, water, information ... and heightenning the quality of financial, banking, technological services in order to creat good conditions for business activities, and to cut down the cost of production
b. Carrying out the reform of administrative procedures and raising the effect of the state management for foreign investment as followings:
- Enhancing the capacity of the state administration at various levels, expanding the authority and duty of provincial People's Committee and Management Boards of Industrial Zones to timely settle all difficulties in business operation of foreign invested enterprises.
- Simplifying administrative procedures to save time, business expenses and to give investors confidentiality; reviewing and abolishing unnecessary regulations and permits that are hindering enterprises' activities, enlarging the project -category that are entitled to registration regime for investment license with simple formalities.
- Investing in improving infrastructures in terms of electricity & water supply, information and raising up the quality of financial, banking and technical services and technology to create favorable conditions for business.
- Training, heightenning the state administrative officials’ abilities in foreign investment
c. Pushing and raising the effect of the operation of promoting investment into the key fields and target areas; improving, enhancing the information supply on laws, policies and investment opportunities in Viet Nam.
Viet Nam has been making efforts to attract foreign investment in order to gain the following targets:
- Building Viet Nam as a center of producing electric, electronic products, information technology, and mechanical production to supply both the domestic and foreign markets.
- Developing a number of high technology industries such as producing electronic components, devices for use in industry, health service; technology of manufacturing, electronic measuring devices, telecommunications; high technology in the industries of mechanic manufacturing, producing precise instruments, measuring and analyzing instruments.
- Developing infrastructures such as electricity, water supply, telecommunications, roads, seaports, waste processing, developing system of health service and education.
- Promoting projects of using resources, materials on the spot; raising, cultivating, processing aqua products, agricultural products and food-stuffs.
Question 5: Many countries offer tax incentives, cheaper land prices or other incentives to foreign businesses to invest in their country and create employment for the local populace. Does Vietnam offer benefits such as these and if so can you describe what the benefits are and how a foreign investor can best research these types of investment?
Answer 5: With a view to enhancing the attractiveness and competitive edge of Vietnam in attracting foreign investment, Vietnam applies the following incentives:
- Applying corporate income tax at the lowest level in comparison with other countries' in the region (the standard rate is 28 % and the preferential rates ranges from 10%-15%-20%).
- Exempting import duties in respect of imported goods to create fixed assets (such as machinery, professional means of transport, construction materials that are not produced locally); allowing enterprises to carry their losses forward within a maximum period of Five (5) years.
- Exempting from import duties in respect of raw materials, supplies and components for production for five (5) years from the time when production commences for the projects included in the list of especially encouraged investment sectors or investing in regions with especially difficult socio-economic conditions. Raw materials, spare parts, parts and materials imported for production of goods for export shall be exempt from import duties
Question 6: Vietnam has a very big neighbor to the North (China), that is continuing to grow rapidly and that is now at a much higher level of development (at least in the coastal areas and large cities) since it started its opening in the 70s as compared with Vietnam which really didn’t start to take off till the 90s. How is China’s low cost manufacturing both a competitive factor to Vietnam and how does it’s growing middle class markets offer opportunities to companies locating in Vietnam?
Answer 6: The start date of reforming is not the most essential factor. The more important thing is to do it in the right way and to achieve the planned results. In the 1970s, Viet Nam’s situation was completely different with China’s. After suffering from two-consecutive wars which lasted 3 decades, Viet Nam concentrated its efforts to rebuild its economy which had been destroyed by the wars. When the centrally – planned mechanism showed obvious short – comings in the peace, Vietnam has perceived the necessity to reform. From experiment in domains of agriculture and industry, Vietnam has started to carry out renovation and the reality has shown fundermental reforms that have been maintained until now The achievement is great and recognized widely by international organization and foreign investors in Viet Nam.
Viet Nam is one of the nations which has the highest economic growth rate in the world. In the period 1991 – 1997, Viet Nam’s GDP growth rate was 8.4%; for 1998 – 2002 it gained the average growth rate of 6% despite of being influenced by the East Asia ‘s financial economic crisis. The rate only ranged behind China’s. Within 10 years, 1990 – 2000, the national income per capita doubled, in comparison with GDP, the saving rate increased from 8.5% to 27%, the investment rate as compared with GDP increased from 16% to 27.8%. Investment increased triple under the fixed price, from 12% of GDP in the late 1980s to over 30% in 2001. Among them, foreign investment capital accounted for one fourth of the total society’s investment, this figure in the non-state sector was one fourth, which created nearly 50% GDP. The private economic sector developed quickly which created jobs for 1.75 million people, after the Law on Enterprises came into effect in 2000.
After a long period of hyperinflation, the macro economic situation maintained stability for years. The inflation dropped from over 776% in 1986 to a single figure in the beginning of 1990s and has always been kept under 6% since then. The budget deficit is always below 5% GDP.
The export turnover increased quickly at an average rate of over 25% per year, a much higher level than that in many developing countries. The trade opening level is rather high: the import-export turnover as compared with GDP is equivalent with 120% GDP; the number of enterprises registering for export increased from 3500 in 1998 to over 20,000 in 2002. Industrial items for export came from a very small amount before 1990, and started to increase during the years of 90', now it achieves around 70% of the total import- export turnover.
The economic structure has shown an outstanding move. In the period of 1991 – 2002, agricultural value dropped quickly, from 40% to 23%, industry had the most increase, from 24% to 39%, the services had a low increase, from 36% to 38%. The manufacturing industry increased 10% a year in the period of 1998 – 2002 on average. The total industrial productivity increased at a higher level of 14%, in the same period. Many new industries and new products have appeared.
The achievement of hunger eradication and poverty reduction of Viet Nam is remarkable. The poverty household proportion under the international standard was 58% at the beginning of 1990s, now the figure is about 32%. 95% of the children come to school at the required age; the number of rural households using clean water has been doubled. Eighty-eight percent of the villages have electric lines, 95% of the villages now have their car-roads to the village centre.
Factually, Viet Nam has gained great achievement from its reform. However, it’s also the fact that China is moving faster than Viet Nam in reforming generally, and heightening the competitive capacity particularly.
The low cost of production of China is an important factor for competition with Viet Nam. Although China has shifted to compete by high technological products and the unique nature of the items, it still uses the low cost of productions. Obviously, this is one of the advantages of Chinese products in the context that the purchasing power of the domestic market in Viet Nam is said not to be high. With cheap price and a medium quality, this helps Chinese products control the market. Similarly, Chinese products are competing with Vietnamese ones with features of hi-tech, of being unique and cheap with normal quality in the market of the third country.
At the present, Viet Nam exports mainly the materials to China like: rubber, fossil coal, crude oil, metal and agricultural items such as: sea food, vegetable and fruit. Viet Nam’s enterprises could meet the demand of Chinese middle-class as investors and consumers as well. As an investor, the business scale of this class is suitable for Viet Nam’s enterprises. Vietnamese tourism with its beautiful places, reasonable prices is also a remarkable and potential market for Viet Nam’s enterprises to explore.
Question 7: This year is the first full year under the Bilateral Trade Agreement (BTA) with Vietnam. As we understand it, the implementation of the BTA has had a substantial impact on Vietnam’s trade and investment. Could you explain to us how the BTA has effected Vietnam’s trade; who your major trading partners are and how the BTA has changed the customs duty charged on Vietnamese goods going to the U.S. and will also in the future affect the customs duties charged by Vietnam on the import of U.S. goods?
Answer 7: The Asian market occupies a special position in Vietnam trade (taking up 50% of export turnover and 80% import turnover). Now, the five biggest trading partners of Viet Nam are all in the region (Japan, China, South Korea, Singapore, and Chinese Taipei). The geographical propinquity and trading culture plays an important role in this. However, trade of Vietnam with the Asian region will likely gradually reduce because trade with the US has increased after the BTA went into effect.
According to the BTA, the two Parties agreed to grant each other the status of “Normal Trade Relation-NTR (also called the Most Favored Nation-MFN). This means that Vietnam’s goods imported to the US now are granted treatment, which is not less favorable than that imported from any other third country. In return, Viet Nam also grants the US goods a similar treatment which is not less favorable than that it accords to goods imported to Vietnam from any other country.
With a view to realizing the above -mentioned commitments, within 3-6years, Vietnam will reduce and keep customs duty rates for 244 items of imports from the US with the average level reducing from 35% to 26%, of which 20% is industrial products, 80% is agricultural products. The mechanism of surcharges and price- difference collection for all items of imported goods are also abolished right after the Agreement came into effect, except steel (will be abolished after 3 years). After 2 years, all items of fees and charges relating to import-exports are maintained at the level that is equivalent with expenses for supplying services; procedures of determining customs valuation of import duties and are applied in accordance with the principles of GATT Agreement on Customs Valuation. In addition, after one year, Viet Nam committed to apply its tariff schedule in accordance with Harmonized System (HS) provided by the World Customs Organization.
For the US, right after the date of entry into force of the Agreement, the US applies MFN tariff rates to goods imported from Vietnam (averaging about 4%); much lower than the ordinary rate (averaging previously about 40%-50%). Tariff reduction for goods imported from other countries by virtue of the negotiating results under the framework of the WTO (if any in the future) will be also applied to Vietnamese goods although Vietnam has not yet become a member of the WTO. Moreover, the US is also prepared to grant Vietnam with the status of “General Service Preferential"(GSP) with tariff rate of 0% in respect of a certain number of products.
The implementation of the BTA has opened promising business opportunities for enterprises of both countries. However, Vietnam's export turnover into the US market had been quickly increasing even in the situation when the Agreement had not officially come into effect.
In 2001, export turnover of Viet Nam into the US reached US$ 1026.4 million in comparison with US$ 827, 4 million in 2000, increasing 24%. This is a good signal, expressing active reactions from enterprises to the development of trade relation between the two countries, especially after the Agreement were ratified. Meanwhile, it should be noted that US’ exports to Viet Nam also increased considerably in the year 2001(an increase of 19, 2% in comparisons with the 2000)
In 2000, the total bilateral import-export turnover between the two sides of Viet Nam and the US reached more than US$ 2.8 billion, an increase of 95.0% in comparisons with the same period of 2001. Of which, exports of Viet Nam to the US gained US$ 2421.1 million, an increase of 127, 3%, imports from the US reached US$ 457.5 million, an increase of 11.3%. This is a high growth rate since the normalization of the two countries (average growth rate in 1995-2001 is about 25%). In spite of the high growth rate, bilateral trading turnover occupies just about 0.156% of the total of US foreign trade turnover in 2002 ( about 1850 billion USD), still lower than some other countries' in the region ( Thailand, Indonesia, etc.)
In the first quarter of 2003, Vietnam’s exports to the US reached US$ 897.5 million, increasing nearly about 240% in comparisons with US$ 265 million in the first quarter of 2002, of which the products that give the largest turnover are garments, seafood, crude oil and footwear. Imports of Vietnam from the US in the first quarter of 2003 reached US$134.5 million, an increase of 40.7% compared with US$ 95.6 million for the first 3 months of 2002. The imported goods that have the largest turnover are machinery- devices-accessories; in the first quarter of 2003, it reached US$ 39.4 million.
Of imported goods from Viet Nam to the US, a number of goods have increased sharply such as garments (increasing more than 20 times), computers and electronic single parts (increasing more than 480 times), bicycles and bicycle accessories (increasing 80 times) , plastic products (increasing more than 3 times), furniture ( increasing nearly 3 times), artistic handicraft wares, etc. These products have gained high growth levels because of the large gap between MFN tariff and non-MFN tariff rates of the US. Once the Agreement went into effect, with the low MFN tariff, these goods could strongly enter into the US' market.
Some other products such as agricultural products including seafood, cashew nut, pepper, rubber still maintain the considerably high growth rate, but such a growth is obtained by market' demand, not by the Agreement because for these products, MFN and non-MFN tariff rates are slightly or even not different to each other in many cases. Some of the preliminarily processed items such as crude oil and rice have seen their export turnover reduced following the drop of market demands.
In the 2002, imports of Vietnam from the US increased, but at the modest level of 11. 3% (much lower than the export growing rate by Viet Nam’s exports to the US). Except for cars, some imports from the US increased partially to meet domestic production demands (such as steel, fertilizer,) and to supply materials for producing exports to the US ( electronic and computer components , plastic materials, etc.)
The BTA also has great attractiveness to the American and other countries' companies to invest in Viet Nam as a base to export to the American market. At present, the foreign invested sector has accounted for a large proportion in export and production capacity of many products that have potential to be exported to the US market such as: garment, footwear, seafood, foodstuff, furniture.... Therefore, foreign investment flows in general, and that from US in particular into the above-mentioned industries have been enjoying the opportunity of high growth .
Since the trade embargo was lifted, there have been 187 US investment projects that have been licensed with total registered capital of US$ 1.6 billion, ranking 10th among 74 countries and territories that made investments in Vietnam. A part from that, there is a number of US companies investing in Vietnam through their affiliates and branches that are registered in the third country or territory (British Virgin Islands, Singapore, Holland...) According to initial statistics, 24 US multi-national consortiums ( graded in Global 500) have invested 31 projects in Vietnam with total capital of US$1.3 billion
Just in 2002, 34 US projects were licensed with the total registered capital of US$ 139. 67 million, reaching the 4th rank ( after Taiwan, South Korea and Hong Kong who have been Vietnam's partners of largest FI proportion.) among 74 countries and territories that have investments in Vietnam. The majority of US projects granted with licenses before signing the BTA (July 2000) concentrated on producing items that have favorable conditions for exporting to the US; among them, 9 are for garment, 6 for wooden furniture , handicraft and fine-art and processed agricultural products.
Question 8: In your opinion, has the BTA affected the interest of U.S. and other countries in opening factories or starting businesses in Vietnam? Could you give figures on Foreign Direct Investment (FDI) by the top five investing countries in Vietnam and project how you see these figures developing in the coming year? Also, if you see them improving or decreasing can you mention what factors are driving this development?
Answer 8: By June 30, 2003, taking just valid projects, the five countries and territories that made the biggest investment in Vietnam are: Singapore with 279 projects of that the total registered capital is US$ 7.3 billion and the disbursed capital is US$ 3.7 billion; South Korea with 582 projects of that the total registered capital is US$ 3.9 billion and the disbursed capital is US$ 2.2 billion; Hong Kong with 277 projects of that the total registered capital is US$3.0 billion and disbursed capital is US$ 1.8 billion. So investment by these five countries has occupied more than 60% of the total registered capital (US$ 24 billion of totally more than US$ 39 billion) and 57% of the disbursed capital (US$ 13 billion of totally US$ 22 billion) of 62 countries that have projects in validity.
In the recent period, active improvements of law and policies together with implementing bilateral and multilateral international commitments are important factors contributing to strengthening foreign investors' confidence in the attractiveness of Vietnam’s investment environment, opening new opportunities to attract foreign investment with a greater quantity and better quality.
Question 9: Vietnam has a large number of overseas Vietnamese in Europe, the former Soviet Union and Eastern Europe, the U.S. and elsewhere. Many of these so called “Viet Kieu” (overseas Vietnamese) gained business success in their country of residence. Many have gained advanced degrees and also have key skills that could assist Vietnam in its development. Can you describe what incentives that Vietnam is offering to these individuals to return and invest in Vietnam?
Answer 9: The Vietnamese overseas community is an integral part and an important resource of the nation. We always highly appreciate the potentials and contribution by the Vietnamese community abroad to national development. With their cultural practice, language, consumption habits and strength in terms of capital, wisdom, community of Vietnamese nationals abroad creates not only a market for Vietnamese traditional exports, but also a potential source of investment in the country.
Thus, we have been taking many important measures to create favorable conditions for overseas Vietnamese to return to live and do business, such as applying investment preferences at the highest level in the framework of either the Foreign Investment Law or Domestic Investment Encouragement Law; allowing buying houses for their living in Vietnam; simplifying procedures for their entry, travel and residence; establishing assistance funds, etc.
In the time to come, we will continue to encourage attracting investment by the Vietnamese overseas community in the following orientation: (i) narrowing and eventually abolishing the the gap between the overseas Vietnamese and Vietnamese people in Viet Nam; (ii) providing additional incentives to encourage Vietnamese nationals abroad to invest in the country, especially in IT, education, health service, development study, tourism sectors...;(iii) creating more favorable conditions for overseas Vietnamese to enter, reside, travel and live in Vietnam.
Question 10: Vietnam is a member of the Asia Free Trade Area (AFTA), APEC and is seeking to enter the World Trade Organization (WTO) at a very early future date. To comply with its WTO commitments, China even after nearly thirty years of development has to substantially change the way it has done business in the past and has had to rewrite many laws, change many government procedures and even outlaw certain previously followed practices. Given that Vietnam is much earlier in its transition to a more internationalized and open trading system, do you feel that Vietnam will be able to make these changes and meet the early target dates announced for WTO entry? Also, how will the changes required by WTO entry affect current business procedures in Vietnam and ultimately the climate for investment in your country?
Answer 10: Although Vietnam started the renovation process later than China, I think that it is necessary and of favourable conditions for Vietnam to change its economy in the orientation of more opening and more internationalization. China has experienced nearly 30 years for economic reform and a 13-year negotiation for entering WTO. Vietnam owns many similarities with China in terms of its political and socio-economic system. I do believe that given its own specific conditions, particularly in the present situation; Vietnam can negotiate to join WTO in a shorter time than China has done.
In fact, since the renovation process was started 15 years ago, Vietnam has carried out the reform of its economy and law and policy system in the orientation of making them more and more suitable with international conventions and regulations. The efforts in implementing the BTA as well as other international commitments in the recent period are evidence showing that Vietnam is approaching building stable, transparent, and freer investments and trade relations with WTO members. In the mean time, Vietnam also expects to enjoy differential and preferential treatment as well as technical assistance extended to a low- level developing country. The efforts made by the Vietnamese Government and goodwill of WTO members make Vietnam's target of joining WTO by 2005 realistic.
The active negotiation of Vietnam for WTO accession shows an active signal to the foreign investment community of the strong determination by the Vietnamese Government in pushing forward the process of economic reform and deeper integration into the world economy. Commitments to be made by Vietnam in the WTO's framework will create more favorable conditions for foreign investors to get broader access to Vietnam market of goods, investment and services, simultaneously to contribute to establishing an effective legal framework to protect intellectual property rights and to improve the business and investment environment in Vietnam towards ensuring its stability, transparency and predictability.
Question 11: Speaking of the many changes that will be required in all areas if Vietnam is to successfully enter the WTO, the World Economic Forum (WEF) ranked Vietnam’s national competitiveness at 65 out of 80 countries in a review last year as compared to 60 out of 75 in 2001. This seems to denote that Vietnam is not making much progress in improving its overall competitiveness. Does the Vietnamese government and your Ministry agree that much remains to be done to improve Vietnam’s overall competitiveness and can you mention what specific steps are being taken in this regard?
Answer 11: The evaluation by the World Economic Forum (WEF) brings a good reference value to investors and governments. In the WEF's 2002 report, Vietnam was listed 65th among 80 countries in competitive capability for growth rate and 60th among 80 in present competitive capability. In 2002, they were respectively 50th among 75 and 62 among 75. Theway of ranking is based on series of complicated criteria; 50% of those are factors of science and technology, 25% is of macro economic stability, and 25% of public institution. In such a comparision, Vietnam is ranked low. So, it is not yet appropriate to remark that Vietnam has not yet made progresses in raising up its national competative capability.
In fact, these recent years have seen Vietnam making a lot of headway. According to the opinion by WEF, Vietnam is ranked high when taking the component index of its national competitive capability. Although in 2002, Vietnam was just ranked 65th, its macro economic environment index - one of 3 component indexes - was relatively high, 37 with the stable micro economic index ranked at 19. In comparison with that of 2001, Vietnam has gone forward four grades in terms of macro economic environment; for institutions, 6 grades; and for technology, 2 grades. For the present competitive capability index, Vietnam has gone forward 7 grades compared with that of 2001. In 2 component indexes, the one of strategy and enterprise business has been 2 - grades improved - that for business environment has been increased for 9 grades. Not all these gains within one year are small.
On the other hand, the picture looks more optimistic in making comparison with other developing countries those who share equivalent development level with Vietnam. About one thirds of total 80 countries that were ranked in 2002 and 75 in 2001 are the developing countries. In addition to that, in the evaluation indexes of competitive capability; market scale, purchasing power in reality are not taken into consideration; so that some small countries are higher ranked; not reflecting the correct comparative competitive capability among various countries. For example small economies like Singapore or Finland were very highly ranked; while the economy of Japan - the 2nd biggest one in the world - was ranked low. Although China was not granted a high position, it has attracted lots of foreign investment due to its huge domestic market and some other advantages as well as the highest export growth rate in the world.
Moreover, the WEF‘s evaluation still contains a number of subjective factors. To build such a rank-list, the results of interviewing 1500 biggest international companies working in various economies, were used together with evaluating following the criteria and data. The scores of the survey interviews already made about 50% of the indexes for evaluating competitive capability.
Certainly, we are well aware that there are still many things to accomplish in order to enhance overall competitive capacity of Viet Nam. To that end, MPI and other relevant ministries and industries have built up a Program for Enhancing the National Competitive Capacity of Viet Nam which contains three major groups of solutions as follows:
- The Group one aims at completing the institutional framework and economic management of the Government towards reviewing legal documents, abolishing the discriminatory treatment among different economic sectors, gradually forming an uniform legal framework for enterprises of various economic sectors; building competition laws; enhancing publicility and transparency by announcing properly and timely legal documents and administrative procedures in official gazette and building " E- Government".
- The Group two aims at completing investment environment, macro- economic environment and changing economic structure towards pushing up implementing Enterprise Law; reviewing present business licenses and business conditions applicable to the industries in which business operation is conditional; enlarging forms of attracting foreign investment; specifying and narrowing sectors in which foreign investment license is not granted, and the sectors in which foreign investment is conditional adjusting the state - investment; amending and supplementing plans, strategies for developing industries and localities; concentrating on building infrastructure, building synchronized programs to heighten competitive capability for a number of products and services, increasing the investment for agricultural and rural development; reducing state budget's investment into business, not yet made investment in products that have neither competitive capability nor consumption market, when producing capability of other economic areas is big enough.
- The Group three aims at improving the business environment, reducing expenditures and raising up the quality of products and services towards enlarging competition in building and supplying infrastructural services, firstly for SEOs of various branches and provinces; expanding bidding for the right of supplying services; separating business session from monopoly and duties of implementing social policies; abolishing extra taxes and adjusting taxes equivalent with the average level in the region; changing into tax self - declared mechanism, developing services of tax consultation; pushing up the process of unifying prices and fees between domestic and foreign investments; taking into consideration the contribution to social, health insurance and labor union's fees
Question 12: One of the stated goals of AFTA is the creation of a larger market for Southeast Asia in which products will more freely flow from country to country in the region. As part of this, reduction of inter-Asian customs duties toward a five percent level is a goal that is being implemented across the region. The benefit of having a larger group of consumers to sell your goods is something any business person would support. The increase in competition though may be difficult at first. Recently several Vietnamese government observers have pointed out that Vietnamese companies have not sufficiently focused on the changes in customs duty required and how it will affect their company’s overall competitiveness in a larger Southeast Asian market. How important is intra-Asia trade to Vietnam and do you share the concerns above and is the MPI or other Vietnamese Ministries working with Vietnamese companies to help them meet these coming challenges?
Answer 12: Obviously, all business persons desire larger consumption markets although investment capability is limited. Actually many of Vietnam’s companies have not yet paid enough attention to the effects of reducing and cutting tariffs to their competitive capability in the larger Asean market, but it does not mean they are not aware of importance of the Asean market.
Vietnam's companies might have not taken care of conquering the Asean market as other companies in the region, partly because the financial capability of Vietnamese companies remains limited. Moreover, Asean companies that have much greater economic strength than Vietnamese companies will create a strongly competitive pressure in Vietnam's market. It is certain that Vietnam's companies are well aware of this competitive pressure, especially import-export companies, and they are preparing to encounter hotter competition at all levels
Vietnam's government is well aware of the challenges that will be presented when the Asean Free Trade Area (AFTA) is comprehensively formed and enlarged into Asean +China, Japan and South Korea. With that view, the Government has instituted the Program for Enhancing the National Competitive Capacity of Viet Nam as above mentioned with the target of finding out solutions for improving its overall national competitive capability in respect of goods and services, of enterprises. The above-mentioned solutions are conclusions given by that Program.
The state helps enterprises in two directions: (i) improving business environment, macro – micro economic environment; (ii) implementing direct assistance solutions but not subsidizing. The improvement of the business and macro-economic environment helps the enterprises gain more initiative in their business, become more active and flexible in competition, and at the same time it helps restraining the negative factors that enterprises can not be able to control but that create very bad effects to their competitive power. The MPI has effectively worked in the first direction. The Ministry both initiates amendments, reforming in general, and directly implementing amendments to the regulations under its authority, for example: issuing Law on Enterprises, amending Law on Foreign Investment, etc.
Recently, for the second direction, MPI has founded the “Small and Medium Enterprises Development Department”. Its operations concentrate on providing market information for enterprises, training in management and some financial assistance programs. At the same time, the Government also formed the “Committee for Promoting Small and Medium Enterprise Development” which consists of many representatives of many ministries and branches concerned in order to assist SMEs in solving the inter-branch problems that are not under the MPI’s authority.
About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.