A factory belonging to a foreign company in Hai Duong (Source: VNA)HCMCity (VNS/VNA) - Speeding up infrastructure development and improvingease of doing business and vocational training are among things Vietnam should doto make itself more attractive to foreign investors post-COVID-19, according toinvestment fund VinaCapital.
Don Lam, the fund’s co-founder and CEO, said, “Consultants expect 20 percentof China’s manufacturing sector to move out the country in the coming years.
“Not all of that will come to Vietnam, but the country stands to attract a goodportion of that for several reasons.”
They included factory wages in the country being less than half of those inChina though the quality of the workforces is comparable, Vietnam doing anoutstanding job in controlling the COVID-19 outbreak and ranking high invarious FDI decision making schemes that companies use to evaluate thepotential of a country for building factories.
Companies looked for some key factors when considering direct investment in acountry.
They wanted good supply of labour with skills and experience, logisticsconvenience in places they set up new factories so that they could easily shipin raw materials and ship out finished products, minimal bureaucratic obstaclesto setting up and operating factories, and political and economic stability.
Vietnam scored well in most of these aspects, and quickly improves in areas itdid not.
But there were several things it could do to become more attractive to investors.
Its logistics costs continued to be high, and it needed to quickly build andimprove physical infrastructure to rise in the World Bank Logistics PerformanceIndex from its current 45th position.
The Government also needed to improve the country’s position in the WorldBank’s ease of doing business rankings by streamlining the bureaucraticprocesses related to setting up and operating a business.
“In the most recent World Bank survey, Vietnam ranks 70th out of 190 countries,ahead of countries like Indonesia, and the Philippines but behind Malaysia andThailand.”
The Government’s recently announced ‘fast track’ initiative to speed up thelicensing of FDI projects was a good example of the steps it could take toreduce red tape and bureaucratic hurdles companies faced.
The Government should consider promoting quality FDI by setting up anInvestment Promotion Agency (IPA) to actively market Vietnam advantages as anFDI destination around the world.
The Government tended to approach FDI reactively and only worked with foreigncompanies that approached it though the Ministry of Planning and Investment andother relevant Government departments had become more aggressive in followingpotential leads.
Next, Vietnam’s vocational training needs to be significantly improved toensure that the workforce could perform tasks that require higher skill levels,and the country needed to invest in R&D and improve technical universities.
Finally, the Government could encourage the formation of industrial clustersaround desirable industries such as electronics.
This strategy would have the dual advantage of maximising Vietnam’s benefitfrom FDI investments and giving firms more confidence to locate their highervalue-added activities in the country.
According to VinaCapital, Free Trade Agreements help attract FDI to a country,especially when they entail measures that improve a country’s ease of doingbusiness. However, it is important to note that Vietnam is already a party tomore FTAs than any country in the world, it said.
Lam said, “Often countries use a range of tax incentives to attract foreigninvestment, and of course who does not like tax incentives? But offering overlygenerous tax breaks is not critical for Vietnam to be successful in attractingFDI.”
According to the IMF, tax incentives are “not critical” to attracting FDI and“…cannot substitute for political stability, good macroeconomic fundamentals,the availability of infrastructure, and a sound legal framework.”
Lam said his fund expected the next wave of FDI to be driven by companiesrelocating their factories out of China and have a bigger impact on Vietnam’s economythan previous inflows because multinational companies now had an incentive tohelp local firms “move up the value chain” to build supply chains in Vietnamcapable of supporting those companies./.
VNA
