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INVESTMENT

What challenges Vietnam on way to become potential investment hub?

Updated at Tuesday, 05 Mar 2019, 15:44
The Hanoitimes - The Vietnamese leadership seems to have been inspired by Singapore and the Nordic countries which would ensure more sustainable and equitable growth.
Vietnam is striving to become a potential investment hub, a process inspired mostly by the US-China trade tensions driving more capital flows from China, and the US-DPRK summit that has drawn attention of the whole world. 
 
Vietnam's GDP growth rate compared to Southeast Asian peers. Photo: Oxford Economics
Vietnam's GDP growth rates compared to Southeast Asian peers. Photo: Oxford Economics
The Hanoi summit will likely drive more foreign direct investment (FDI) into Vietnam, thereby sustaining the country's fast-growing economy. But in the long run, the country cannot rely on such windfalls.

Leaders recognize both opportunities and challenges for the process, addressing a series of problems to overcome, mostly threats of graft, according to Tran Le Thuy, a Hanoi-based journalist and researcher.

Anti-corruption 

 
Corruption perceptions index in Vietnam remains low.Photo: Transparency International
Corruption perceptions index in Vietnam remains low. Photo: Transparency International
Over the past three years, the party’s top thinkers have held a public discussion on attracting more capital into the economy. At the same time, they pointed out various matters namely combating corruption, reducing the state payroll, and improving the legal system.  

In crafting its new development plan, the Vietnamese leadership seems to have been inspired by Singapore and the Nordic countries. Its goal is to move from a model based on cheap labor and capital-intensive, high-pollution, industrial-based investment to one based on advanced technologies and services, which would ensure more sustainable and equitable growth, Thuy said in a recent article.

Judging from public statements, the leaders seem to have recognized that flagrant corruption and rapidly rising inequality pose a threat to the country’s development. 

Days after the Lunar New Year festival ended, Nguyen Bac Son and Truong Minh Tuan, two former Vietnamese ministers of communications, were arrested and charged with “violations related to management and use of public capital.”

The two officials were accused of approving MobiFone, a state-owned telecom company’s purchase of a private television provider for over four times its estimated value, causing a loss of around VND7 trillion (US$304 million) to the state.

Similarly, a few months ago, two police vice ministers, a minister of transportation, and a former head of the state petroleum corporation were all brought to court on charges of selling state property to private companies that caused big losses to the state. 

Taken together, these cases point to a high level of state capture, showing the Communist Party and state’s determination to fight against corruption which is believed to be rife in the Southeast Asian country.

Against this backdrop, the party launched its unprecedented anti-corruption campaign, while publicizing its efforts to fight “vested interests”. So far, the prosecution of some former high-ranking officials has alleviated public discontent. 

State personnel reduction 
Vietnam pursues administrative reforms. Photo: Slideplayer
Vietnam pursues administration reforms. Photo: Slideplayer
Since the beginning of this year, the Ministry of Home Affairs stated that it would take drastic measures to cut down as much as 44,510 employees in 2019. The move is part of the government’s target to whittle down state personnel by 10% by 2021. 

Vietnam has planned to cut down on 100,000 state employees between 2014 and 2020. The move is estimated to cost VND8 trillion (US$345 million).

Trimming state personnel is part of efforts to improve cumbersome administrative systems which are believed to result in bureaucracy and bribery in Vietnam. 

Local experts said that administrative reforms would solve lots of problems, including saving unofficial cost for businesses, speeding up administration procedures, and most of all gaining trust from investors. 

Institutional reforms 

 
Illustrative photo
Illustrative photo
One of the most challenges to foreign investor is the legal system. Those who are keen on investing in Vietnam for low labor cost, good security, and low requirements on environment protection, are utterly confused about legal interpretation. For them, Vietnamese laws need to be reviewed as legal documents are not clear enough to follow. 

Since the “doi moi” in 1986, Vietnam has issued a number of laws to regulate economic activities in line with market-oriented reforms. However, steps taken for institutional reforms remain weak that requires the country years later to make in order to follow the international laws. 

In terms of investment, it has built many laws and amendments namely Law on Enterprises, and Law on Investment to improve business environment. Gradually, it has to adjust legal systems to adopt international treaties, mostly trade agreements. 

After becoming a member of the World Trade Organization (WTO) in 2006, Vietnam has been required to transform into a global marketplace where its operations must follow international rules, economist Vo Tri Thanh said, noting that bold measures must be taken to address legal reforms if the country wants to be an investment hub. 
Linh Pham
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