Tapping the true potential of US investment into Vietnam
Tapping the true potential of US investment into Vietnam
Despite the quantitative and qualitative growth of US investment into Vietnam, much remains to be done to make the best use of this capital source. Minister of Planning and Investment Nguyen Chi Dung spoke with VIR’s Nguyen Duc about this issue.
In 2016, Vietnam and the US celebrate 15 years since the enforcement of the two nations’ Bilateral Trade Agreement (BTA). How has bilateral trade and investment co-operation developed over this period?
The establishment of US-Vietnam diplomatic relations in 1995 and the enforcement of the BTA in 2001 are two very important milestones which laid the groundwork for both sides to establish a comprehensive partnership for the sake of their citizens, peace, security, and prosperity in the region, and indeed globally.
Just two years after the BTA took effect, the US became Vietnam’s largest export market. This has been maintained ever since, with a two-way trade turnover of $41.3 billion last year, up 18.2 per cent year-on-year. Of this figure, Vietnam earned an export turnover of $33.5 billion from the US, making it the biggest exporter within ASEAN to the world’s largest economy.
The BTA has definitely served as a strong foundation for the two countries to enter new co-operation deals, including the Vietnam-US Textiles Agreement (effective since May 1, 2001), the US-Vietnam Bilateral Civil Aviation Agreement (effective since January 14, 2004), the Framework Agreement on Economic and Technical Co-operation (effective from July 28, 2005), and the Memorandum of Agreement on Co-operation in Agriculture and Related Fields (effective since June, 2005). Of particular note was the bilateral market access agreement signed by the US and Vietnam on May 31, 2006, and which was required as part of Vietnam’s ascension into the WTO.
Besides the flourishing trade, Vietnam also expected booming direct investment inflows from the US. However, to date American direct investment in Vietnam appears to be far below its true potential. What is your opinion on this?
American businesses have invested about $11.7 billion in Vietnam, ranking the US among Vietnam’s top ten foreign investors. Many giant American groups are operating successfully in Vietnam, including Intel, General Electric, Microsoft, AIG, Coca-Cola, and others.
However, it is very important to note that the $11.7 billion sum does not fully reflect US investment in Vietnam, because many large American companies such as Intel, Coca-Cola, Procter & Gamble, and ConocoPhillips have invested in Vietnam through their subsidiaries and affiliates based in other markets such as the British Virgin Islands, Singapore, and Hong Kong.
Despite encouraging figures in Vietnam, American investment here remains modest and below potential, especially compared to the investments by American companies in other regional countries, such as Singapore and Malaysia, and the capital registered by South Korean, Japanese, and Singaporean investors in Vietnam. One of the key reasons is that the US has yet to recognise Vietnam as having a full market economy. This has created certain obstructions in its trade and investment co-operation with Vietnam.
There are also other reasons, such as a lack of transparency in Vietnam’s legal system, and inconsistencies in law enforcement in some localities. Infrastructure development, especially in the energy and transport sectors, and a shortage of skilled workers are also considered significant bottlenecks.
American investors with robust financial health and advanced management methods require legal transparency and do not want to be affected by an “ask-give” mechanism. Given that their investment is mostly aimed at hi-tech and service sectors which require a high standard of governance (such as finance and banking) American investors require highly-skilled workers.
What will you do to address such issues?
All obstacles in the local business and investment climate must be removed as soon as possible – especially cumbersome administrative procedures. The Ministry of Planning and Investment’s key task is to continue pushing administrative reform, completing the legal corridor for investment and business operations, and creating a more comfortable environment for individuals and businesses.
In particular, we will focus on completing guiding documents for the implementation of the laws on Investment and Enterprises passed in 2014, and enhancing the enforcement of the government’s Resolution 19 on ameliorating the domestic investment climate. This is to create the most favourable, transparent, and complete legal foundation for businesses and investors, particularly in terms of investment implementation procedures related to land, construction, tax, customs, environmental protection, and labour. This will help them save on costs and time, and increase their investment effectiveness and competitiveness in Vietnam.
The Vietnamese government is exerting its greatest efforts to implement three strategic breakthroughs: completing institutions, improving human resource quality, and building a synchronous infrastructure system.
I believe that once the market economy institutions are fully implemented and become more modern, mechanisms and policies will become more transparent and predictable, making American investors in particular, and foreign investors in general, more confident in investing in Vietnam.
What are your expectations regarding US investment into Vietnam in the time to come?
The Vietnam-US economic and investment ties have been deepening, particularly since the historic official visit to the US by Vietnam Party General Secretary Nguyen Phu Trong in July 2015 on the occasion of the two nations’ celebration of the 20th anniversary of diplomatic relations.
Similarly, the visit to Vietnam by US President Barack Obama in May this year, and the meetings of the two countries’ top leaders on the sidelines of international and regional fora, will continue deepening the two countries’ comprehensive partnership in all fields.
Strengthened political and diplomatic relations will lay an important foundation and increase mutual confidence for the two countries’ businesses to further their trade and investment co-operation.
Furthermore, the finalisation of negotiations for the Trans-Pacific Partnership (TPP) between Vietnam, the US, and ten other countries in October 2015 has opened an unprecedented opportunity for boosting bilateral trade and investment. Vietnam expects to substantially increase its exports to the US as a result, and the US is forecast to reciprocate by becoming a leading investor in Vietnam.
Vietnam’s recent conclusion of free trade agreements (FTAs) with the European Union, South Korea, and the Eurasian Economic Union, as well as the official establishment of the ASEAN Economic Community (AEC) on December 31, 2015 will also propel US businesses towards expanding investment in Vietnam.
With a rise in labour costs in some regional nations, many US multinationals are turning their attention towards Vietnam, which boasts a young, abundant, highly competitive, and well-trained labour force.
Vietnam has become a reliable investment destination for American firms. For example, over recent years, the US Embassy in Singapore, in collaboration with the American Chamber of Commerce, have led many US business delegations (which are headquartered in Singapore) to Vietnam in search of investment opportunities.
Many large US groups are considering Vietnam as a strategic potential market and a key link in their global supply chain. In particular, after the TPP negotiations were concluded, Vietnam has become more attractive to US investors, as compared to other ASEAN markets.
Complementing Vietnam’s rising purchasing power and income, the country’s political and macro-economic situations remain stable, and the business climate is significantly improving. This has also helped Vietnam improve the confidence among US investors.
What sectors are expected to lure large-scale and high-quality investments from the US in the future?
Vietnam attracts foreign direct investment (FDI) in the hope of accessing resources for its sustainable socio-economic development, hi-tech innovations, and advanced management skills. US investors with strong financial capability, high technologies, and advanced corporate governance, can meet such expectations.
Furthermore, many transnational companies (TNCs) are based in the US. Vietnam’s policy is to attract more big projects from these TNCs because they can help the country improve the quality of FDI inflows, create a spillover effect in terms of socio-economic development, and serve as a catalyst to boost investment from small- and medium-d investors.
Vietnam’s key economic sectors such as oil and gas, aviation, information and technology, power, and infrastructure are also the arena of American companies’, with big brand names such as Exxon Mobil, Boeing, ADC - HAS Airport, Microsoft, Intel, Apple, HP, General Electric, General Atlantis, and AES.
In the years to come, we will create more favourable conditions to attract further investment into these sectors. However, I also would like to stress that Vietnam will not attract FDI at any cost, and will only select projects that can have a positive impact within the country’s plan for sustainable development.
