Listen attentively to be proactive
In a report released in 2008 on lessons from East Asia and Southeast Asia and Vietnam’s future path, David Dapice and economists from Harvard seemed to sense that Vietnam’s policymaking is not based on constructive and rigorous debates. They highlighted the importance of thorough and cogent analysis in effective policy formulation.
Foreign-invested enterprises play a crucial role in Vietnam’s economy. As partners for development, how have they interacted with the Government and contributed to policy formulation?
Vietnam Business Forum—only the U.S. and Europe offer extensive feedback
Twenty-twelve was the last year that Consultative Group Meetings took place, with the Government placing emphasis on dialogues with investors. This was also the mechanism through which foreign-invested enterprises offered their feedback, with help from chambers of commerce. However, it has not been the case for seven years due to the rise of the Vietnam Business Forum (VBF), held by the Ministry of Planning and Investment, the World Bank (WB) and the International Monetary Fund (IMF). As of 2017, VBF had been in existence for 20 years.
The most constructive feedback during VBF sessions has come not from countries and territories that pour substantial amounts of investment into Vietnam such as Korea, Hong Kong and Singapore. Instead, it was from the United States and Europe.
In a report in 2017 by AmCham, inconsistency, woeful efficacy and unfairness were considered pervasive consequences of corruption, protectionism, the pressing need for tax revenue and some State agencies’ tendency to intervene to pick winners, not to mention the emergence of new problems. The import of goods into Vietnam was deemed as increasingly expensive and complicated. There was a need to address non-tariff technical barriers, especially at border gates, and other obstacles that restricted enterprises’ operations and the flow of products into Vietnam. Concerns simmered over policy changes that diverged from international norms and marked a step backward for Vietnam. Such changes could hamper investors’ business efficacy in Vietnam.
EuroCham, which represents foreign-invested enterprises from Europe, is especially concerned about combating corruption. Its report in 2017 at VBF indicated that about 70% of enterprises voluntarily offered bribery for smoother business. The remaining 30% were given hints from government officials about the need for bribery, including red tape or lack of clarity in instructions. While the laws on tackling corruption were acknowledged as fundamental in preventing and fighting corruption, even within private organizations and firms, doubt was cast on their impacts. It was suggested that priority be placed on removing existing barriers, some of which were imposed by the authorities.
Japan is one of the rare East Asian countries which invest substantially in Vietnam and offer the most constructive criticism. In 2017, the Japan Chamber of Commerce and Industry (JCCI) shared that many foreign-invested enterprises, including Japanese businesses, are not pleased with the implementation and application of laws in Vietnam. Citing specific examples, it expressed concerns that the lack of transparency would inflict huge damage on Vietnam’s appeal to investors, who may opt for other investment destinations.
Is the lack of constructive criticism from countries with substantial foreign direct investment in Vietnam ascribable to cultural similarities? The candid feedback from the U.S. and European countries, despite their smaller amounts of investment, is another noteworthy trend. This seems to impede the contributions that foreign-invested enterprises can make with respect to policymaking, probably because dialogues via forums tend to be diplomatic.
Provincial Competitiveness Index (PCI) as a dialogue
PCI offers another channel for dialogues between the Government and foreign-invested enterprises, whose insights are discussed in a chapter.
In 2018, the report observed that most foreign-invested firms are small, export-oriented enterprises with a small role in the global value chain of multinationals. Asian investors, prominently Korea, Japan and Taiwan, led this group.
The report noted foreign-invested enterprises’ confidence in the competitive environment fostered by policymakers. The administrative cost burden fell slightly, with inspections dropping drastically: the number of firms reporting burdensome inspections (over eight inspections a year) decreased from 3.4% to 1.4%); the number of firms that thought there existed inspectors who abused their power to extort bribery tumbled from 44.6% in 2017 to 36.5% in 2018. 44.9% of respondents in 2017 said they paid inspectors unofficial fees; the figure for 2018 was 39.9%. Land-related bribery was slashed significantly, from 17.5% in 2017 to 6.8% in 2018.
Some constructive criticism recurred. For instance, foreign-invested enterprises did not find drastic improvements in labor quality. While there was not much complaint about unskilled labor, skilled labor such as accountants, managers or technicians was hard to find. The costs of internal training and loss of human resources were worrying.
Thus seen, PCI is an indirect channel of dialogue between the Government and foreign-invested enterprises. This platform may directly influence local governments, especially since they want to attract foreign direct investment to tackle existing economic challenges, create jobs and generate revenue.
Investment environment rating: an independent voice
The decision by Moody’s Investors’ Service to set Vietnam’s credit ratings at Ba3, with a negative outlook(1), shows the impact an independent and credible voice can have on the Government. Such an assessment can affect the extent to which Vietnam and its enterprises can mobilize funds, as well as the country’s economic growth prospects. To attain a better rating, the Government must adjust its economic policies in terms of national finances and support for businesses.
Moody identified three risks that led to the negative outlook for Vietnam: (a) environment risks, pertaining to rising sea levels, severe floods and weather shocks that affect agriculture, as well as such impacts as environmental pollution, caused by rapid industrialization; (b) societal risks ignited by an ageing population, which may have medium-term implications for Vietnam’s economic and financial profile and (c) management risks relating to limited coordination across the Government’s arms, together with the stagnant reform of State-owned enterprises and fragility in the banking sector.
By virtue of globalization, the Government and foreign-invested enterprises, as well as multinationals, have various channels for policy dialogues, including those over which the authorities have control. Foreign-invested enterprises can also actively, indirectly and even independently offer their feedback and enhance its impacts on the Government’s policies. Actively gathering feedback from multiple channels, providing the necessary conditions for honest and constructive feedback to be offered and constantly pondering possible responses will help Vietnam protect herself against shocks better, considering that it is not a closed economy.