Vietnam will intensify efforts to liberalize its economy for foreign investors in preparation for the ASEAN Economic Community in late 2015, and in capitalizing on more free trade opportunities with the EU and other economies, according to a just-released report.

The report “Vietnam liberalization pace may lag EU trade deal”, issued by EU-based Oxford Analytica, suggests that, however, this will be a gradual process, and significant obstacles will remain for the time being in the regulatory, business and investment frameworks.
The report, which was prepared after Prime Minister Nguyen Tan Dung’s visit to the EU earlier this month, said prospects for FDI into Vietnam were promising.
Two-track corporate sector
Policymakers have the task of nurturing local firms in order that they can grow and meet foreign investors’ needs, thereby establishing the necessary linkages that allow local firms to move up the value chain. However, Vietnam’s trade data unveil a two-track corporate sector that should draw greater attention.
In 2013, Vietnam recorded exports of US$132.2 billion and imports of US$131.1 billion.
However, the domestic corporate sector generated exports of US$43.8 billion but spent US$56.8 billion on imports, meaning they had a net trade deficit of US$13 billion. Meanwhile, the foreign investment sector earned US$88.4 billion from exports compared to their import bill of US$74.5 billion, resulting in a net trade surplus of US$14.1 billion.
Such data show local enterprises as underperformers, despite the fact that foreign firms are typically kept out of the key commodities export sector for which Vietnam is perhaps most known, such as rice, coffee, pepper and seafood.
Foreign firms stand to capitalize on this advantage over domestic firms as Vietnam’s economy opens its doors further, according to the report.
The AEC is scheduled to come into effect at the end of next year. If the AEC is successful it could create a highly conductive environment for increased intra-Southeast Asia trade and investment flows.
Given its geographical location, Vietnam could become a hub for cross-border production and transportation networks, says the report.
Meanwhile, the EU-Vietnam FTA would allow more European FDI to flow into Vietnam, which would be attractive to investors both as a market to access, and a platform from which to produce items for sale in ASEAN or the large EU market.
Should the Trans-Pacific Partnership agreement be finalized with Vietnam as a member, a new wave of FDI would be possible, most likely from Chinese firms and other foreign firms previously located in China that want to manufacture and export within the TPP umbrella.
Policy change most likely
A second wave of business liberalization reform is possible, as policymakers begin drafting the pivotal Enterprise and Investment laws, from which domestic and foreign-owned firms could benefit.
The past reform wave has typically been driven by a downturn in investment activity and external commitment that necessitated change.
At present, FDI looks reasonably strong although in the World Bank’s 2015 Doing Business report, Vietnam has dropped in global ranking from 172 to 178. This will trigger policymakers’ concern and action, in case FDI shifts elsewhere.
However, Oxford Analytica’s report showed some constraints that foreign investors might face in short to medium term. These constraints include slow reforms of State-owned enterprises.
Moreover, according to the report, policymakers have been slow to embrace public-private partnership and build own transfer models as a means of galvanizing FDI for public investment projects.
The regulatory framework remains largely opaque and complex. There has been a tendency for insufficient dialogue and consultation with the corporate community when drafting business legislation, says the report.
Insufficient linkage is also a constraint. Linkage between domestic firms and foreign investors – with domestic firms serving as suppliers of inputs to foreign firms – remain scant.
Source thesaigontimes.vn