Feedback: Food For Thought

Feedback: Food For Thought

By Dr. Nguyen Quoc Vinh (*)

The foreign investment sector accounted for 42% of Vietnam's industrial output and 57% of its export in 2010, playing a vital role in nurturing the country's economic growth

At the year-end, foreign organizations were fairly pessimistic about Vietnam’s investment environment and investor trust in this country. For example, Vietnam dropped by eight notches in a business environment ranking by World Bank. Eurocham, meanwhile, said that European investors’ confidence in the country had slumped continuously since the start of 2011. Grant Thornton’s report on mergers and acquisitions in the fourth quarter reflected the same trend, with 51% of the respondents far from sanguine about Vietnam’s economic prospects in 2012, up 30% from the figure in May. In contrast, the percentage of optimistic respondents slid from 53% to 17%. Only 38% considered Vietnam an alluring investment destination (down 16%).

Foreign investors attribute their dented confidence to the country’s soaring inflation, volatile exchange rates, barriers to market entry and rampant red tape. How effectively Vietnam will respond to these challenges will determine its chance of emulating Singapore’s success.

Legal system

Vietnam’s laws often change so drastically that enterprises barely have time to adjust. For instance, after being implemented for only 5-6 years, up to 16 fundamental civil and commercial laws are on the verge of change. Legal documents on import, export, forex and credit management are prone to amendments, too. Worse still, some legal documents, such as Decree 01/2010/ND-CP and Decree 90/2007/ND-CP, were in trouble as soon as they were promulgated.

In contrast, the implementation of legal documents deemed as essential for defining the rights and obligations of enterprises, if any, is sometimes tardy. Examples include guidelines on how to carry out Vietnam’s World Trade Organization (WTO) commitments, the use of intellectual property rights as a form of capital contributions, and so on. In addition, administrative orders abound. In particular, Circular 04/2011/TT-BKHDT and Decision 77/2010/QD-TTg require foreign-invested enterprises to send regular reports (chosen from 10 monthly report forms, four quarterly report forms, one biannual report form and 22 annual report forms). Some enterprises complain that conforming to these two documents may entail hiring one employee or two to take charge of compiling reports alone. It is also worth mentioning the prevalence of inconsistent legal documents in Vietnam.

Red tape

Management agencies rarely comply with the time frame for processing a license application. It takes six months on average and a few years in some cases to assess an investment project application. In comparison, applications for the establishment of a new company in Singapore are usually processed in about three days. In 2008, the Ministry of Construction reckoned that the procedure for evaluating a construction project comprises 33 steps and takes about three years to carry out. Remedies have since been proposed, but the procedure remains as cumbersome as ever. If anything, another license has been made necessary in line with the Urban Planning Law 2009.

Another concern revolves around State agencies’ interpretation and implementation of laws, both of which leave much to be desired. For instance, when foreign investors purchase a stake or contribute capital worth below 49% of an enterprise’s capital, it only needs to adjust its business registration certificate. It is thus puzzling that departments of planning and investment have asked such a business to prepare an investment project application and turn into a foreign-invested enterprise. Foreign investors also hope that government officials handling these applications have at least a degree in Law and, better still, some specialist experience to interpret laws with more cogency.

Finally, Vietnam needs to conform to international norms. For example, controversy brews over whether the 51% majority vote used for decision-making in the case of joint ventures set up before the country’s accession to WTO applies to wholly foreign-owned enterprises as well or whether the 65% and 75% majority, as prescribed in the Enterprise Law 2005, will continue to hold in the latter case. Another problem concerns the duration of a project, which is allowed to equal 50-70 years under the Investment Law but kept at merely five years when it comes to many foreign investment endeavors. Several investors wonder what their project can possibly accomplish within the five years spelled out in the investment certificate.

At present, some accuse foreign-invested enterprises of sparking Vietnam’s trade deficit, engaging in transfer pricing and abusing the country’s credit and land supply. Whatever the truth is, however, it is undeniable that these enterprises accounted for 42% of Vietnam’s industrial output and 57% of its export in 2010, playing a vital role in nurturing the country’s economic growth. Every economic force has strengths and drawbacks, and the onus falls on the authorities to address these shortcomings through efficacious policies.

Participants in the Vietnam Business Forum last December could have listened to a joke made by Dominic Scriven, CEO of Dragon Capital. He jokingly said that the Javan rhino had already been extinct in Vietnam and there were only a dozen tigers and elephants left. Vietnam should therefore strive for sustainable development if it does not want its precious assets, including wildlife, to vanish forever.

(*) Tilleke & Gibbins Law Co.
(This article does not reflect the view of the above law firm)