Increase foreign investment resources by improving the business environment

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Foreign investment disbursement hits record high in the first four monthsForeign investment disbursement hits record high in the first four months
Vietnam improving readiness to attract foreign investment: officialVietnam improving readiness to attract foreign investment: official
Increase foreign investment resources by improving the business environment
FDI investors are always interested in improving the business environment in Vietnam. (Photo: Tuấn Anh/TTXVN)

FDI capital is becoming more ‘cautious.

The survey report on FDI enterprises in the Provincial Competitiveness Index (PCI) and Provincial Green Index (PGI) 2023, recently published by the Vietnam Chamber of Commerce and Industry (VCCI), indicates that the percentage of FDI enterprises increasing their investment scale in 2023 reached 30.27%, a slight increase from 30% in 2022. This cautious approach by FDI enterprises is due to the unpredictable developments in the global economy.

Regarding business performance, 46.49% of FDI enterprises reported profits in 2023, a slight increase from 42.77% in 2022. The percentage of enterprises reporting losses decreased to 42.32% in 2023, down from 44.88% in 2022 and significantly lower than the record high of 51.33% recorded in 2021. This positive growth trajectory indicates that FDI enterprises are on a more solid recovery path post-pandemic.

However, only 26% of FDI enterprises plan to expand their business in 2024 and 2025, down from 33% the previous year and significantly lower than the post-pandemic peak of 47.7% in 2021. Additionally, this percentage consistently remained above 45% during the period from 2014 to 2019. The report suggests that this decline reflects a more cautious outlook among FDI enterprises due to the current unpredictable global economic context.

According to the Ministry of Planning and Investment’s report, from the beginning of the year to April 20, 2024, the total registered capital for new projects, adjusted capital, and capital contributions for share purchases by foreign investors reached over USD 9.27 billion, an increase of 4.5% compared to the same period in 2023. However, while the total newly registered capital increased by more than 73% compared to the same period, the total additional registered capital reached over USD 1.23 billion, a decrease of 25.6% compared to the same period. Additionally, the total registered capital for capital contributions and share purchases by foreign investors was nearly USD 929.6 million, a decrease of 70.1% compared to the same period.

Along with the impacts from international market fluctuations, experts and businesses indicate that many foreign investors remain wary of challenges related to compliance with regulations and the burdens of policy implementation, which have affected their investment and expansion decisions in Vietnam. The PCI and PGI 2023 reports state that since 2018, the time FDI enterprises needed to spend on administrative procedures had decreased, but in 2022 and 2023, the percentage of FDI enterprises having to spend more than 5% of their time on administrative procedures remained higher than before the pandemic.

“The Key” to Improvement Lies in Reform

For businesses from the United States, according to the PCI and PGI 2023 report, investors face significant difficulties in areas related to regulations and policies. These include policy and legal fluctuations, administrative procedures, land use stability, and other property rights.

For investors from China, the biggest challenge is finding customers, followed by market fluctuations, labor recruitment, and finding business partners. The primary difficulties that Japanese enterprises face when operating in Vietnam are policy and regulatory fluctuations, and administrative procedures.

Previously, a survey conducted at the end of 2023 by the Japan External Trade Organization (JETRO) of Japanese enterprises abroad also indicated that in Vietnam, regulations, policies, and administrative procedures were the biggest barriers to business operations. Notably, Japanese businesses operating in other ASEAN countries such as Thailand, Singapore, and Malaysia faced fewer difficulties in these areas.

For European businesses, a survey released in early April 2024 by the European Chamber of Commerce in Vietnam (EuroCham) revealed that these companies expressed optimism about the Vietnamese economy both in the short and long term. In the second quarter of 2024, one-third of the surveyed businesses felt optimistic about growth prospects, with more than half predicting higher orders and revenue in the second quarter. Looking further ahead, this optimism is even stronger, with 71% of businesses feeling positive about the long-term outlook in Vietnam over the next five years.

However, many European businesses reported facing legal barriers in Vietnam, which hinder market entry and long-term investment. Administrative burdens were identified as a major obstacle to establishing and expanding operations. Additionally, the lack of clarity in regulations created uncertainty and hindered strategic planning.

From the issues mentioned above, the FDI business community uniformly desires improvements in the investment and business environment. For instance, at a meeting with Prime Minister Phạm Minh Chinh on May 9, Park Hark Kyu, the CFO of Samsung Group, expressed his hope and confidence that Vietnam would continually enhance its business environment. As a result, Samsung plans to invest an additional approximately USD 1 billion annually in Vietnam in the coming years, increase the number of Vietnamese enterprises in its supply chain, and boost cooperation in human resource training.

Addressing the same issue, Dominik Meichle, Chairman of EuroCham, stated that Vietnam has enormous economic potential, and resolving legal challenges is the “key” to fully realizing that potential. Simplifying procedures and establishing more transparent regulations will facilitate both domestic and foreign businesses, thereby helping Vietnam become a leading investment destination in the region. This will benefit local businesses, attract international capital, and strengthen economic partnerships. Similarly, Joseph Uddo, Chairman of the American Chamber of Commerce in Vietnam (AmCham), noted that high-quality foreign investment capital only flows into regions with good governance and the most favorable investment and business environments.

Furthermore, according to experts and businesses, to seize the opportunities arising from the significant global supply chain shifts, Vietnam needs to continue refining its policy framework, regulations, and administrative procedures, along with addressing the issue of facilitating connections between foreign investors and domestic partners and customers. Additionally, policymakers need to expedite policies and measures aimed at enhancing the quality of local labor, particularly skilled labor, and gradually transitioning Vietnam’s labor structure from primarily relying on the competitive advantage of low-cost labor to high-quality labor to attract foreign investment.

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