Early warning

(Baonghean) - Vietnam is no longer an "investment paradise" as it was 5 years ago, but the peak of attracting long-term foreign investment (FDI) was in 2008 with 71.7 billion USD (registered capital). After reaching the peak, the FDI capital in our country has continuously decreased. The reason is that the attractiveness of the business environment has not continued to increase but only maintained at an average level. Meanwhile, some countries in the region have made a breakthrough, becoming attractive FDI investment destinations such as Cambodia, Myanmar...

This is not just a mere opinion but has begun to become a basis and fact for foreign enterprises to consider and choose their investment locations in the near future. Specifically, the results of a recent survey by the European Business Association in Vietnam (Euro Charm) show that in the past 6 months, 20% of enterprises in this association said they would consider moving their business to other markets in the region; 45% of enterprises said that other ASEAN markets are better business locations than Vietnam. Meanwhile, 37% said that the Vietnamese market is average and only 18% believe that Vietnam is in the leading group. The trend of shifting investment does not only occur in the European business community.

Previously, at the mid-term Vietnam Business Forum held in June 2013, the Australian Chamber of Commerce in Vietnam (AusCham) emphasized that Indonesia, Thailand, Cambodia, and Myanmar are emerging as attractive investment destinations, making the competition for FDI attraction in the region even higher. If Vietnam fails to create a favorable business environment, FDI capital may continue to decline.

The investment environment is a combination of legal, economic, political, cultural, social factors and infrastructure factors, market capacity, and advantages of a country that directly or indirectly affect the investment activities of domestic and foreign investors. Economy and politics are two groups of factors that are closely related to each other. Political stability is a condition for economic development and vice versa. International capital flows tend to move out of countries with unstable political situations. Our country has a very stable political situation, the lack of attractiveness of the investment environment is not due to political factors.

In the recent survey, European enterprises said that inflation is the issue they are most concerned about. Up to 43% of enterprises confirmed that inflation has a significant impact, even threatening their business operations. Enterprises are also skeptical about the macroeconomic outlook, up to 60% believe that the macro economy will continue to decline. Meanwhile, the Japanese Business Association in Vietnam said that complicated administrative procedures and inconsistency in policy implementation are always the biggest barriers for foreign enterprises.

For example, the increase in basic salary should have been done at the beginning of the year so that enterprises could proactively plan production and business for the whole year, but it was decided in the middle of the year, which has put many enterprises in a passive and confused position. Enterprises from the US said that the problem of local human resources is also getting weaker, there is a lack of skilled labor force, and there is a lack of transition from labor-intensive to value-added development. Thus, it can be determined that the factors affecting the attractiveness of the investment environment in our country are the legal and administrative environment; the financial environment and the labor environment. The solution is to build a stable, transparent and public legal environment.

Foreign enterprises always give priority to countries with a stable, transparent and public legal environment. Because the lack of transparency and inconsistency will increase business costs more than usual, reducing profits and business efficiency. Regarding the financial environment, it is necessary to reduce the inflation rate. High and unstable inflation leads to currency devaluation and unstable exchange rates, making the currency less convertible. Foreign enterprises rarely choose an environment with a high inflation rate because then the price of goods and raw materials increases, reducing profits. Finally, it is necessary to improve the quality of labor resources to meet the development requirements of enterprises and at a reasonable cost for labor use. Because a country with a high quality labor force but too high labor costs is not attractive to investors.

Of course, the attraction of FDI capital from the beginning of the year to now in our country has still increased by 13% in registered capital and 4% in disbursed capital. The assessment of the world financial organizations on Vietnam's macro economy as well as the competitiveness index all have good prospects. Therefore, the above indicators cannot be used as a result to assess that the foreign investment situation in Vietnam is currently gloomy.

But this is clearly a sign of disappointment in the current investment environment in our country and the increasing competitiveness of other markets in the region. Therefore, this should be considered an early warning to find effective solutions, improve the investment environment, increase attractiveness to attract more and more FDI capital.

Duy Huong