Vietnam gets good report card but urged to do better

13:46 | 13/02/2018 Investment

(VEN) - International organizations have been ranking Vietnam consistently higher in terms of its business climate and other indicators as a result of government and industry efforts. However, foreign experts also urge Vietnam to improve its business climate further to attract additional foreign investors.

vietnam gets good report card but urged to do better

Up 14 places

The Doing Business 2018 report, a World Bank Group study on the ease of doing business for small and medium enterprises, ranks Vietnam 68th among 190 economies worldwide, up 14 places compared with 2017, with a score of 67.93 on the 100-point scale.

In the Global Competitiveness Report 2017-2018 published by the World Economic Forum (WEF) in 2017, Vietnam recorded 4.4 points, ranking 55th among 137 economies worldwide, up five places compared with 2016 and up 20 places compared with 20 years ago (in 2016, Vietnam recorded 4.31 points). The report shows Vietnam’s noteworthy improvements in technology readiness level and labor market efficiency. Regarding trade, Vietnam ranks seventh in terms of import-to-GDP ratio, and 11th in terms of exports-to-GDP ratio. The credit rating agency Moody’s in 2017 also changed its outlook for Vietnam’s banking system from “stable” to “positive”.

Former US Secretary of State John Kerry, in his speech at the Vietnam Economic Forum 2018 held by the Central Economic Committee this January, said he was impressed by the economic growth and positive changes in the Vietnamese business environment. This progress has turned Vietnam from a hungry, poor and backward nation into a middle-income country, he said. In 2017, Vietnam was one of the leading Southeast Asian countries in terms of per-capita income and economic growth.

Vietnam is clearly integrating into the global economy through bilateral and multilateral free trade agreements (FTAs), moves expected to help Vietnam achieve higher growth. However, to realize Prime Minister Nguyen Xuan Phuc’s aspiration to turn Vietnam into a new economic tiger in Asia, as he said at the Vietnam Economic Forum 2018, further efforts are required to improve the business and investment environment.

Raising labor productivity

Economists rank Vietnam among the most attractive destinations for foreign investors. Apart from political stability and an improved investment environment, Vietnam is experiencing a stage known as a “golden population structure” with working-age people accounting for more than 60 percent of the population. However, all these advantages are insufficient to help Vietnam attract foreign direct investment (FDI) in a sustainable manner, especially in the context of the fourth industrial revolution, or Industry 4.0.

The “golden population structure” period, for example, will pass in about two decades with the aging of the population and Vietnam will lose this advantage. Vietnam will encounter difficulties in attracting FDI if it does not promote appropriate reforms. Moreover, the investment environment in Vietnam, despite improvements, still shows limitations, including poor labor productivity, underdeveloped support industries, and limited transparency. These are also indicators to which foreign investors pay great attention.

Former Secretary of State Kerry said foreign investors always seek a safe and transparent investment environment where they can make profits. Therefore, to attract FDI, in his opinion, Vietnam should make further efforts to create a favorable and fair business environment and promote accountability.

Despite improvements of the investment environment, economists believe labor productivity in Vietnam remains much lower compared with other countries in the region and worldwide. According to Associate Professor, Dr. Nguyen Quang Thuan, President of the Vietnam Academy of Social Sciences, labor productivity in Vietnam equals just seven percent of Singapore’s, 17.6 percent of Malaysia’s, 36.6 percent of Thailand’s, and 87.4 percent of Laos’.

To attract foreign investment, Kyle Kelhofer, International Finance Corporation Country Manager for Vietnam, Cambodia and Laos, believes Vietnam should concentrate on increasing labor productivity and investment in support industries. These are major factors in attracting quality FDI projects that will have positive impacts on the private sector and the entire economy, he said. Ousmane Dione, World Bank Country Director for Vietnam, predicted a positive outlook for Vietnam in 2018 and ensuing years. In his opinion, however, to create breakthroughs in FDI attraction and economic growth, Vietnam should concentrate on four priorities. These are: 1) maintaining macroeconomic stability, which requires reforms of laws, the banking sector and state-owned enterprises; 2) Promoting institutional reforms and improving the legal framework; 3) Enhancing the quality of infrastructure as a key to investment attraction; and 4) Adopting appropriate policies to develop renewable energy resources and combat climate change.

Ousmane Dione, World Bank Country Director for Vietnam:

The WB Group is committed to accompanying the Vietnamese government in the process of improving the country’s business and investment environment.

Nguyen Hoa