Vietnam's 2013 economy in the eyes of foreign entrepreneurs Last year, prolonged unstable macroeconomic policies made the panorama of the Vietnamese economy quite bleak for foreign businesses. Along with the Vietnamese government’s efforts to tighten fiscal and monetary policy to reduce inflation, to restructure the banking system... whether foreign investors have a brighter view of the economic situation in Vietnam in 2013?  The opinions of Mr. Herb Cochran, Executive Director of the American Chamber of Commerce (AmCham) in Ho Chi Minh City, Mr. Yasuzumi Hirotaka, Executive Director of the Japan External Trade Organization (JETRO) in HCM City and Mr. Paul John Jewell, Executive Director of the European Chamber of Commerce in Vietnam (EuroCham) will partly answer this question. Prospects for Vietnam's economy in 2013 Last year, the Vietnamese Government made great strides in economic reform but did not made tangible results. According to foreign investors, whether the Vietnamese economy will recover in 2013? Yasuzumi Hirotaka: The Japanese business community has noticed signs of economic recovery in Vietnam in late 2012 and early 2013. This is an optimistic result thanks to the Government’s inflation stabilization policies. It is hoped that Vietnam will maintain macro-economic stability in the future. Mr. Yasuzumi Hirotaka Herb Cochran: Although it is no longer a top destination in the region, Vietnam still has a lot of opportunity for investors. Therefore, the AmCham’s businesses will continue to strengthen their capital resources in this market.  However, we do not think that the Vietnamese economy can recover next year, especially the domestic economy. Uncertainty in the economy appeared in 2007-2008 and it has been worsening. To regain stability, it is probably to wait until 2014 or 2015. Paul John Jewell: The fiscal and monetary tightening policy of the Government has achieved significant effects in terms of macroeconomic indicators but maintaining this growth momentum in the coming year is not easy. European enterprises are concerned that the macro-economic situation of Vietnam will continue to decline in the first six months of 2013. There are too many negative signs that cannot be settled overnight such as a drop in the labor force, the decline of real estate prices and the increasing risk of bankruptcy of enterprises… Which economic sectors that are considered to have the potential to develop? Paul John Jewell: Most economic sectors in Vietnam have potential and are invested by members of EuroCham in recent years. We also hope to increase investment in both quality and quantity in more economic sectors, but the economic situation has not improved significantly that we are still afraid of the expansion of business. Herb Cochran: The industries that Amcham sees with development potential are the consumer goods industry, modern manufacturing for exports (such as Intel, GE, Honeywell, Jabil, Samsung, Foxconn, Nidec Canon. etc.) and the service sector. More and more U.S. companies are investing capital into the modern industry of Vietnam to create value-added products for export. Yasuzumi Hirotaka: The Japanese investors are very focused on the supporting industry and the service industry. The form of investment is no longer favored in processing for export as before but expanding investment based on the domestic needs and the need of the ASEAN market. Which industries are said to be the most unattractive? Herb Cochran: The industries that are not as attractive as they were in the past include: apparel, footwear, furniture... because of rising labor costs and market competition with India, Indonesia, Bangladesh, Mexico, Cambodia and Myanmar. Mr. Paul John Jewell What are the most basic problems hindering economic development in Vietnam? Herb Cochran: In the situation of macroeconomic instability in Vietnam, two most serious problems are rampant bad debt and SOEs operating inefficiently.  In addition, the government’s strict management of business activities such as price fixing, import restrictions… causing difficulties for business, particularly foreign firms. Yasuzumi Hirotaka: According to JETRO, there are quite a lot of problems in the Vietnamese economy causing difficulty for economic development. The most visible thing is the infrastructure issues have not been paid adequate attention. Besides, the continuous change and inconsistency in the policy is also a major obstacle to business operations, especially the car industry. Gaps in policies and laws of Vietnam are a major obstacle to economic development? Paul John Jewell: I also agree that the problem lies in the laws of the State, especially the documents regulating the activities of foreign firms. For example the law on lawyers that war adopted on November 20, 2012, which limits the activities of foreign law firms in Vietnam. This law is like a reaction to reduce foreign investment. Yasuzumi Hirotaka: The difficulty of the economy also comes from the banking issues such as: non-transparent banking information, banking reform, bad debt... With so many obstacles, would Vietnam be still an attractive destination for foreign companies? Paul John Jewell: One thing to claim is that European enterprises increasingly feel that Vietnam will be the center of ASEAN and it can be built into an economic center to well serve the whole region. But this is hardly true when the issues that we pointed out in the Whitebook 2013 on "Trade, investment issues and recommendations" are unresolved. Among these issues, the big problem is bank restructuring, prices, the role of state-owned enterprises and intellectual property rights. What measures should be taken to change the color of the picture of the Vietnamese economy in the coming year? Yasuzumi Hirotaka: There is no way other than trying to change to both develop internal strength and attract foreign investment. Vietnam is considered a favorable destination in the area, but whether these advantages will remain for how long? Vietnam should increase investment advantages in attracting foreign business. How to increase the advantages in investment? Yasuzumi Hirotaka: By resolving the following issues: The first is to remove regulations limiting the freedom in foreign business activities, especially the automotive industry.  Secondly, the government is more active in the implementation of policies and strategies appropriate to each industry. Ministries and sectors should design development strategies for various industries.  Thirdly, developing infrastructure effectively and in certain plans. In addition, the most urgent problem to be solved is corruption. We hope that Vietnam will attempt to resolve these issues as quickly as possible because the time 2015 is not far off. How about the American and European business communities? Mr. Herb Cochran Herb Cochran: According to AmCham, the government should listen to the opinions of foreign investors doing business in Vietnam. In fact, a lot of our comments and the opinions of other foreign business associations are not interested by the Government. Some of our recommendations include: - Improving education and training for graduates of universities and colleges to turn them into qualified labor force, who can work immediately. - Improving the quality of customs services, especially e-customs. Thousands of containers from the port of Cai Mep (Ba Ria - Vung Tau) are transported across the Pacific Ocean to the west coast of the United States in only 15 to 16 days but the customs procedures take up to 21 days. - Developing the quality domestic supply units. - Instead of using the consultation proposals from enterprises, the government should have the conversation and exchange directly with domestic and foreign enterprises. - Exerting the best effort to eliminate corruption - Vietnam's most serious problem. Paul John Jewell: As I said, the problems that the EuroCham members want the government’s attention to address are the price, the role of state-owned enterprises and intellectual property rights. - Price: the Government does not have consistent attitude in the issue of the free market price and in many industries. While foreign firms want to set prices according to the cost of production and competition, the government’s price control makes investors worry. - The role of state-owned enterprises: The contribution of state enterprises is estimated at about 40% of the national budget. They often receive preferential loans, access to land, restricted profit target... but the work inefficiently, affecting the development of the economy. - Intellectual property rights: Vietnam wants to move from the labor-intensive economy to the technology-based and value-added economy. But foreign investors would not want to bring their technology to Vietnam once the protection of intellectual property rights has not been done. EuroCham is always willing to contribute ideas to Vietnam to overcome crisis and improve the quality of long-term investment from abroad. In contrast, the Vietnamese government should have a clear signal showing the aspiration for the future economic development through the Free Trade Agreement (FTA) and the early settlement of the above problems. DNSGCT