What are the differences between Vietnam and other countries?

Pho Duc Hieu, Deputy Head of the Business Environment and Competitiveness Division under the Central Institute for Economic Management (CIEM), who, together with other CIEM’s researchers, spent two weeks in South Korea and Taiwan to learn from their experiences in attracting investment, said that he can see a lot of differences in the policies applied by Vietnam and those countries.

While in Vietnam, “foreign direct investment (FDI) and foreign indirect investment (FII) are the two separate concepts, in South Korea and Taiwan, there is only one concept of “foreign investment”, i.e. the capital contributions by foreign investors in domestic enterprises.

While Vietnam does not set concrete requirements on the scale of foreign investments, South Korea and Taiwan always do.

In South Korea, for example, foreign investors, when contributing capital to businesses, must have 50 million won at least, or hold at least 10 percent of the chartered capital of the businesses.

According to Dr Nguyen Dinh Cung, Deputy Head of CIEM, the biggest difference between Vietnam and South Korea and Taiwan lies in the procedures of obtaining investment licenses.

In South Korea, foreign investors can only register to set up foreign businesses after they remit money into the businesses’ accounts or complete the payment for the stakes they purchase. The viewpoint of the South Korean Government is that foreign projects are considered foreign investment only when the money arrives in South Korea.

This means that foreign enterprises only officially complete the investment procedures when they complete the money transfer into South Korea.

Meanwhile, in Vietnam, foreign investors have to fulfill only a part of procedures required by Vietnamese law, namely, they have to declare the registered capital for the projects, to become real foreign invested enterprises.

That explains why in Vietnam, there are so many concepts, including registered capital, implementation capital and chartered capital.

According to Hieu, Vietnam always declares the registered foreign investment capital (over $70 billion in 2008), while the actual implementation capital is always much lower than the registered one. No state management agency can collect accurate figures about the disbursed capital.

“In South Korea, 30-40 billion dollar worth of foreign investment would be a great achievement. The project capitalized at $500 million would be considered “super projects”. Meanwhile, in Vietnam, people have got used to the projects capitalized at $5-7 billion, or over $10 billion,” Cung said.

Way of thinking is the key

Also according to Cung, in Taiwan and South Korea, the agency in charge of drawing up the policies to attract foreign investment and the agency in charge of promoting and managing it are two different entities. In South Korea and Taiwan, the foreign investment promotion agency does only one thing – attracting investment. The agency is always close to businesses and it understands what businesses need.

This is quite different in Vietnam, where both these functions are being carried out by one agency. This means that the policy makers and the policy enforcement body are the same.

South Korea makes it clear that it attracts foreign investment in order to help develop high technologies and improve the competitiveness of the national economy. The country gives preferences to foreign investors only at a small scale, while it does not apply the decentralization mechanism in licensing like in Vietnam.

“In order to improve the situation, it is necessary to change the way of thinking (about foreign investment management),” Cung suggested.

Source: Thoi bao Kinh te Vietnam