December 13, 2014
– During the recent Vietnam Business Forum 2014 (VBF 2014), foreign business communities no longer expressed harsh reactions from macro-economic uncertainties the way they often did in the previous times. Some representatives even praised the Government’s achievements. Problem still abound, though.
In the presence of Prime Minister Nguyen Tan Dung, who has attended three dialogues with the business community so far this year, Gaurav Gupta, chairman of AmCham, said as the end of 2014 is drawing near, businesses and investors have a lot to be pleased with. In recent years, Vietnam’s success in attracting foreign investment has mainly come from the expectations of economic and political stability, he said.
Citing Resolution 11 on macro-economic stabilization dated February 2011, Gupta said AmCham along with other agencies had been strongly supporting this policy of the Government. To date, AmCham’s standpoint remains unchanged. It is glad to see that restrained inflation has not only reduced the pressure on households in Vietnam, but also helped curb wage inflation, a factor which used to constantly hinder business plans of enterprises.
In response, Prime Minister Nguyen Tan Dung said, “Vietnam will ensure macro-economic stability in a better and more sustainable way.” He said exchange rates and interest rates would be controlled, too, at 5% next year to facilitate economic development. The State budget deficit would be reduced from 5.3% to 5% of GDP in 2014. Economic growth would reach 6.2% in 2015. “Public debt will not exceed the ceiling, and debts will be paid in full and on schedule,” the Prime Minister said at the annual dialogue between the Government and the business community which took place early this month.
Concern about labor
The issue of labor was once again brought forward by foreign investors as the most critical one. Colin Blackwell, head of the VBF Human Resource Working Group, mentioned a survey of more than 400 foreign investors in Vietnam, which picks the greatest concerns of investors as minimum wage increase, ambiguous labor regulations, work permits for foreigners and overtime working limit.
Blackwell said investors were concerned that if the minimum wage is higher than the inflation rate, then labor costs will surge. As much as 47% of the respondents said their profits might be affected, 27% said it would have a major impact on their business, and 8% were considering shifting their investment to another country. Only 18% believed this issue would not affect their business in Vietnam.
Sharing this view, Shimon Tokuyama, chairman of the business forum committee at the Japan Business Association in Vietnam (JBAV), stated the restriction on overtime working set by the Labor Code is making life harsher for Japanese firms.
Compared with other countries in Asia, the overtime working limit imposed by the current Labor Code of Vietnam is relatively rigid and burdensome for business operations, Tokuyama said. He suggested adding regulations to increase overtime working hours by signing “labor agreements” between the employer and the employee. This way, the problem would be quickly solved without the need to amend the Labor Code. This is what JBAV proposed to Prime Minister in April this year.
Low labor productivity
Gaurav Gupta, chairman of AmCham, remarked that about two-thirds of the export volume and a half of the industrial output of Vietnam were from foreign-invested factories or production for foreign brands. The average cost for the workforce in domestic factories is just a quarter of that in China. However, the advantage of low labor costs becomes less significant as the output per capita remains low.
A recent study shows that the average labor productivity in the manufacturing sector of Vietnam is only some 7% of China’s average. In particular, the annual manufacturing output per capita of Vietnam, according to McKinsey Global Institute, is US$3,800, much lower than US$14,200 of Indonesia, US$16,500 of the Philippines, US$21,200 of Thailand, US$33,200 of Malaysia and US$57,100 of China.
Such a challenge of labor productivity, coupled with the slow development of skilled workforce, could threaten the continued growth of Vietnam, Gupta warned.
Administrative procedures remain cumbersome
VBF Co-chairwoman Virginia Foote noted it took Vietnam three to four times longer than other countries in ASEAN to grant a business license.
Tran Anh Duc, representative of the Investment and Trade Group, expressed his concern about the administrative procedures for investment and trade. “The first obstacle which discourages foreign investors is the requirement for a certificate of investment when a Vietnamese business sells its shares to foreign partners. We recommend that a certificate of investment should be required only when foreign investors invest in a conditional business or when they buy a stake of 51% or more,” he said. In addition, foreign investors are worried about the duration of the investment certificates in service and trade, which is only 5-10 years. In this case, investors face the risk of liquidating their investments if their investment certificate is not renewed.
Furthermore, Duc said the procedures for granting investment certificates in case there is a foreign capital contributor remained too complicated, consuming much time for paper preparation and additional explanations for unnecessary information. For example, investors are asked to explain their capital sources, business plans and business experience, as well as the time for share purchase payment and land lease contract. “We recommend licensing agencies review the process of license granting, reduce the number of documents to be submitted, cancel the request for additional explanations which are unnecessary, and not interfere in private agreements among share-holders,” Duc said.
He added the licensing process was extended as local departments of planning and investment had to seek the opinions of local governments or relevant ministries. There are cases in which local planning departments could not handle applications in two to three months as they did not receive feedbacks from relevant ministries. “The issues that require comments from relevant ministries should be further limited,” he said.
Realty investment certificate a hard cut to crack
David Lim, head of the VBF Land Issues Working Group, said that under the Investment Law, those who want to invest in property projects must have an investment certificate which lists real estate investment and development as their business operation. However, prior to certification, they must obtain other documents such as an investor appointing decision, a basic design, an approval for a 1/500 plan and an approval for investment.
It is unreasonable that when investors do not know whether they will be licensed to carry out their realty projects or not, they have to obtain the above documents, which may take them up to 160 days, let alone the time for preparation. Lim complained that these requirements were troublesome and causing delays for those investors who wanted to develop real estate projects. It is yet to mention the case in which investors, after spending much time and effort to get such documents, cannot implement their projects.
Fear of inspectors
Kim Jung In, chairman of the Korean Business Association in Vietnam, said he was frustrated with the fact that the anti-transfer pricing department of the General Department of Taxation along with local tax departments since the fourth quarter of 2013. As a result, taxmen have conducted extensive inspections, mainly into textile, footwear and apparel enterprises in major cities and provinces. Many of the leading textile enterprises of South Korea were subject to such inspections. Some businesses have been given tax arrears to be collected and imposed sanctions without a chance to clarify their cases.
(By Tu Hoang)