Foreign direct investment enterprises gain confidence and momentum from improved business environment

VCN - For foreign investors and foreign enterprises operating in Vietnam, the business environment and administrative reforms are crucial factors in deciding to continue investment and expand operations.
Vietnam attracts over 18.7 billion USD of FDI Vietnam attracts over 18.7 billion USD of FDI
Foreign direct investment projects go green Foreign direct investment projects go green
Vietnam- poweful magnet for foreign direct investment Vietnam- poweful magnet for foreign direct investment
Many foreign enterprises have increased their investment due to confidence in Vietnam's business environment. For example, the Nescafé Dolce Gusto pellet production line at Nestlé Trị An factory in Đồng Nai province. Photo provided by DNp
Many foreign enterprises have increased their investment due to confidence in Vietnam's business environment. For example, the Nescafé Dolce Gusto pellet production line at Nestlé Trị An factory in Đồng Nai province. Photo provided by DN

Inconsistencies and gaps in administrative procedures remain challenging

The most recent Business Confidence Index (BCI) survey by the European Chamber of Commerce in Vietnam (EuroCham) indicates a notable rise in satisfaction among European businesses in Vietnam. A significant number of companies rate the business outlook for Q1/2024 as either "excellent" or "good." Specifically, 31% of businesses plan workforce expansion, and 34% intend to increase their investment. Throughout various BCI surveys by EuroCham, Vietnam has consistently been rated as one of the top global investment destinations, with a notably high proportion of businesses ranking Vietnam at the highest position.

Fitch Ratings, an international credit rating agency, upgraded Vietnam's national credit rating to BB+ with a stable outlook, highlighting Vietnam's advantageous position in attracting FDI due to its positive economic prospects.

Most recently, Nestlé Vietnam (a wholly FDI-owned enterprise under Switzerland-based Nestlé S.A.) announced an additional investment of 100 million USD. This is to double the capacity for processing high-quality coffee lines, catering to domestic demands and effectively exploiting export potential, positioning Vietnam as a global hub for high-value coffee supply.

However, European businesses have also identified challenges and administrative obstacles in Vietnam's business environment. More than half of the surveyed companies consider administrative burdens and bureaucratic inefficiency as one of the top three barriers. They also underline the limitations due to unclear and inconsistently interpreted rules and regulations, emphasizing the necessity for clarity and consistency in the legal framework. Previously, from the end of 2023, the Japan International Cooperation Agency (JETRO) conducted a survey on the situation of Japanese businesses abroad.

Many Japanese enterprises expressed confidence in Vietnam's business prospects. For 2024, over 50.4% of Japanese companies anticipate an "improvement" in business profits. However, JETRO's leadership still advises that Vietnam should progressively improve its investment environment, focusing on enhancing the efficiency and transparency of administrative procedures, developing infrastructure, and fostering human resources.

Indeed, administrative procedures and business environment barriers have often been raised by FDI enterprises and business associations in Vietnam. For instance, certain administrative procedures related to fire safety are still problematic due to inconsistencies in interpretation and implementation, impacting the operational commencement of completed FDI projects. Moreover, foreign enterprises encounter obstacles with procedures for work permits, land, natural resources, renewable energy, and environmental matters.

Enhancing appeal by consolidating business environment

Recently, Dr. Burkhard Schrage of RMIT University Vietnam's Faculty of Business commented on seizing opportunities from the elevated comprehensive strategic partnership between Vietnam and the United States. He stated that Vietnam needs ongoing improvements in its business environment to become more attractive to foreign investors. This includes reducing administrative procedures, ensuring the rule of law, and protecting property rights.

Likewise, a World Bank (WB) expert assessed Vietnam as an attractive destination for international investors due to its economic and political stability and global economic integration capabilities. However, for Vietnam, the priority remains to continually reinforce its business environment and attract private investment interest to maximize opportunities.

The Government recognizes this and has issued directives to enhance the investment and business climate. Traditionally, at the start of the year, the Government issues Resolution No. 02/NQ-CP on principal tasks and solutions for improving the business environment and boosting national competitiveness for 2024. This resolution focuses on creating a favorable business environment for investment and entrepreneurial activities, including the development of innovative business ideas, and reforming to decrease the number, time, cost, and risks for enterprises.

Notably, after being combined with Resolution 01 on socio-economic management for a year, the business environment improvement resolution was again separated this year. The drafting body explained that Resolution 02 was "reintroduced" to reaffirm the Government's commitment to improving the business environment. Thus, both the domestic and foreign business communities in Vietnam hold great expectations, particularly as the Government has specified tasks for each ministry and sector.

For instance, many foreign companies previously encountered challenges in fulfilling the Extended Producer Responsibility (EPR). Addressing this, Resolution 02 of 2024 explicitly outlines the responsibility of the Ministry of Natural Resources and Environment in leading and coordinating to resolve EPR-related issues. The resolution also instructs various ministries and agencies to continue reviewing and reducing the list of goods under specialized inspection and management. The Ministry of Public Security is tasked with reviewing and amending fire safety regulations and standards to align with real-world conditions…

Experts and businesses believe that vigorously improving the investment and business environment, and simplifying administrative procedures are essential. This is not only to attract more FDI but also to bolster the confidence and motivation of foreign enterprises to further expand production and business in Vietnam. According to EuroCham Chairman Gabor Fluit, Vietnam must continue refining its policies and strategies to attract and retain European direct investment amid increasing regional economic competition. A focus should be on simplifying administrative procedures and investing in infrastructure to reduce logistical costs and upgrade the workforce's skill level.

By Minh Chi/Tran Minh

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