Figure 2. FID contribution to GPD (1996-2001)
Source: , March 13, 2004.
More significantly, FDI has been diversified in many sectors and this seems to favor Vietnamese economy to develop in more balance, instead of concentrating only on agriculture. The foreign invested sector has seen rapid growth, gradually asserting itself as a dynamic component of the economy, and has made an important contribution to enhancing the competitiveness and efficiency of the economy. In recent years, the foreign invested sector has accounted for a quarter of the country's total investment, for 34% of industrial output, for 23% of the national export (excluding oil and gas), and for 13% of the GDP of Viet Nam.
Figure 3. FDI distribution by sectors (2001)
Source: , March 13, 2004.
- Economic relationship between Singapore and Vietnam
Vietnam and Singapore have enjoyed a long and close economic tie over the last few decades, particularly after the lift of embargo on Vietnam and the implementation of renovation policy of Vietnamese government. The bilateral economic relation between two countries continues improving and promoting.
Vietnam and Singapore have signed series of co-operation agreements, creating a legal foundation for co-operation development between the two countries. They signed the Vietnam-Singapore Co-operation Agreement in 1993 and appointed a coordinating group to guide bilateral economic co-operation in 1994. These are very important initiatives to facilitate trading and investing relation between two countries.
In fact, Singapore has been a significant trading partner with Vietnam since 1996 when value of total trade reached US $2.1 billion. In 1998, despite the difficulties triggered by Asian financial crisis, Singapore remained the big investor and major trading partner in Vietnam. Total trade between Singapore and Vietnam over the past five years has increased by more than 50% from US $1.905 billion (S $3.240 billion) in 1998 to US $3.53 billion (S $6 billion).
In the area of investment, Singapore has been Vietnam’s top investor in terms of capital registered, with cumulative investment of US $7.4 billion in 288 projects as at the end of last year. More essentially, the fields of investment are becoming more diverse with the capital spread on almost all sectors such as technology, banking, education, hotel industry, manufacturing and tourism.
With strong political will of both sides, the economic relation between Vietnam and Singapore is getting stronger in the coming years, covering the whole range from trade and investment to technology and human resource developments.
- Challenges in economic environment imposed on Singapore investors
Vietnam represents a vast opportunity to foreign investors; however, because it is a transitional economy, there are obstacles to overcome in the business and commercial environment. Hence, Singapore investors, like other foreign investors, are facing several challenges when investing in Vietnam. These include: inadequate infrastructure, labor recruitment, red tape and bureaucracy and banking system.
- Poor infrastructure
Decades of war and under-investment have left much of Vietnam's infrastructure in a run-down state. By international comparative standards, the transport system in Vietnam is relatively under-developed and it has difficulty keeping up with the rise in trade volumes and economic growth. Transportation networks, telecommunication systems, office and factory space, power and water supplies, and port facilities are minimal and call for more investment, both Government as well as foreign investors. This is considered as the most daunting factor to investors in Vietnam as it is claimed by some Singapore and most other investors. In order to deal with this issue, Singapore has successfully established industrial zone which is of great help in providing manufacturing facilities, infrastructure and services within the zone itself. This issue will be discussed in more detail in the next section.
- Recruitment and training of labor
Like other foreign companies, Singapore companies come to Vietnam to seek a low cost and literate workforce. However, the recruitment of labor in Vietnam must be done through the Service Company for Foreign Missions or through a labor supply investment service company. This is most applicable in manufacturing area which companies need to recruit large number of employees. Clearly, these procedures complicate recruitment. In service sector which there are considerable number of Singapore companies are operating, employing workers is much easier in the sense that companies advertise and recruit their own staff.
- Red tape and bureaucracy
In a recent study conducted in Singapore (Neo et al., 1995), a sample of Singaporean investors in Vietnam rated bureaucracy and red tape as the most frustrating problems facing foreign investors. The main obstacles to foreign investment, particularly FDI, appear to lie in the cumbersome administrative procedures and bureaucratic requirements for the issuance of project licenses. It often takes long time and passes through multiple approvals. However, Vietnam’s Prime Minister confirmed that this process is being improved with many reform and rectification.
- Banking system
Like many developing economies, there are weaknesses in the banking system. Transform from mono-bank system, Vietnamese banking industry is yet effective and lagged behind the current level of development of ASEAN neighbors, especially Singapore banking system. As a result, it poses problems for Singapore investors in dealing with payment system, capital mobilization and fund raising. Interestingly, this challenge may become a good opportunity for Singapore investors in putting their money in this sector since Vietnamese banking sector are desperately calling for foreign investors. With their capital and experience, Singapore investors will be able to help Vietnam improve the banking system as a whole.
- Opportunities offered for Singapore investors
Despite the above challenges facing foreign investors, Vietnam is actually offering huge opportunities for all foreign investors, especially Singapore investors. These opportunities present in many sectors such as hotel industry, training and education, technology, and banking system which will be studied in detail in the below section.
The opportunities in economic environment for Singapore investors are due to the following factors, some of which could provide them advantages over other foreign investors.
The essential factor that attracts foreign investors to Vietnamese market is the high steady growth rate of the economy. Vietnam is fastest growing economy in ASEAN and the second in Asia (after China) with the growth rate ranges from 7-8% annually. Singapore Finance and Trade minister, George Teo stressed on this point in Singapore-Vietnam Business Forum 2004 “Vietnam’s GDP has been galloping along steadily at an average rate of 7.2 percent over the past 10 years. We in Singapore are optimistic about the improving business, trade and investment prospects in Vietnam”
- Resources
Labor forces
One of great advantages to Singapore companies doing business in Vietnam is the abundance, low-cost and high literacy labor force. The numbers of graduate increase steadily and there are more and more students pursue their studying overseas, include universities in Singapore. This would provide Singapore companies with high-skilled workers in variety of working fields.
Natural resources
Vietnam is well endowed with natural resources. It has substantial oil and gas reserves, rich agricultural land suitable for cultivating tropical products such as coffee, rice, rubber and fruit. Especially, there are some virtually untouched reserves of such minerals as iron ore, tin, copper, gold and coal which could provide foreign companies with raw materials for their production. Also, the long sandy beach offers a potential for thriving tourism industry, which Singapore companies is successfully doing in Vietnam.
- Potential projects available
Since Vietnamese economy is in transitional period, there are huge number of projects in various areas are waiting for foreign investors. Singapore investors, with the largest cumulative number of projects invested in Vietnam, have gained competitive advantages over others in terms of experience as well as acquaintance with economic environment. This is reflected by the proceeding of three big Singapore projects in Vietnam, namely Telecommunications, Logistics and Electronics at Singapore-Vietnam Business Forum 2004.
- Great improvement in investing environment and incentives
Many Singapore companies are getting more comfortable with the administrative procedures of doing business in Vietnam due to great improvement of investing environment. They have witnessed Government’s attempts and commitments in creating a more business-friendly and fair environment for investors. Compared to other countries in ASEAN, it appears to be obvious that Vietnamese government is providing many incentives for investors. Government offers tax free for firms in the first two years of operating and another two years at 50% of regular corporate tax. In addition, government opens all economic sectors for FDI (except defense industry) and many forms of investment. Compared with Indonesia, Indonesian government is not only close to military industry but also another complete 14 fields and forms of investment are merely joint-venture and 100% foreign-owned company.
As for Singapore Companies, Vietnamese Prime Minister pressed: 'Your success is our success, and we will continue to create favorable conditions for your (Singapore) investment projects in Vietnam.' (Singapore-Vietnam Business Forum 2004)
- Economic treaties and agreement
Apart from above opportunities, Singapore investors could benefit from other distinguishing features when investing in Vietnam.
On account of close economic relationship between Vietnam and Singapore, two governments have signed series of agreements and treaties to promote both countries’ trade and investments. This could be seen as opportunities for Singapore investors only. The most recent agreements between two countries in are Business Partnership Agreement (for a joint investment) and Agreement on Comprehensive Cooperation Framework, which were signed in Singapore-Vietnam Business Forum 2004. Also, the Vietnam-Singapore Joint Steering Committee (or JSC) was established to promote and facilitate foreign investments into both Singapore and Vietnam. As a consequence, Singapore companies will enjoy more favorable investment policies from both governments.
In terms of Singapore-Vietnam economic cooperation and investment, Economic Development Board (EDB) and International Enterprise (IE) Singapore are the two Singapore agencies working to boost investments into the two countries. EDB facilitates foreign investments into both Singapore and Vietnam, while IE Singapore helps Singapore-based companies expand into Vietnam. Last year, IE Singapore opened its Business Support Office (BSO) in Ho Chi Minh City, adjacent to its overseas centre, which has been providing assistance to companies for 11 years. The BSO's service offerings include virtual and physical offices, business matching services and market intelligence for Singapore companies operating in Vietnam. Obviously, this is truly great advantage to Singapore investors, which facilitate them in exploring potentials as well as setting up business in Vietnam.
Furthermore, to reduce friction and minimize the hassle to investors of operating in two countries, EDB and Vietnam’s Mister of Planning and Investment (MPI) will work together as one virtual entity to service them. The result, according to Singapore Mister of Trade and Finance Mr. Yeo, is that “if we can do this well, Singapore and Vietnam together can present a very attractive value proposition to investors compared to other locations in the world”. This once again reaffirms that Singapore investors are being endowed with considerable support from both governments and this could provide them great advantages over other foreign investors in Vietnam.
In short, Singapore investors could seize great opportunities in doing business and investing in Vietnam thanks to abundant resources in Vietnam, friendly-business environment, Vietnam’s favorable investment policies and especially firm support from both Singapore and Vietnam governments.
Reference:
- Tan Teck Meng, Low Aik Meng, John J. Williams, A.Lee Gilbert, Luu Tran Kiem, “Business Opportunities in Vietnam”, Prentice Hall, 1998.
- Suiwah Leung, “Vietnam Assessment: Creating a Sound Investment Climate”, Curzon Press, 1997.
- Geoffery Murray, “Vietnam: Dawn of a New Market”, China Library, 1997.
- Christopher Engholm, “Doing Business in the New Vietnam”, Prentice Hall, 1995
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FDI in Vietnam, , March 13, 2004.
