Ngày Chủ Nhật, 22 tháng 5, 2011 Blog của Báo Mới Hà Nội chia sẻ với bạn đọc bài viết OVERVIEW OF INVESTMENT SITUATION AND POLICY IN VIETNAM IN THE 1990s (part 1)
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Bài giải trình cũ:
OVERVIEW OF INVESTMENT SITUATION
(reduced version in english)
Investment has been one of the most important factors contributing to the high economic growth of Vietnam through the period of economic reform, which started from 1989. Primary analyses show that there are converse trends of investment in the two periods: 1991-1995 and 1996-2000. The most concerned trend is that the growth rate of investment in the second period has decreased too much in comparison with that of the previous period. In order to rationalize causes of those trends, this report will examine investments in state sector, State owned enterprises (SOE), private sector and households as well as foreign invested sector during the 1990s in the following aspects:
- Investment trends in the above 4 sectors;
- Reviewing investment regimes in those sectors
- Assessing problems and difficulties of current investment policies.
- Discussing some measures to amend investment regime in the next 5 years.
In the following part, we will analyze current policies on investment to see how much they help effectively allocate investment capitals, which are actually a scarce resource of the country. Particularly, the paper will discuss in detail the efficiency of public investment mechanism. Finally, in the annex 2, we will list pieces of legislation regarding the mechanism and policies on investment in the above 4 economic sectors.
Part 1: Investment situation and Policy
A/ Situation and policy of public investment.
I- Public investment trend:
Public investment is excised by the Government through 2 sources of fund: Non refund budget capital and state credit with low rate and favorable conditions. Non refund budget capital is mainly reserved to projects on infrastructure construction and human resource development sectors, which are not capable to take a very long time to return capital. State credit is a form of loan with low interest rate and favorable conditions provided to prioritize projects identified in the State development plan.
The main trends of public investment from 1991-2000:
1/ With regards to the non refund state budget capital:
a/ Investment from state budget capital during the last 10 year did not enjoy a stable growth. Even though its value estimated by current prices increased steadily (except a light decrease in 1994), its value by constant price increased rapidly in 1992, 1993, 1996 and 1997 but had a minus growth in 1994, 2000 or very small growth in 1998.
b/ However, in overall, investment from state budget was in a going-up line in the period 1991-1993 and gradually going down from 1994 till present. On average, the growth rate of investment from state budget is 21,2% from 1991-1995 and 14,1% from 1996-2000. Thus its share in the total social investment reduced from a relatively stable ratio of 35% on average in the period 1999-1993 to a stable rate of 21% in the period 1995-2000.
c/ Regarding the structure of investment from state budget capital classified by the hierarchy of administration, the share of capital managed by central authorities increased during the period 1991-1993 from 52.9% to 66% then reduced to 45,7% in 1998. Conversely, the share of public investment from local authorities’ budget has increased sharply form 1994 till now after a heavy drop during the period 1991-1993.
d/ Regarding the structure of using state budget classified by economic sectors, the years 1994 and 1995 marked a structural change. Before 1994 and 1995, the ratio of investment in industry and construction increased very rapidly while the share of investment in other economic sectors considerably reduced. On the contrary, after 1994 and 1995, the ratio of investment in the first 2 sectors sharply decreased and the proportion of state budget capital invested in agriculture, forestry, fishery, irrigation, infrastructure, trade and services has increased very quickly.
There is a clear trend that state budget capital is concentrated to the construction of infrastructure and human resource development as expected target in order to create necessary conditions for the development of other economic sectors.
2/ Preferential state credit:
a/ State credit as well as other sources of capital did not experience a stable growth in the 1990s. However, it has been a source of the most rapid increase. Its growth rate was minus 50% in 1992, but went up to 200% in 1993 then reduced to 21% in 1994 and even dropped to minus 27.3% in 1995. In 1996, it again enjoyed an expected growth up to 116.9% but very quickly dropped down to 16.7%. Since 1998, its growth rate has been increasing thanks to the policy of investment promotion of the Government.
b/ Because of its high growth rate, the share of state credit provided to enterprises in the total of social investment increased very quickly: this share increased from 3.2% in 1993 to 10.4% in 1996 and 19.9% in 2000. Thus in the year 2000, the share of this capital is approximately equivalent to share of public capital and higher than the self-capital of enterprises or FDI.
c/ In a general trend, State credit in 1990s was more and more focussed on prioritized projects identified in plans and economic development programs of the country, especially projects aiming at developing and enhancing the effectiveness of state owned enterprises (SOEs) in the key sectors such as irrigation, multi-year crops, agricultural science and technique and infrastructure for agriculture production. In industrial sector, public investment is allocated with priority to important sectors such as electricity, cement, steel, fertilizers, petro-chemical and agriculture processing.
d/ Even though the economy has been reformed towards market based economy for many years, it is recently in a tendency of returning to the old mechanism, i.e. soliciting-giving mechanism, subsidization of credit as it was in the period of central planning Such a mechanism is actually a subsidization in terms of credit for non-competitive products and prolongs the lives of ineffective enterprises.
II. Evolution of public investment policy
Public investment policy has been considerably changed since late 1980s. In 1989, the Government of Vietnam reduced sharply the subsidization to SOEs in terms of investment; public investment is concentrated to the development of infrastructure and social welfare. In fact, many enterprises are not capable to cope with this change and the number of loss making enterprises increased dramatically. It implies so much pressure that the Government has to return to the regime of credit subsidization to help enterprises.
From 1994 and 1995, the Government reapplied policies of 1989, i.e. prioritizing public investment to sectors undesired by private enterprises. From 1994 and 1995, the Government’s policy is to reduce considerably its investment to industry sector and to increase investment in infrastructure, heath care, education and other public services.
Apart from the adjustment of public investment structure, the Government issued in 1990s many legal documents to regulate and enhance the efficiency of public investment, e.g. the Decree 385/HDBT dated 7/11/1990 of the Ministerial Council issuing the Regulations on Investment and basic construction administration which has been updated by the Decree 177/CP; the Decree 92/CP in 1998 of the Government regulating in detail the process of implementing and managing basic constructions funded by state budget and other public funds; the Decree 52/1999/ND-CP date 08/07/1999 of the Government on the issuance of the Regulations on Investment and basic construction administration which replaced the Decree 42/CP is one important advance step to renovate the investment and construction regime towards removing institutional and administrative obstacles to investment and business activities of enterprises.
There are two main points in the Decree 52/CP as follows:
a) Renovating the regulatory regime on investment: each source of capital is managed by a distinctive mechanism, e.g. for state budget investment, the Government regulates comprehensively from the preparation of project, exercise of investment to the operation. For preferential state credit or other credit sources guaranteed by the Government, enterprises can take the lead in carrying out their investment but remained under the control of credit organizations to ensure their credibility. In this case, the Government intervenes in the phrase of making decision on investment, including the approval of the overall budget for investment, planning, architecture, standards, land and environment.
b) Extending the rights to enterprises, organizations and individuals in order to encourage them engage in investment and in parallel, enhancing the Government’s regulation on investment on the basis of legal documents.
III. Difficulties occurred from policies applied to public investment
Corruption and waste in public investment is a phenomenon prevailed in the 1990s. Since legal and regulatory mechanisms are not sufficient and clearly shaped in the transitional period, they are open for corruption and waste by a large part of government officials who rely on their mandate to make decision on every stage of investment, from the adoption of project’s proposal till the implementation of the project. From 1993, Vietnam started to put public investment projects to auction. However, in most cases, decision is implicitly made beforehand by the Board of auction, so the efficiency of auction is in fact relatively low.
Investment policy, which is still weak in many aspects leads to inefficiency. Many projects, even large projects, have not been carried out in accordance with procedures stipulated by laws, especially in the period of implementing the Decree 385/HDBT. Criteria for clearing off public investment funds are not uniform and recording documents (receipts) are arbitrarily used. Therefore many fault-recording documents have been made to draw public investment fund.
The spread and leveling of investment capital has been an emerging problem. The implementation of project is relatively slow and the procedures of approving projects, auction and disbursement are very complicated and time consuming. The quality of some public investment projects is still very low because project-designers do not pay attention to the efficiency of projects funded by Government budget. Those projects are therefore subject to many adjustments and amendments, even in the stage of implementation, which cause a large waste and prolong the duration of projects.
In recent years, public investment plans are carried out very slowly and not in time. There is often the phenomenon that “ money has to wait for projects” which is totally converse to previous fact that projects were approved but no fund available for disbursement. There are some causes of this phenomenon. Firstly, the assignment of investment plans from budget funds to Ministries and provinces is very slow so those funds can not be transferred. Secondly, while ministries, agencies and provinces are still looking for effective projects, banks themselves are also bewildered to work out credit services consistent with current complicated policy and mechanism. Thirdly, the allocation of investment funds at ministries, agencies and provinces does not match the list of projects indicated by the Ministry of Planning and Investment, therefore banks and the Ministry of Finance are not able to disburse funds.
IV. Recommendation on public investment policy in Vietnam
a/ Investment should not be scattered around but concentrated to key projects so that they can be promptly brought into practice and help enhance the economic efficiency. Once investment budget funds are allocated to ministries, agencies and provinces, a council, which compose of qualified and wise experts should be established to examine and select the most necessary projects on the basis of close scoring and voting.
b/ Prioritizing public investment funds to projects on infrastructure, agriculture, industries associated to agriculture, health care, education and human resources development.
c/ Promptly amending, completing and improving laws decrees, circulars related to the use and administration of public investment funds so that investment can be carried out in the most rapid manner. Main points for immediate actions include among others: improving the process and procedures of formulating, examining, approving, auctioning and disbursing public investment projects; Binding public investment projects to follow strictly decrees and circulars of the government and other competent ministries.
d/ Strengthening the supervision and control toward Government agencies in charge of the implementation and administration of public investment projects in order to prevent corruption, waste and impediments in the course of implementing projects.
B/ Investment situation and policy in state enterprises:
I- General trend of investment in SOEs:
a/ Investment from self-capital of SOEs has not regularly grew: its growth rates were respectively 60%, 119.3%, 81.3% and 46.3% in 1991, 1993, 1994 and 1997 but dramatically dropped in the consecutive years, i.e. minus 46.7% in 1992, -9.7% in 1995 and 15.6% in 1998.
b/ Generally, the growth rate of investment from self-capital of SOEs has been slowly decreased. The average growth rate was 25.2% in 1991-1995 whereas it was only 21.3% in 1996-2000. There are 2 periods where the growth rate decreased: the first period was from 1994 after a peak growth in 1993 (119.3%) and the second period was from 1998 because of the Asian financial crisis.
c/ Despite of unstable growth, the share of self-capital investment of SOEs in the total social investment has a tendency of increase in the period 1996-2000 after an unstable change in 1991-19995. This share mounted up from 13.8% in 1995 to 18% in 2000.
d/ Investment of SOEs, classified by sectors has been oriented to intensive investment and renewal of equipment with a view to enhancing products’ quality so that the productive capacity increases rapidly with a large number of products satisfying export standards or import substitution.
e/ However, “instant noodle investment” and “ short-term investment” are still prevailed in SOEs during 1990s: since enterprises do not have confidence in the stability of Government policy and mechanism, they invest a large amount of money but intend to draw it quickly, leading to a high proportion of deprecation cost and profit in the price of product and thus making product less competitive and can not be sold in the market.
f/ In the context of hard competition, low demand for economic growth, high valuation of Vietnam dong, tough competition from imports, SOEs are advocated to invest in capital intensive sectors, protected sectors and industries producing goods for export within preferential quotas.
II- Evolution of investment policy vis-à-vis SOEs:
Since 1991, reforms in SOEs sector have been taking place very slowly even though this sector has been chronically in difficulty. In the regulatory reform process, the reorganization of SOEs and national corporations gives a strong effect to the investment of those enterprises.
a/ Reorganization of SOEs: from 1989, in implementing the decrees 315/HDBT and 388/HDBT, the Instruction 500/TTg and Decision 90/TTg, the number of SOEs decreased from 12000 in 1990 to 5340 in 8/2000. By reducing the number of enterprises, the seize of enterprises’ self-capital and budget funds allocated to them have increased. Enterprises have more capital to modernize their machinery and equipment and to produce product of good quality. As a result, enterprises’ profits are in a rise and they in turn help increase the self-capital of enterprises.
b/ Establishing national corporations: In implementing the Decisions 90/TTg and 91/TTg dated 7/3/1994 of the Prime Minister, there are currently 18 national corporations functioning under the Decree 91 (so called 91 national corporations, administered by the Government) and 74 national corporations functioning under the Decree 90 ( administered by relevant Ministries). Even though the mechanism and policy applied in the establishment of national corporations are still exposed to much inefficiency, they have contributed considerably to profit- making of those enterprises. The reason is that because of those mechanism and policy, national corporations became lawful monopoly enterprises, especially in terms of price setting, import-export, controlling the quantity of goods circulated in the market etc. Thanks to high profit making, SOEs in national corporations have increased considerably their investment.
c/ Changes in laws and regulations during the last 10 years have been directed to enhancing the autonomy in investment of SOEs. The Law on SOEs issued in 5/1994 allowing SOEs to diversify their activities in many sectors. The Law on enterprises being in effective from 1/2000 removed 145 types of licenses respectively in 2/2000 and 8/2000 and facilitates business activities. The Decree 52 issued in 1999 regarding regulations on investment and construction allows SOEs the right to decide on their own investment projects funded by their self-capital and loans without Government's guarantee (except projects in Group A). Furthermore, SOEs can autonomously take the lead in all stages of investment on the basis of observing existing policies and regimes of the Government.
III - Problems and difficulties occurred by investment policy on SOEs:
a/ Mechanism and policy related to financial and monetary markets are not uniform. Taxation policy is not equally imposed between sectors and businesses and oriented to protection and increased budget revenue. Tax and tariff rates are frequently changed, which put investors in a passive position. Pricing policy is also exposed to some inappropriateness, leading in one hand to price volatile and on the other hand to the monopoly of some enterprises. As a result, they set very high prices which thus affects the demands of public and in turn affect the investment of enterprises.
b/ The functioning of commercial banks is still weak. Because of low expertise and moral degeneration of some banking staff, loans are often non-refundable. Financial situation of some commercial banks became more and more difficult during the 1990s. As a result, in the last 2 years, the Government has to strengthen the banking system, which implies some difficulties for investment of SOEs.
c/ The process of streamlining SOEs has been considerably progressive in the 1990 but there are still many difficulties. The number of SOEs is still too many, the model of national corporate is facing many problems and the process of equitation is too slow. The most threading thing is the low efficiency and weak competitiveness of SOEs when they are coping with tough competitions from foreign capital investment enterprises and imported goods.
IV - Policy proposals to enhance and improve the quality of investment in SOEs sector.
a/ Accelerating SOEs reforms towards putting them in leveled playing field with other economic components and foreign enterprises. Equitising as soon as possible enterprises the Government does not need to hold 100 shares; giving autonomy, sale, leasing, merging, disbanding or dissolving most of loss making SOEs, except public benefit enterprises.
b/ Cresting incentives to SOEs to investment intensively and renew their equipment and technology, enhance management skills of SOEs and using up existing capacity. It is not necessary to have mass investment as it was in the last few years.
c/ Creating favorable policy to exporting enterprises which have enlarged their markets and promised great potential. Similar preferences can be provided in projects of constructing and upgrading transportation infrastructure, irrigation system, electricity networks, shrimp cultivation, multi year crops, fruit trees, forestry and agro-forestry and aqua products processing.
d/ Encouraging banks to increase their loans to projects of SMEs, light industry and labor intensive enterprises because those projects and enterprises are more effective than projects and enterprises of large size.
e/ In the administrative work, the Government should have determining and sanctioning instructions vis-à-vis officers at Ministries, agencies and provinces who do not follow strictly legislation, especially the Law on Enterprises and Law on SOEs and try to maintain regulations for their own benefits. Enhancing the struggle against corruption and professional degeneration of baking staff.
C. Investment situation and policy in private sector.
I - General trend of investment from household and private sector:
a/ The growth rate of household and private sector’s investment which was very low in the last 10 years did not keep up with the potential of this sector and opportunities brought about by market mechanisms and international integration process. While its growth rate were respectively 20.5% and 42% in 1991 and 1992, its average growth rate was only 9.4% for the next three years, and minus in the following 4 years (1996-1999), even dropped down to minus 10% in 1998.
b/ As the annual growth rate was low, even minus in many years consecutive, the share of household and private sector’s investment in the total social investment reduced considerably and continuously during the 9 years of reforms: it fell from 43.4% on 1991 to 20.1% in 1999, then go up to 24.2% in 2000 thanks to the application of the Law on Enterprises.
c/ About 90% of investment of private sector was at first from its self-capital. However, during the 1990s, the proportion of banking loans and other unphysical loaning markets in this investment tends to increase.
d/ The structure of investment in agriculture and rural industries has been adjusted towards increasing the ratio of investment in small and medium production, exploiting competitive advantages such as natural resources and abundant labor forces to produce products that SOEs and foreign invested enterprises do not want the engage because of small market.
II- Evolution of policies regarding household’s investment
1. Main policies to mobilize capital for agriculture development:
It can be said that the most dramatic reform of the economic renovation process of Vietnam has taken place in agriculture sector and stemmed from this sector. Because of the implementation of many policies advocated to the liberalization of agriculture during the 1980s, Vietnam became a crop exporting country from 1989. Resolutions of the Communist Parties, especially the Resolution 2 and 6 of the VII Section have provided more favorable conditions of agriculture productions, e.g. removing multi-prices mechanism in cooperatives, applying a market-based price system, creating an unified market for agriculture capital goods, enhancing the application of science and advanced technology n agriculture, developing agriculture service etc. The National Assembly also issued many pieces of legislation on taxation related to agriculture production such as the Law on Agriculture, the Law on import-export tariffs, Land use tax, Tax on Natural resources etc. This taxation system, which is formulated in a manner to be ready comprehensible and applicable to peasants, clarify the sums of taxes that peasants have to contribute to the Government, helping prevent the corruption and abuse of power by different levels of authorities.
Furthermore, in the 1990s, the Government adopted many types of supporting policies in favor of agriculture sector and rural areas, such as increasing pubic investment to upgrade rural infrastructure, provide investment credit to SOEs as a support to agriculture production, liberalizing domestic rice market, allowing private sector to compete in getting rice export quotas and move gradually to open up the export of rice from 2000. Discrimination between agriculture and other sector has been reduced. As a result, private investment in agriculture and rural areas tend to increase.
2. Main policy to mobilize capital for developing non-agriculture private sector:
Since the VI Party’s Congress in 12/1986, non-agriculture private sector has been recognized as an economic component and allowed to compete in a leveled field with state economic sector. In 4/1992, the National Assembly passes new Constitution, which acknowledges private ownership of property and capital goods. The confiscation of private property has been prohibited. In 1/1991, the National Assembly passed the law in private company, which allowed private sector to engage in most of economic activities. In 6/1993, the National Assembly amended the Law on foreign investment in Vietnam, allowing Vietnamese private enterprises to create joint venture with foreign enterprises. The Law in encouraging domestic investment has also been adopted in 1994. Those policies have been obviously giving positive effects to the investment of non-agriculture private sector.
However from 1994, 1995 till end of 1999, many difficulties occurred in the private sector that regulatory policies were not adjusted in time to response to. For example, private enterprises which were already of small size and limited capital, once developing to a stagnant point had been lacking of capital, land and physical infrastructure to modernize their production and meet high product’s quality requirements; the intention of strengthening the economic role of the Government and establishing national corporations; and a rapid increase of corruption, and red tape of state administration vis-a-vis private enterprises.
In 1/2000, the Law on Enterprises officially replaced the existing Law on Company and Private Enterprises formulated in 1990, that creates more favorable conditions to private sector. The most strength of the Law on Enterprises is that it eliminates inequality among investors in establishing new business, simplify formalities for new business establishment and reinforce the responsibility of investors through the mechanism of “registration and verification”. The process of business registration was simplified and shortened.
III - Remaining difficulties in the application of policies and mechanism for private investment
Despite a lot of improvements in policies and mechanism for capital mobilization from the private sector, private investors have been facing difficulties regarding environment for production and trade, import and export activities, credit terms, market information and transparency. Difficulties facing the agricultural sector as well as the non-agriculture private sector are normally related to legal framework, land use rights, incentives for investment in unfavorable areas, direct access to foreign market for inputs and outputs.
Generally, the major reason that limits the mobilization of capital from rural population for economic development can be reflected in 2 ways. Firstly, the financial system is not strong enough; investment environment is not attractive or transparent; the banking system is not well developed; the organization of capital mobilization and lending is not diversified enough to meet different requirements of depositors; bank credit reserved for agriculture is limited while credit terms are not favorable for farmers. At the same time, infrastructure for agriculture and rural development is under bad conditions.
Non-agriculture private sector faces the same difficulties as in the case of agriculture and rural development. The worrying situation of investment in this sector is also attributed to the fact that business environment is unstable and government’s policies are not yet supportive or encouraging to this sector. There is an idea that the Government has not realized the importance of this sector to future development of the national economy.
During 1990s, the Government issued a great number of laws. However, the promulgation of Decrees and Circulars providing guidelines on the implementation of these laws has been slow and not synchronous; the last Circular may be promulgated at the same time when the revision of law is taking place. Therefore, private investors do not believe in the stability of the legal system. Each time, they only invest a small amount of capital and withdraw their investment if it is not rewarding. On the other hand, existing policies are not equal to different economic sectors, and private investors are the victims of this unfair mechanism.
IV- Recommendations on policies and mechanism governing the mobilization of capital from private sector and from the community
a/ accelerate the development of the financial system, including direct finance from long term securities markets and indirect finance through banks and credit organizations. At the same time, introduce more policies and mechanism that better meet people’s need and aspiration in order to make the best use of this capital source for the development objective;
b/ introduce more effective policies in order to gain people’s belief in the government’s policy of developing a multi-sector economy, diversifying the forms of ownership, and creating a fair environment for trade; eliminate discriminative policies toward private sector and household businesses; eliminate monopoly to ensure free and fair competition among different kinds of businesses. It is necessary to minimize procedures relating to the registration of businesses, and conduct a number of reforms to make it more favorable for businesses in terms of credits, prices and taxes, while furthering combat against corruption and bureaucracy;
c/ the government need to introduce policies to stabilize and and improve people’s income. These policies include developing rural infrastructure, imposing low taxes and removing some taxes imposed on farmers, reducing taxes imposed on industries which support agriculture and rural development, and other policies to help farmers find an outlet for their products, i.e marketing, soft loan for farmers in case they have to store their products when prices decrease...
D- Foreign direct investment, situation and policies
I- Outstanding trends in FDI
a/ Foreign direct investment tends to increase in the period from 1987-1988, when the Law on Foreign Direct Investment was adopted, until 1995-1996, but then fell sharply since 1996 in terms of both number and value of projects. The number of projects kept increasing from 153 in 1991 to 412 in 1995, with total registered capital increased from USD 1294 million in 1991 to USD 8640 million in 1996. However, the situation has reversed since 1996. By 2000, foreign direct investment in Vietnam has come back to 1990 level.
b/ The proportion of foreign direct investment in the total investment of the whole society increased rapidly in the period 1991-1995 and decreased in the period 1996-2000. The figure, estimated at 14.7% in 1990, increased to 32.7% in 1995 and then fell steeply to only 15.9 % in 2000.
c/ The structure of foreign direct investment has been changing in a positive way, with higher priority shifted from the production of non-tradable goods to the production of tradable goods, thereby positively contribute to economic growth.
d/ A common tendency in recent years is that the proportion of foreign capital invested in industrial zones, export and processing zones, business cooperation contract, and BOT projects has increased while capital proportion and the number of projects licensed by the Ministry of Planning and Investment and Provincial Authorities has decreased very fast.
In addition to some common and positive trends as mentioned above, there have also been some irrational tendencies relating foreign investment, which limit its socio-economic effects:
a/ Foreign investment has only been focused in areas with favorable conditions or industries which show quick return on investment. As a result, there is a lack of capital in areas Vietnam needs to develop (such as agricultural processing, aqua-agriculture, manufacturing...) or in areas that face the problem of unemployment;
b/ The tendency of diversifying sources of investment take slow effects while the proportion of investment from ASEAN countries has been increasing. Depending heavily on investment from ASEAN and Asia, the improvement of technology and management skills takes place at slow pace, and furthermore, investment flow will go down as soon as these countries suffer from crisis;
c/ In recent years, the proportion of small-scale projects and 100% foreign invested projects has been increasing, while the proportion of joint venture projects and business cooperation contracts decreasing. The contributed capital of the Vietnamese side tends to be lower in proportion, just around 20% in stead of 30% as before, and mainly in the form of land use rights;
d/ Despite some positive improvement regarding investment structure, the proportion of investment in industial production and estates trading still outweigh that in agriculture and infrastructure. By 1998, industry accounts for 37.6 %, oil and gas 20.4%, estate 17.8%, while agriculture 6.1 % and telecommunications only 4.5 %.
II- Improvements of policies and mechanism with regard to foreign direct investment in Vietnam
a/ Law on Foreign Investment dated 12/1987:
The National Assembly adopted the Law on Foreign Investment in December 1987 in order to create a legal environment for foreign investment in Vietnam. However, this first version had many drawbacks, and had to be revised in 1990. This was because the law was issued in the background that Vietnam began its renovation process, the centrally planned economy principles was still applied, and a law governing the development of market economy was not yet in place;
b/ Revised Law on Foreign Investment 1990
In June 1990, the National Assembly of Vietnam adopted the Law on the amendment of and supplement to the Law on Foreign Investment 1987. These amendments and supplements include: (1) definition of the roles and responsibilities of the Vietnamese side, (2) more detailed definition of business cooperation contracts, (3) more detailed definition of joint ventures (4) regulations on business cooperation between Vietnamese private enterprises and their foreign partners. They also provide more concrete definitions and regulations on joint ventures.
c/ Revised Law on Foreign Investment 1992:
The National Assembly of Vietnam revised the Law on Foreign Investment for the second time in December 1992. The amendments and supplements cover the following matters: definition of Vietnamese side consisting of 1 or more businesses of different economic sectors, establishment of export processing zones (EPZ) and business activities in EPZ, regulations on BOT contracts. In comparison with the first revision, the revised law 1992 is more concrete and focusing in some definitions. Particularly, it also provides regulations on new types of attracting and contributing investment capital.
Since 1992, along the course of revising and completing laws and other documents regarding foreign investment in Vietnam, regulations on the repatriation of investment capital or profits tends to be increasingly strict and complicated. As a result, worries have been raised among investors since 1995-1996, and the number of projects approved went down considerably at the end of 1996.
d/ Law on Foreign Investment November 1996
On 12th November 1996, the National Assembly adopted the new Law on Foreign Investment by basically amending and supplementing the Law on Foreign Investment 1987 and its two revisions in 1990 and 1992. In addition, the National Assembly has also revised and adopted many important laws such as Commercial Law, Company Law, Law on Private Companies...
New contents of the 1996 Law include: concrete regulations on the areas and fields where foreign investment is encouraged; areas and fields where foreign investment is restricted; new regulations on the reduction and exemption of profit tax, for example, profit tax can be exempted for at most 4-8 years; exemption of import duties on machinery and transport vehicles specified for investment projects; reduction and exemption of rents on land, water and sea area used in investment projects under the form of BOT, BTO, BT; investment projects in moutainous, remote and hard-up areas; regulations on diversification of investment forms; legalization of industrial zones; regulations on the use of Vietnamese currency by the foreign parties; limitting the use of concensus voting in making decisions through the Board of Management; reducing the time for evaluating and licensing to 60 days...
c/ Revised Law on Foreign Investment 2000
In the condition that investment flows have seen continued reduction in recent years, the National Assembly of Vietnam has revised the Law on Foreign Investment version 1996. The Government also issued a Decree dated 31st July 2000, providing detailed regulations on the implementation of this Law. However, there have not been any further guiding Circulars since then. Thus, investors are still not much interested in investing in Vietnam. Their traditional worry is that Law is fairly open and clear, while sub-laws try to limit incentives and make it difficult to implement the Law.
III- Difficulties and drawbacks in policies and mechanism governing Foreign direct investment in Vietnam
a/ Planning for the development of FDI sector is slow and less concrete, which leads to many difficulties in evaluating projects, and poor quality of projects. Due to the fact that a master plan for each region and area is not yet in place, and that the exploration steps do not have enough reliability, many projects including those for building restaurants and hotels, producing freshwater, audio visual products, assembling car and motorbike, washing powder..., have been licensed improperly, which lead to excessive supply in the overall economy. Investment incentives have not yet been institutionalized to attract foreign investors to such areas as agriculture, forestry, fishery, and infrastructure development in many big cities or in concentrated industrial zones. Although joint ventures have been more facilitated, accounting for 50 % of the project number and 60% of the registered capital, this sector has the highest number of loss-making and bankrupt businesses. Part of the reason is that the existing mechanism does not stimulate the participation of non-state enterprises in joint ventures.
b/ Policies and legal system are not synchronous, stable, and transparent. Many changes not only disadvantage investors, but also reverse and cause damage to their business. Many legal documents are not issued in time. Some guideline documents issued by ministries, branches and local authorities tend to tighten and restrict the development of foreign investment. Most of the related documents have unclear articles…
c/ High level of government intervention in the operation of foreign investors: There is too much overlapping inspection and examination by different Government agencies, causing a lot of troubles for business activities. The criminalization of economic relations tends to increase. A policy to improve Vietnamese staff working in foreign investment projects is not yet in place. Corruption is becoming popular at different levels, causing delays for many foreign invested projects.
IV- Recommendation on policies and mechanism in order to further attract foreign investment
a/ Maintain the balance between maintaining government intervention in the overall economy and foreign invested sector, and creating a more favorable and attractive environment for foreign investors. To this end, we need to identify some areas of priority in which foreign investors should be encouraged. These include some areas of higher comparative advantage in order to promote export, or areas involved high level of technology. In particular, we should give higher incentives for areas and industries that have high demand for foreign investment;
b/ Revise the existing legal documents in order to reduce difficulties facing investors. This can be achieved by: ensuring an attractive and transparent legal environment together with incentives of higher level than those applied to domestic investors; reducing costs and unifying prices for both domestic and foreign investors; reviewing costs of land use rights, cost and compensation for the demolition of people and the clearance of land; introducing reforms in the areas of finance, credit, and exchange with a view to equalizing foreign investors with domestic ones;
c/ Diversify forms of foreign investment, allowing foreign investors to change from one form to another; helping foreign investors when they are in difficulties by granting loans, thereby increasing the capital contribution of the Vietnamese side; encouraging private sector to take part in joint ventures with foreign partners.
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