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NEWS UPDATES Asean Affairs        8 January 2011

Vietnam's FDI policies may need reworking

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Experts yesterday raised concerns over the preferential treatment given to Foreign Direct Investment (FDI) enterprises, saying domestic companies might be disadvantaged if the government did not implement timely changes to policy.

In a meeting to assess the effects of preferential policies for FDI projects on the Vietnamese economy, Nguyen Tu Anh of the Central Institute for Economic Management (CIEM) said that FDI tax breaks and deduction policies totalled VND10 trillion (US$500 million) each year, or 0.7 per cent of the country's Gross Domestic Product.

Economist Le Dang Doanh, former head of CIEM, said that active integration meant less need for preferential treatment to attract foreign capital sources.

Doanh then asked if granting FDIs better land than local companies was unfair. In response, Anh said that policies encouraging investment only played a limited role in the foreigners' decision to invest. The decisive factors were market scale, real income level, the availability of skilled workers and necessary infrastructure, as well as the stability of the political system and macro-economy.

In other words, decisive factors were necessary conditions while preferential policies constituted sufficient conditions, he said.

To date, nobody had conducted research into whether the real costs for preferential treatment were reasonable. Meanwhile, there remained a shortage of supervision to ensure FDI projects were efficient, Anh said.

He said preferential policies for FDI projects were regulated in 50 legal documents in fields as diverse as investment, corporate income tax, export-import tax, land and promotion of small- and medium-sized enterprises.

Because of overlapping jurisdictions and inconsistency between legal documents, some FDI enterprises were doubly favoured when they opened a production factory in a preferential sector and in a preferential locality, Anh added.

The government should reconsider which sectors most deserved preferences and rebuild criteria for particular priorities, Doanh stressed.

Tran Dinh Thien, director of the Viet Nam Economics Institute, said that the government should pay more attention to developing local enterprise systems and that policies aimed at encouraging FDIs should define their targets more clearly.

Most companies which invested in Viet Nam were subsidiaries of multinational groups, and this limited opportunities for other Vietnamese companies to access technology. Therefore, there should be policies to encourage parent companies to directly invest into the country, Anh said. The attractiveness of Vietnam to foreign investors lay mainly in cheap labor and the stable politic system, he added.

From 2001 to 2010, Viet Nam attracted more than 12,000 projects with a registered capital of $192 billion.

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