The best companies in the US, Europe and Japan are not picking Vietnam but instead have moved to other regional countries like Malaysia, Indonesia and Thailand, where developed supporting industries and highly-qualified human resources are already in place.

Reform is a must to help Vietnam lure high-quality FDI 

The competition in foreign direct investment (FDI) attraction among regional countries is becoming fiercer, putting Vietnam at risk of becoming less attractive to foreign investors in the coming time if no further bolder reforms are realized, experts warned.

Among Southeast Asian countries, the Thai government on September 10 endorsed a package of measures, including investment acceleration incentives and policies to ease constraints faced by foreign investors, which are aimed at attracting more foreign investment, especially to expedite investments from companies seeking to relocate their production plants in the context of the escalating US-China trade tension.

 According to Kobsak Pootrakool, deputy secretary-general in charge of political issues of Thai Prime Minister Prayut Chan-o-cha, the new stimulus package will help Thailand be able to compete with other countries in Asia in attracting foreign investment, especially from high-tech enterprises.

 The same day, the Thai cabinet also approved a 10 billion baht (US$330 million) disbursement from the country’s Competitiveness Fund to support the establishment of a hi-tech academy in Thailand, which is expected to contribute to training hi-tech human resources for Thailand - one of the important factors to attract investment from foreign technology businesses.

 The move raised concerns for Vietnam as it must compete fiercely with other countries in the region to attract foreign investment, especially in high-tech and modern industries, while its competitiveness in the industries remains lower than that of the rivals.

 Thorough reforms needed

 Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, said that the US-China trade war has been creating a wave of capital flight from China to other countries. This wave began in 2016 and hit a record high this year when hundreds of billions of dollars from China flowed to other markets.

 Where are the destinations of that capital shift? Mai questioned, noting that Vietnam is one of the top selections as many investors from China have shifted to Vietnam in recent years.

 However, Nguyen Duc Thanh, head of the Vietnam Institute for Economic and Policy Research, observes that the best companies in the US, Europe and Japan are not picking Vietnam but instead have moved to other regional countries like Malaysia, Indonesia and Thailand, where developed supporting industries and highly-qualified human resources are already in place. 

Also, these countries have established a national brand as an attractive investment destination.

 According to Mai, the FDI attraction is a competition among countries so as to attract more high-quality foreign investment from China, Vietnam must have a better investment environment than China and other neighboring countries.

 However, experts said in fact, the improvement of the country’s business environment has remained very slow in recent years.

 Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry, said that Vietnam now still heavily dependent on low costs, geopolitical position and domestic market size to attract foreign investment. Meanwhile, institutional factors, which promote innovation, safety for investors and consistency in policy system, are still limited.

 According to businesses’ assessment, Vietnam's administrative procedures are still cumbersome compared to other regional countries. Therefore, Vietnam’s institutional quality is ranked only at the average level in ASEAN according to the World Bank and the World Economic Forum, Loc said.

 “We are talking about the digital economy and the new FDI generation, but we are still in the group of economies that are not ready for the digital economy according to the ranking of the World Economic Forum last year. It thus requires us to put the reforms of business environment and administrative procedures on top priorities,” Loc concluded.