Vietnam is betting that the most significant easing of business regulation in 25 years and an accelerated sale of state-owned companies’ shares will revive a flagging investment outlook.
The government on July 1 will reduce to six from 51 the number of areas in which firms are prohibited from operating, allowing fireworks manufacture and genetically modified products, among others. It will also loosen regulations in more than 100 other areas in what will be the biggest overhaul of business rules in the economy since private firms were allowed in Vietnam in 1990.
“We aim to trigger an investment wave from both local and foreign investors,” Planning and Investment Minister Bui Quang Vinh said in an interview in Hanoi on Thursday.
The revised laws on investment and enterprises “will make huge changes to significantly improve our business environment and create strong momentum for growth,” he said.
Vietnam is facing competition for foreign direct investment (FDI) from other nations in Asia, with pledged foreign direct investment in the first five months of this year totaling only US$4.3 billion, less than 20 percent of the total forecast for this year. Vietnamese Prime Minister Nguyen Tan Dung aims to sell a record number of shares in state-owned firms this year as the government seeks to spur economic growth to a four-year high of 6.2 percent.
The revised laws “are a major milestone to encourage foreign as well as domestic investors,” said Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, Vietnam’s biggest fund manager. “They represent a change in the mentality of policymaking — more toward the market and less by bureaucracy.”
Pledged FDI in Vietnam fell 22 percent in the five months of the year from a year earlier, according to data from the planning and investment ministry. Disbursed FDI rose 7.6 percent to US$4.95 billion in the period.
That compares with the Philippines’ approved FDI, which fell 41.7 percent in the first quarter from a year earlier, while Indonesia’s approved foreign investment rose 14 percent in the first quarter.
“We aim to be among the top four Asean countries for FDI by 2016,” Vinh said.
He forecast pledged FDI would reach as much as US$23 billion this year, from US$21.9 billion last year, and predicted disbursed FDI to be about US$12.5 billion.
The government will issue six decrees next month to provide detailed guidance on the revised laws, Vinh said.
A “large number” of permits and licenses will be abolished “to make it a lot easier and more transparent for investors,” he said.
“This is the biggest change in business regulations since Vietnam allowed private companies in 1990,” said Tran Dinh Thien, director of the Vietnam Institute of Economics in Hanoi. “It’s significant, yet the implementation of the regulations is crucial.”
Foreign investors will have more opportunities to invest as more state companies sell shares this year, Vinh said.
“However, we should sell state stakes in larger proportions, not just five, 10 or 20 percent as we have been doing,” he said.
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