Investment Rating

After years as a closed economy, Vietnam opened up to foreign investment in 1987 with the promulgation of the foreign investment law, considered one of the most liberal in the Asia-Pacific region. The opportunities the country has to offer have been greeted enthusiastically by foreign investors, and since 1988 investment pledges have reached over 1,200 foreign investment projects having an aggregate investment capital of over US$16 billion. Foreign trade has also mushroomed. Over 700 foreign companies from over 40 countries are now investing in Vietnam.

Not surprisingly, Vietnam is often referred to as Asia’s next tiger, and there is no doubt that its emerging economy offers foreign businesses a range of exciting trade and investment opportunities. However, to succeed in Vietnam, the foreign businessman must have patience as well as be willing to make long-term commitments. The foreign investor needs to be aware of the possible problems and pitfalls which may be encountered, just as they may be encountered in the early stages of any rapidly developing economy.

    Vietnam can offer the following attractions and advantages:-
  • Abundant mineral and natural resources;
  • Active government encouragement of foreign investment;
  • Cheap labour and a literate workforce;
  • Potential for tourism;
  • A potentially important consumer market with a population of nearly 75 million;
  • A central location in the fast-growing Asia-Pacific region;
  • A comparatively liberal foreign investment law which continues to be refined;
  • Attractive tax incentives for foreign investors;
  • The Government’s success in bringing a previously weak local currency and high inflation under control. Both have been remarkably stable since 1992;
  • Once an adequate legal and infrastructural framework has been created, Vietnam may well have similar or greater growth rates than that enjoyed by, inter alia, Thailand and China over the recent years.

    The foreign investor needs to be aware of the following difficulties:-
  • Poor infrastructure. There are severe problems with roads and the railway system, port facilities, bridges, water and electricity supply, sewage and drainage. Official statistics are not always consistent. Communications and the banking system also need further development;
  • Bureaucracy and corruption;
  • A lack of experience in business, accounting and taxation concepts. Contracts are not always treated with respect and are difficult to enforce;
  • Legal uncertainties due to the lack of a system to resolve civil and contractual disputes and the authorities’ occasional unfamiliarity with laws resulting in regulations that are constantly changing or that contain internal contradictions;
  • A shortage of hard currency;
  • Difficulty in obtaining third-party finance for projects. The prime reason for this is the difficulty in getting security for loans in the absence of a land title system;
  • Language barriers and cultural differences;
  • All foreign investments have to be licensed and the application process can be long and arduous due to frequent conflicts between the central and local governments with their own agendas.

However, it is important to point out that although Vietnam is a challenging place for the foreign investor, progress is being made in nearly all of the above areas and the pace of change over the last few years has been remarkable.

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