Vietnam Business Forum – Hanoi, 1 December 2015

[The following paper was presented to the Vietnam Business Forum, on behalf of AusCham, by AusCham Director, David Carter.]

We take the opportunity to comment on [three] specific areas of note and interest to our members and other Associate Member chambers of commerce.

 

1. Lack of implementing regulations

This year has seen several important new law or law changes come into effect, notably the new Investment Law and new Enterprise Law, both of which took effect on 1 July 2015. It was encouraging to note that drafters of those laws incorporated comments from the investment community.

For practical purposes however such laws are all but ineffective without implementing legislation in the form of Decrees and Circulars to provide both clarity for investors and guidance for the regulators to give effect to the government’s intent. It was widely expected that implementing Decrees for the Investment Law in particular would be issued, following opportunities for consultation, before 1 July 2015. Unfortunately, to date, no such Decree has been issued.

The consequence has been uncertainty, development of differing practices among provincial authorities and thus a lost opportunity to capitalize on the many positive changes introduced in the law itself. Clear and detailed guidelines are required for the full impact of the new law to be realised and we hope the government will address this as a matter of urgency.

 

2. Visa waiver issues

The government’s recent decision to increase the number of countries on the list of visa exempt countries was very welcome. However there are still several issues in this area. Currently Vietnam has visa waiver or exemptions for citizens of 21 countries which is far lower than neighboring competitors such as Malaysia (with 164), The Philippines (with 157), and Thailand (with 52).

First, we strongly recommend promptly extending the list of visa waiver countries to include Australia and New Zealand as a means of further facilitating trade, investment and tourism between the nations.

Secondly, we recommend the exemptions be for 30 days not the current 15 with returns allowed within 30 days as a means of encouraging people to use Vietnam as a hub.

 

3. Strengthening market institutions

Vietnam has taken important steps recently to improve and enhance the market institutions that underpin a successful and sustainable economy. Notable improvements are the Investment Law’s terms with respect to freedom to do business in areas not prohibited by law, prohibitions on ministries and local authorities imposing business conditions ‘by the back door’ and renewed focus on restructuring of the State-owned enterprises sector.

Nevertheless, as Vietnam integrates deeper into the global economy, particularly following the conclusion of the Trans-Pacific Partnership and other free trade agreements it is imperative that Vietnam takes bold steps to continue improving market institutions and economic freedom.

For example, while conditional investment sectors are justified they also create de-facto barriers for entry often well beyond the stated rationale of the conditions in question. The list of conditional sectors is too broad and the consequences are also often unclear. We note for example that the recent Decree 60 concerning foreign ownership limits in public companies provides that if a business activity is considered as conditional for foreign investment purposes but there is no specific foreign ownership limit with respect to such activity, then the level of foreign investment is capped at 49%. We would propose that the opposite conclusion would be more appropriate and in keeping with Vietnam’s commitments towards economic freedom. Majority foreign ownership does not mean investment conditions cannot be met.

Another area of note is with respect to the role of State-owned enterprises. SOEs continue to dominate many areas ‘crowding out’ private enterprises, particularly SMEs, who are not competing on a level playing field. Such companies, given the space and opportunities they need to flourish, will ultimately deliver more efficient and sustainable growth for Vietnam. In absence of that there is a risk that the foreign-led manufacturing sector will become the key sector of the economy, adding less value to the economy with little of the manufactured product consumed in Vietnam.

 

4. Restrictions affecting foreign real estate developers

We note that the new Law on Real Estate Business continues to provide for unnecessary differences between foreign and domestic real estate developers. For example, foreign developers are not permitted to transfer land use rights in the form of division of land into plots for sale whereas domestic developers enjoy such rights. Further, enterprises with foreign owned capital are permitted to collect up to only 50% of the value of the contract for sale and purchase or hire-purchase of real estate to be formed in the future whereas the applicable percentage to local developers is 70%. It is not clear why this difference in treatment is necessary and this inconsistent treatment creates inefficiencies and impairs the competitiveness of the industry in general.

We would recommend that differences in treatment between foreign invested and Vietnamese developers be removed to ensure a fair and level playing field for all in the real estate sector in Vietnam.