Vietnam’s New Era: Value-added Projects and Sustainable Development

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HANOI – Over the past few years Vietnam has been experiencing gradual changes that definitely influence its socio-economic development strategy and this is expected to influence its policies for foreign invested enterprises (FIEs) in the near future.

New strategy for Vietnam
After many years of economic development resting on labor intensive enterprises, Vietnam became a middle income economy last year according to the World Bank’s ranking (GNI per capita between US$996 and US$12,195). But along with this promotion, Vietnam became aware that, although the economy grows fast and the social policies are fairly successful, these achievements are not up to the country’s potential, and the current socio-economic development is not sustainable. Thus, in its 2011-2020 socio-economic development strategy, Vietnam highlighted that rapid economic development has to go together with sustainability.

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Changes for FIEs to come
To reach those goals, and not to fail in the “middle income country trap,” it is now essential for Vietnam to develop new technologies and products rapidly in order to maintain its socio-economic development and not to remain an outsourcing country indefinitely. To take this bend, Vietnam will notably have to make changes in its foreign direct investment policy.

Actually, Vietnam has been offering attractive policies to FIEs during the past 20 years, but sustainable development did not seem to be a priority and thus, as Dang Huy Dong, Vice Minister of Planning and Investment said, although the country “has been considered an attractive place for investment, it is said that the quality of FDI remains poor and is threatening the country’s sustainable development.”

In accordance with this review and as the advantages usually offered to FIEs (low-cost workforce, abundant land) are not unlimited, in the near future Vietnam intends to select the FDI projects to ensure their quality. The common labor intensive projects will be set aside, while high-tech and environmentally-friendly projects which create important added value will receive preferential treatment and be encouraged to gather in industrial clusters, as those benefit Vietnam’s sustainable development.

Persistent issues
As China has already started a similar policy, raising the minimum salary and taxes, excluding labor intensive and outdated technologies projects, many transnational investors should relocate to Vietnam. This is an opportunity, but to take up the challenge, and not to simply become an alternative to China, remaining a low-cost manufacturing country, along with the selective policy, Vietnam will have to deal with persisting issues: corruption, convoluted administrative procedures, and lack of skilled workers due to the flaws of the education system.

Hopefully, this new sustainable trend would be considered as an encouragement for Vietnam to improve its administrative system as well as the quality of its human resources and of its education and training systems. Although Vietnam has a huge and fast growing working age population, the challenges are many in HR: investors have to invest in employees’ training, but they also have to be creative in order to retain this workforce once skilled and experienced; and as this specified labor force is limited and the demand grows, job-hopping will speed up and it will subsequently become harder and more expensive to attract and retain qualified employees.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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