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Old woes make business in Vietnam tough foreign chambers

The tough situation had forced many companies to cut operational costs, restructure operations, and even halt their investment and expansion plans, according to executives of the Australian Chamber of Commerce (AusCham), the German Business Association (GBA) and the European Chamber of Commerce (EuroCham) in Vietnam in interviews with the Daily.

GBA chairman Elmar Dutt sent out a clear message that a lot of German companies had reconsidered their strategies by suspending future investments and expansion plans due to the current instability and negative trend of the overall investment environment.

German companies wanting to invest in Vietnam as their hub re-think their options, either to invest elsewhere in the ASEAN region or delay their investments,” Dutt said. “Some German companies who have intended long-term investments in Vietnam might consider soon even an exit from Vietnam if the downward trend continues.”

High inflation and legal barriers are among the unfavorable factors for Australian companies to operate in Vietnam, as mentioned by AusCham vice chairman Brian O’Reilly. He said many organizations were looking for other sources of revenue while having to cut costs.

“Inflation is again a serious concern and the new Labor Code and Decree 46 have also raised concerns among our members,” O’Reilly said. “Many of the old concerns are still present such as inadequate infrastructure, taxation laws, lack of transparency, intellectual property rights, and corruption.”

The rules in newly-effective Decree 46 are claimed by EuroCham as an increase in administrative burdens for foreign companies in Vietnam in a tough time like currently and prolonging their recruitment process for all foreign employees, including the top managerial positions.

“A talented, fast learning and young labor force has long been one of the factors that has encouraged many companies to invest and do business in Vietnam. It would be unfortunate to see new legislation to undermine an underlying reason for the country’s continued attractiveness to investors,” EuroCham executive director Matthias Dühn said.

Dühn said the decree and some macro-economic uncertainties had made EuroCham member companies more cautious about their business plans in Vietnam.

“Vietnam still suffers from trade, current account and fiscal deficits, leaving the economy vulnerable to global economic uncertainty. Inflation and deficit concerns have caused some investors to re-assess their previous upbeat view of Vietnam,” Dühn said.

Dühn touched on inflation and foreign direct investment (FDI) in Vietnam after the General Statistics Office announced that the consumer price index from January to August grew 15.68% compared to late last year.

The Foreign Investment Agency reported the FDI pledges for 582 projects licensed in the period decreased by 30% year-on-year in the registered capital to more than US$7.9 billion, but the disbursed FDI in the year to August inched up a mere 1% over the same period last year to US$7.3 billion.

“The rate of FDI in Vietnam has lost some of its steam that has been seen as a normal state of affairs now for a number of years as investors are turning more cautious. Many wanted to maintain their current level of investment and adopt a ‘wait and see’ approach,” Dühn said.

A number of GBA members are experiencing the same attitude as stated by the chairman. “There is currently a sentiment by our companies operating in Vietnam to rather downsize, shift production partially to other ASEAN countries or ‘wait and see,’” Dutt said.   

Dutt, who is also managing director of Tanner Vietnam, said German investors wanted the Government to take drastic action on legal and financial reforms as well as streamline procedures to reduce bureaucracy and help cut corporate risks, unnecessary overhead-costs and retain investor trust and confidence.

He said these days German investors were eyeing more again on Thailand, Malaysia and Indonesia as these countries offered a more stable foreign-investment friendly climate and benefits. “Frankly speaking, Vietnam is no longer in a front-runner or pole-position in the ASEAN region,” Dutt said.

O’Reilly of AusCham acknowledged that Australian investors were still planning their investment in banking and finance, construction, education and training, mining and legal services in Vietnam but now to a lesser degree than in good economic times.