Vietnam overhauls business rules for investment

HANOI - Vietnam is betting that the most significant easing of business regulation in 25 years and an accelerated sale of state-owned firms' 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 June 18. 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 FDI in the first five months of this year totalling only US$4.3 billion (S$5.7 billion), less than 20 per cent of the total forecast for 2015. 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 per cent.

The revised laws "are a major milestone to encourage foreign as well as domestic investors," said Mr 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 policy making - more towards the market and less by bureaucracy."

Pledged FDI in Vietnam fell 22 per cent in the five months through May from a year earlier, according to data from the planning and investment ministry. Disbursed FDI rose 7.6 per cent to US$4.95 billion in the period.

"In Vietnam, we are offering more incentives in areas such as taxes and land to lure foreign investors," Mr Vinh said. "We aim to be among the top four Asean countries for FDI by 2016." 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, Mr Vinh said. A "large number" of permits and licences will be abolished "to make it a lot easier and more transparent for investors," he said.

The six areas in which businesses will still be prohibited include prostitution, as well as trading of illegal drugs and wildlife, according to the government's website. Mr Vinh predicted economic growth would quicken to 6.1 per cent in the first six months of this year from 5.18 per cent in the same period a year earlier.

Foreign investors will have more opportunities to invest as more state companies sell shares this year, Mr Vinh said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 23, 2015, with the headline 'Vietnam overhauls business rules for investment'. Print Edition | Subscribe