Nguyen Mai, chairman of the Viet Nam Association of Foreign Invested Enterprises (VAFIE). — Photo baodautu.vn

According to the Ministry of Planning and Investment, foreign investors seeking to invest US$20.2 billion in Viet Nam have experienced a 19 per cent increase over the $17 billion target. Officials of the Ministry's Foreign Investment Agency reported an export surplus of $2 billion in 2014, the highest since 2012, thanks to significant contributions in foreign direct investment (FDI).

Biz Hub reporter Lan Dung talks with Nguyen Mai, chairman of the Viet Nam Association of Foreign Invested Enterprises (VAFIE), about the current state of FDI in the country, as well as projections for 2015.

Could you give us a general view of FDI in Viet Nam last year?

I think that there was a new wave of FDI in Viet Nam last year.

The country had two waves in the past, first in the period from 1991-98, and the second occurred from 2005 to 2008. In the first period, FDI accounted for about 30 per cent of total capital for social investment. After it fell in the 1999-2005 period, to approximately $2.5 billion of registered capital, the amount increased to $62 billion in 2008. In the period from 2009-2013, the registered capital of FDI companies remained stable with about $18-20 billion of registered capital and about $10 billion of implementation capital.

In 2014, implementation capital reached $12.6 billion, with registered capital at more than $21 billion. I am more interested in implementation capital than registered capital.

There are various signs that indicate the new wave of investment last year. The quality of foreign investment was better than it was years ago. Big projects were carried out very quickly. For example, Samsung was given an investment certificate to construct its first factory in Bac Ninh Province in 2007. Between 2007 and 2013, Samsung invested about $650 million. In 2014, it built a new factory in Thai Nguyen Province with an investment of $2 billion, and increased its investment in its first plant to $2 billion.

In 2013, the South Korean firm's export value reached about $20 billion. Last year, although it did not reach its annual target, its export value brought $26 billion, contributing to 16-17 per cent of Viet Nam's total export turnover. Samsung also announced a $1.4-billion project in HCM City and invested more than $3 billion in its plant in Bac Ninh Province, raising its total investment to about $11.2 billion. It is expected to develop other projects in shipbuilding and thermoelectricity.

In 2014, global enterprises saw Viet Nam with different eyes. In addition to the country's advantage of having stable politics and society, they recognized three more strong points for investing in Viet Nam. Its economic growth was nearly six per cent, inflation was down, and industries experienced a remarkable increase.

The business environment also improved after the National Assembly passed the Investment Law, Enterprises Law and amendments in the tax law. In fact, 2014 brought confidence for both local and foreign investors.

Workers at a Samsung's plant in the northern province of Thai Nguyen. The South Korean firm has increased its total investment in Viet Nam to about US$11.2 billion and is expected to carry out projects in shipbuilding and thermoelectricity in the country. — VNA/VNS Photo

How will the investment wave develop in 2015?

Last year created an impetus for development, and I believe that it will develop more this year. The new US Ambassador to Viet Nam announced that during his term, he will try to move the US to become the No 1 investor in our country.

Currently, US investments are much lower than those from Japan, South Korea, Taiwan and Singapore. The announcement by the ambassador shows that investments from the US into Viet Nam are not proportional to its investment in other Southeast Asian countries, such as Thailand, Malaysia and Singapore. I think that he made the announcement because he understands the Vietnamese investment environment.

Meanwhile, not only big enterprises but also mid-sized companies expressed interest in investment in Viet Nam.

After free trade agreements (FTA) with some European Union nations are signed this year, investments from the EU will surely develop.

I think that the new wave will maintain its pace until 2020. How well Viet Nam welcomes the wave depends on administration systems in the country, including tax and customs, and the management of the government, ministries and of chairmen of People's Committees in cities and provinces.

In your opinion, what limitations do Viet Nam's competitive advantages show? What might make foreign investors become anxious about investing in Viet Nam in the coming years?

In the past, it was said that the biggest disadvantage was Vietnamese human resources. Viet Nam was known for its unskilled workers who received low wages, so industries, such as footwear and textile, moved to Viet Nam.

However, we have seen changes in recent times. It has been said that labour productivity of Vietnamese workers is only 1/18 of Singaporean employees, and 1/5 of Thai and Malaysian partners. Our labour productivity needs to be improved, but we should consider the improvements we have made.

Why does Samsung invest in Viet Nam? The firm says that the labour productivity in Viet Nam is currently about 80 per cent of South Korean workers, while salaries paid to its local employees is only 1/4 of its South Korean partners. That's why it chose to invest in Viet Nam. Foreign companies move their plants to Viet Nam because our labour productivity is not much lower than in other countries, while our wages are lower than theirs.

In 2014, Viet Nam was considered the top exporter to the US, with $29 billion, overcoming Thailand, Singapore, Indonesia and Malaysia. It means that the competitive ability of Vietnamese products jumped over others to gain its position in the US market.

I think that the weakest point of Viet Nam is its administration system. It is very bulky and sometimes no one takes responsibility. Enterprises do not know who they should meet to solve an issue. The government has tried to decrease administrative procedures, but government officers still cause difficulties for companies. Not only international firms, but also domestic ones complain a lot about this.

During a recent conference, foreign companies appreciated efforts by the government to reduce the time spent on tax payments and customs procedures. They said the changes were good, but they expect to be welcomed and instructed carefully by customs officers. We have to be more active in restructuring the state system, I think.

Workers check its export clothing products at a factory of 100 per cent foreign-owned company Hansae Vietnam in HCM City. — VNA/VNS Thanh Vu

FDI sectors contributed a lot to the export surplus of $2 billion in 2014. Do you have any comments on this?

Many people are concerned about the weakness of local enterprises, noting that FDI made up 67 per cent of Viet Nam's total export turnover last year. They are anxious about FDI's expansion into retail and wholesale trade. Their concerns are legitimate, but they should see the whole picture. Without 67 per cent of FDI, Viet Nam would not have $150 billion in export turnovers. FDI not only made up for the trade deficit of local firms, but also contributed $2 billion in export surplus.

Viet Nam had an export surplus for the first time in 2012, reaching hundreds of millions of dollars. It reached $800 million in 2013 and jumped to $2 billion in 2014. Although the government submitted a document to the National Assembly on its expectations of having a 5-10 per cent trade deficit this year, I believe that Viet Nam will see an export surplus because FDI enterprises grow very fast. In January alone, an export surplus was seen in the FDI sector, and domestic companies also experienced trade deficits. It was a positive sign which showed their recovery.

We should not hold FDI's growth back, but do something to promote FDI and help local firms develop. The country has also considered creating competitive capacity for local enterprises. Strong firms compete with FDI companies for survival. Weak ones shut down or are acquired to survive. Viet Nam should not protect local companies. For instance, Vietnam Electricity (EVN) announced a profit of VND6 trillion ($285.7 million) last year, but still asked the government to increase power prices. Electricity should be placed into the competitive market and the state should not interfere. Fair competition will help private sectors and SMEs develop, along with FDI companies.

In 2015, Viet Nam will participate in the ASEAN Economic Community, Russia-Belarus-Kazakhstan FTA and perhaps the Trans Pacific Partnership (TPP), which will bring us opportunities and challenges. What are your recommendations for foreign companies?

The inflation rate last year was four per cent, and I think it will be about 3 to 4 per cent this year. However, unease about the weather, and the world, can make inflation rise. Petrol prices have gone down recently, but there is also a prediction that it could rise to $200 per barrel. Viet Nam should gain experience from the 2008-14 period and issue timely solutions to changes in the world.

The confidence of foreign companies has grown. According to a recent survey carried out by JETRO [Japan External Trade Organisation], Japanese investors have great confidence about investing in Viet Nam, and expect to expand their businesses in the country. I hope that stronger institutional reforms will be implemented so that the country's best institutions can be used to make the business and investment environment in Viet Nam be better than in 2014. —VNS