These issues were highlighted by EuroCham Chairman Alain Cany and EuroCham Executive Director Matthias Dühn when they were interviewed by the Daily. They were of the opinion that resolving those concerns was crucial for Vietnam to achieve more sustainable long-term economic growth and not be caught in the “middle-income trap”.
Shift to high value-added production
“What we recommend for Vietnam is to shift from basic low value-added exports to more sophisticated and high value-added production and exports,” Cany said, though he agreed that the country had been successful in development, largely through low value-added exports for rice, coffee and other commodities. Cany assumed the local content of made-in-Vietnam goods was just about 30%, as companies had to count on many imported materials and commodities to turn out their products. Heavy reliance on imports to produce exports is somehow more harm than good to their cash flow.
“They have to pay foreign currency first to import up to 70% of the input materials and then sell (finished products) within three to four months, and wait to receive payment in the U.S. dollar in another two months. So on average, you have a shortage of cash flow of 70% of your export turnover for more than six months, and this costs a lot,” Cany pointed out.
To increase the local content, Vietnam needs to improve the business environment to attract more investments in the supporting industry and production of high value-added items. Actually, more foreign manufacturers are coming to Vietnam to use the good quality but low-cost manpower.
In its White Book 2011, EuroCham views relatively low-cost work force, natural resources, favorable geographical location, political stability and a market of huge domestic potential as the key economic advantages that Vietnam has leveraged to move from a “low income” to “middle income” country in 2010. Over the past years, Vietnam has received large amounts of official development assistance (ODA) from bilateral and multilateral sources.
But EuroCham says Vietnam cannot rely on its current competitive advantages of low-cost labor, natural resources and ODA to last indefinitely because of rising wages, limited natural resources, and the ODA will eventually be reduced or discontinued.
Reality shows the low-cost labor is turning out to be a less prioritized factor that foreign companies consider before their decisions to enter Vietnam. In fact, more investors, especially those of large-scale and high-tech projects, are looking for Vietnamese qualified employees who can be the key to their success in this growing market.
“It is becoming more and more difficult for foreign enterprises to come to Vietnam to hire qualified people,” Cany said “This has been a problem for the last few years, but the more companies are coming, the more difficulties they face. It seems that a lack of capable employees becomes a chronic issue and this made some companies hesitate to make sizable investments in Vietnam.”
EuroCham reported that more than 65% of Vietnam’s workforce was still unskilled and more than 75% of the 20 -24 year olds were either unskilled or skill-strapped. In the ASEAN region, Vietnam ranks in the lower half of the human resource development, and so improving its workforce is one of Vietnam’s key tasks to meet the needs of rapidly changing labor markets at home and abroad.
Labor skills and productivity of Vietnamese employees are what that matters most, and EuroCham calls for agencies to pay more attention to this. Cany admitted general education in Vietnam was good, but stressed improvement in vocational training and higher education to provide the employees able to meet the employers’ requirements.
“We have discussed the HR topic sometimes and some improvements have been made by the Ministry of Education and Training, but this has to be accelerated,” Cany said. He added that if Vietnam wanted to attract the investors who brought added values and know-how from Europe and elsewhere in the world, the country had to make sure they would find qualified employees.
Changes for sustainable growth
While vocational training should match the needs of companies, EuroCham also recommends Vietnam in its Whitebook 2011 to encourage a “culture of innovation and creativity” as an impetus to the sustainable long-term development of Vietnam. “Without this, Vietnam risks falling into the “middle-income trap,” the inability to arise out of an economy based on cheap labor and low-technology manufacturing methods to value-added knowledge-intensive and innovation-based manufacturing for both domestic consumption and export,” EuroCham Executive Director Matthias Dühn said.
EuroCham recommends the Government continue on all levels its efforts to raise awareness about the value of IPR protection, which is regarded as an incentive for many foreign companies to research and develop their products further for the benefit of consumers in the long run. Stricter enforcement of IPR also backs Vietnam’s shift towards creation and production of more quality products, and at the same time are of paramount importance for foreign investors in Vietnam.
Dühn said Vietnam had a good Intellectual Property Law and it should be enforced more rigidly by imposing maximum penalties on violations. “Often, the penalties on provincial levels are relatively low and so do not discourage people from stopping copycats because the money they make is much more than the money they pay for the penalties. This, in fact, often acts as an incentive to counterfeit products.”
Together with the progress in IPR, EuroCham proposes the Government continue its streamlining of administrative procedures to create a real investor-friendly environment. As a member of the Advisory Council for Administrative Procedures Reform (ACAPR), the organization has recognized some major achievements of Project 30 for procedure simplification, but emphasized that big challenges still lie ahead.
Cany and Dühn agreed that additional administrative procedures have arisen in 2010, counter-acting the good progress of Project 30. For instance, the effect of Circular 24/2010/TT-BCT on July 12, 2010 required importers of a large number of commodity imports to submit the automatic import license on customs clearance.
Dühn said as both the application and issuance of the automatic import license were required to be done by regular post/mail, an application was now likely to take an estimated 10 working days, a triple of the time required for the prior existing declaration requirement.
The Whitebook 2011 also raises concerns that the Government has passed Circular 122/2010/TT-BTC on price stabilization that went into effect on October 1. Dühn said this circular “is against the spirit and objectives of Project 30, and will add substantial administrative burdens and uncertainty to the private sector doing business in Vietnam, and also potentially prevent Vietnam from early graduation to market economy status under EU rules.”
These points are summed up in the Whitebook 2011 with the comment “that simplifying rather than increasing administrative burdens would attract more foreign investment."
EuroCham also said that to make Vietnam a better haven for foreign investors, the Government would have to upgrade the labor skills and productivity, and improve infrastructure and energy supply, with a view to better encouraging viable long-term public-private partnership (PPP) projects.
Equal importance is to continue improving the regulatory framework for investment, efficiently enforcing IPR regulations, and streamlining administrative reforms. EuroCham said structural changes for long-term economic growth should remain high on Vietnam’s agenda, particularly with regards to further equitizing state-owned enterprises.
Cany and Dühn agreed that Vietnam was more definitely on the radar screen of European companies, and 2011 should be a promising year for the country, at least in terms of growth. But, they maintained that Vietnam’s ability to sustain high long-term economic growth would depend on the Government’s quick reactions and solutions to the key issues.
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