Vietnam’s economy is in difficult spot despite recent positive data. Foreign investors are still feeling less confident about investing in this country because of this unstable economy- Hong Sun, Secretary of Korean Chamber of Business.

Vietnam’s economy may be on the rebound, but foreign investors want clearer evidence things are on the up. Inflation has slowed to 14.15 per cent year-on-year at the end of March 2012, while the nation’s trade deficit in the first quarter this year was only $251 million, or 1 per cent of the total export turnover, reported the Ministry of Planning and Investment (MPI).

In addition, the VND is stable and has strengthened in recent months. While the economy expanded only 4 per cent in comparison with 5.57 per cent in the first quarter of this year compared to the same period in 2011, the MPI’s Department National Economic Issues director Bui Ha said the data reflected positive economic movements because the government was prioritising lower inflation and a smaller trade deficit.

But, foreign direct investment inflows into Vietnam remains down both in terms of disbursement and newly committed capital. Disbursed capital reached $2.52 billion during the first three months of this year, while the figure for newly commitment was $2.63 billion, down 0.8 and 36.4 per cent, respectively in comparison with the same period last year, the MPI’s Foreign Investment Agency (FIA) reported.

Jakki Lydall, executive director of British Business Group Vietnam, said Vietnamese government’s actions taken in recent months to improve the national economy had been favourably received by foreign investors. “But, there are still many challenges for the Vietnamese government and the actions taken have only made a partial improvements so far,” said Lydall.

While Vietnam’s inflation rate is slowing, it remains the highest in Asia. The government is implementing an economic restructuring plan, but foreign investors claim they have yet to see any significant changes to the economy.

“Vietnam’s economy is in difficult spot despite recent positive data. Foreign investors are still feeling less confident about investing in this country because of this unstable economy,” said Hong Sun, who is chief executive officer of South Korea’s Hermes-Sun Development and Construction Company and Korean Chamber of Business secretary in Vietnam.

According to FIA, foreign investors only committed to 120 projects and expanding investment at 29 projects in 2012’s first quarter. These numbers were down 50.9 and 72.9 per cent year-on-year respectively.

Sun said the recent increase in Vietnamese workers’ minimum salaries, land rental fees and power outages may have forced many investors to reconsider investment plans in Vietnam.
Lydall said foreign investors wanted to see economic indicators in Vietnam improving further in absolute terms.

“Of course, it is not only about what Vietnam can do better. The amount of investment capital available is limited and Vietnam has to compete for its share alongside others.”

He noted that last year Asian countries including Indonesia were more successful in attracting foreign direct investment and that foreign investors wanted to see a further opening of the economy and state sector restructuring.

“People hoped Vinashin would be a catalyst for faster restructuring of state-owned enterprises, but fundamental change has yet to come,” he said.

Source: VIR