In a move to jumpstart its lagging investment climate, Vietnam is set to ease business regulations by the most in 25 years as it plans on accelerating the sale of its state-owned firms starting on July 1, Bloomberg reports.
Starting July 1, the Vietnamese government will reduce the number of areas in which firms are prohibited from operating from 51 to 6 and will ease regulations in over 100 other areas in its largest overhaul of business regulations since private firms were first allowed in Vietnam in 1990.
Vietnam, whom faces growing competition for foreign investment from other Asian nations, particularly in Southeast Asia, is looking to ramp up investment in its nation as firms are looking outside of China to maximize profits.
So far, in the first five months of 2015, Vietnam has seen a total of $4.3 billion in foreign direct investment (FDI), which is less than 20 percent of the total it is forecasting to see in 2015.
In order to revive economic growth in the Southeast Asian Nation this year, Vietnamese Prime Minister Nguyen Tan Dung is aiming to sell a record number of shares of its state-owned firms.
“We aim to trigger an investment wave from both local and foreign investors,” Planning and Investment Minister Bui Quang Vinh told Bloomberg during an interview, adding that the new laws on investment and enterprises “will make huge changes to significantly improve our business environment and create strong momentum for growth.”.
These new laws on investment will be “a major milestone to encourage foreign as well as domestic investors,” Alan Pham, chief economist at VinaCapital Group (Vietnam’s biggest fund manager), told Bloomberg in an interview.
“(The new laws) represent a change in the mentality of policy making -– more towards the market and less by bureaucracy,” Pham said.
Through May of this year, pledged FDI in Vietnam has fallen 22 percent from a year earlier, according to data from the planning and investment ministry. In a regional comparison, approved FDI in the Philippines’ has fallen 41.7 percent in the first quarter from a year earlier.
“In Vietnam, we are offering more incentives in areas such as taxes and land to lure foreign investors,” Vinh said. “We aim to be among the top four Asean countries for FDI by 2016.”
Vinh forecasts that pledged FDI will reach as much as $23 billion in 2015, from $21.9 billion in 2014.
According to Vinh, the Vietnamese government will be issuing six decrees in July to provide detailed guidance on these revised laws with a “large number” of permits and licenses that will be abolished “to make it a lot easier and more transparent for investors.”
“This is the biggest change in business regulations since Vietnam allowed private companies in 1990,” said Tran Dinh Thien, director of the Vietnam Institute of Economics in Hanoi. “It’s significant, yet the implementation of the regulations is crucial.”
Foreign investors will now have more opportunities to invest as more state companies will be selling their shares this year, Vinh said. “However, we should sell state stakes in larger proportions, not just five, 10 or 20 percent as we have been doing,” he said.
The Vietnamese government still faces a daunting task of reaching its target of selling 289 state companies this year as only 43 have been sold as of the end of May, according to data from the finance ministry.
“We should sell shares at larger proportions to make it more attractive, since investors would want to hold the stakes big enough to allow them to be involved in the companies’ management,” Vinh said. “Selling shares in such small proportions won’t make any difference to the companies while improving corporate governance is what we really need now.”