Vietnam losing allure for investors

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FT Syndication Service

BANGKOK: Vietnam's foreign business community is warning that rapid inflation, growing labour unrest and a real estate bubble could erode the communist-ruled country's appeal as an investment destination.

At the recent annual meeting of the country's authorities and members of the foreign business community, Michael Pease, chairman of the American Chamber of Commerce in Vietnam, appealed to Hanoi to act quickly to restore macro-economic stability.

The appeal come just days after news that inflation surged to 25.2 per cent in May, its highest level since 1992, spurred on by steep rises in the cost of food, construction and housing.

"Vietnam's success in attracting foreign investment has largely been built on the expectation of economic and political stability," Mr Pease, who is general director of Ford Vietnam, said in his speech.

Hanoi now needs to take "urgent and decisive action" to curb a speculative real estate bubble that "not only threatens the financial sector, but is also undermining Vietnam's long-term competitiveness as it is challenged for foreign investment by neighbouring countries".

Rising labour costs are also "a significant concern to US business operating in Vietnam" and labour unrest is directly related to the macro-economic problems.

Since its entry into the World Trade Organisation (WTO) in January 2007, Vietnam has been a magnet for foreign investors, drawn by its rapid growth - which averaged 7.5 per cent a year over the past decade - and its youthful, motivated population.

Between January and May, authorities say they received foreign investment pledges of $15.3bn (