Vietnam, a south-east Asian country with around 91 million people living in an area of 332,698 square kilometres celebrated last week 40 years of the fall of Saigon (presently Ho Chi Minh city) that ended the Vietnam war. The Vietnam War was a Cold War-era proxy war from November 1955 to the fall of Saigon in April 1975. This war was fought between North Vietnam and South Vietnam. North was supported by the erstwhile Soviet Union, China and other communist allies whereas South Vietnam was supported by the United States and other anti-communist allies. During the Vietnam war, the US conducted a large-scale bombing campaign against North Vietnam. Estimates of the number of Vietnamese service members and civilians killed vary from 800,000 to 3 million. On the US side, 58,220 service members were reportedly killed.
After a 20-year hiatus of severed relationship, the then US President Bill Clinton announced normalisation of diplomatic relations between the United States of America and the Socialist Republic of Vietnam on July 11, 1995. Within 20 years of normalisation, Vietnam has become "the darling" of the USA. The political and economic relationship between US and Vietnam has brought long lasting win-win benefits for both the countries. Despite the pain and loss during the war, Vietnam today is one of the most pro-American countries in Southeast Asia, with 76 per cent of Vietnamese people viewing the US favourably.
Since the resumption of trade relations, Vietnam has rapidly risen to become a significant trading partner of the US. Bilateral trade has grown from about $220 million in 1994 to $29.6 billion in 2013, transforming Vietnam into the 27th largest trading partner for the United States. Vietnam is the second largest source of US clothing imports after China, and a major source for footwear, furniture and electrical machinery. Bilateral trade will increase further after enactment of Trans-Pacific Partnership (TPP), a trade agreement currently being negotiated in the pacific region, including the US and Vietnam. Vietnam's incentive to join the TPP is largely contingent on greater market access in the US, particularly for agricultural goods, aquatic goods, apparel and footwear.
According to American Chamber of Commerce in Vietnam, US invested projects cover 33 out of 64 provinces and cities across Vietnam. Foreign Investment Agency (FIA) under the Ministry of Planning and Investment of Vietnam revealed that such investment had involved 74 projects with $2.4 billion of registered capital. In general, US investment in Vietnam has been poured in 400 projects totalling $ 4.7 billion, making the US the sixth largest investor in Vietnam.
The US-Vietnam relationship has been helping inward foreign direct investment in Vietnam greatly. The total FDI registered in Vietnam topped US$20.23 billion in 2014. The FIA noted that this figure has exceeded Vietnam's annual target of US$17 billion by 19 per cent. Up to 1,558, new foreign-invested projects, worth a combined total of US$15.64 billion received investment licences during the reviewed period, representing a year-on-year increase of 9.6 per cent. In addition, some 594 operating projects received approval to increase their capital by US$ 4.58 billion, or equivalent of 62.4 per cent of the figures seen in the same period last year.
Among the 60 countries which invested in Vietnam in 2014, the Republic of Korea took the lead with US$7.32 billion, making up 36.2 per cent of total FDI registered in the country. It was followed by Hong Kong (US$3 billion, or 14.8 per cent), Singapore (US$2.79 billion, or 13.8 per cent) and Japan (US$2.05 billion, or 10.1 per cent).
WHY IS FOREIGN INVESTMENT IN VIETNAM BOOMING: According to the Vietnamese Prime Minister's speech delivered at the World Economic Forum on May 23, 2014, "Attracting FDI has always been a key part of Vietnam's external economic affairs. Vietnam already has many comparative advantages and a strong investment climate, but still we are working hard to become even more appealing to foreign investors. As of last month, there were more than 16,300 active FDI projects in Vietnam that have collectively pulled in a total of $238 billion. In 2013, FDI inflow exceeded $22 billion, an increase of more than 35 per cent from 2012. The figures indicate that Vietnam has become a destination of choice for foreign investors."
WHAT EXPLAINS THIS VIETNAMESE SUCCESS STORY: First, Vietnam has been securing socio-political stability. Economic growth between 1991 and 2010 averaged 7.5 per cent each year and, despite the many difficulties the country faced between 2011 and 2013, GDP growth still rose by 5.6 per cent. Several international forecasts suggest that this trend will continue in the coming years.
Second, Vietnam is now in a period of golden demographic structure - 60 per cent of its population are of working age. It also has a favourable geographical location right at the heart of South East Asia - home to a number of large and vibrant economies. Vietnam is part of the Trans-Pacific Partnership (TPP) negotiations. All these factors go some way to explaining why so many foreign choose to invest in Vietnam.
Third, the Vietnamese government is committed to creating a fair and attractive business environment for foreign investors, and constantly improving its legal framework and institutions related to business and investment.
The Vietnamese government is committed to work on three "strategic breakthroughs": putting in place market economy institutions and a legal framework; building an advanced and integrated infrastructure, particularly transport; and developing a quality workforce.
FDI SCENARIO IN BANGLADESH AND LESSONS FROM VIETNAM: According to the annual World Investment Report by the UN Conference on Trade and Development (UNCTAD), FDI in Bangladesh reached $ 1.59 billion in 2013, up from $ 1.29 billion in 2012. There has been $ 540 million in completely new investment, up 9 per cent from 2012. Most of the investments, however, have come from reinvested earnings. In 2013, reinvested earnings stood at $ 697 million, up 19 per cent from 2012. The companies working in Bangladesh brought $ 361 million in loans from their parent companies. In 2013, most of the FDI came to the textile and RMG sector amounting to around $422 million.
According to Foreign Investors' Chamber of Commerce and Industry (FICCI), inflows of FDI into Bangladesh rose 24 per cent to US$ 1.6 billion in 2014. Bangladesh Industries Minister Amir Hossain Amu has expressed his optimism that FDI in 2015 would cross US$ 2 billion.
The obvious question thus: Why Bangladesh lags behind so much to attract FDI in the country compared to Vietnam despite its advantage of abundance of cheap workforce? Certainly, political instability or violence drives away potential investors which unfortunately is a case for Bangladesh. Nevertheless, experts believe that policy inconsistency, bureaucratic bottlenecks, unabated corruption, non-cooperation towards investors should be treated as big reasons for failure in attracting FDI in the country. Export Processing Zones of Bangladesh have attracted the major chunk of FDI since its inception. When foreign investors show interest to come to Bangladesh, especially in manufacturing sector, their first preference for setting up the industries is inevitably in the EPZs. Bangladesh Export Processing Zones Authority (BEPZA) which is under the Prime Minister's Office, admit officially that existing EPZs do not have any plot as per investors requirements. Instead of establishing new EPZs under BEPZA, government has initiated to set up Special Economic Zone under a new agency named, Bangladesh Economic Zone Authority (BEZA). We believe government should continue to expand existing EPZs along with setting up new zones in the vicinity of foreign investors' preferred region of Chittagong and Dhaka, and should simultaneously go ahead with new plans for establishing SEZs. Vietnam has been continuing both types of zones.
We do not understand why country's first private EPZ, Korean Export Processing Zone (KEPZ) has been facing problem despite the very fact that the present Prime Minister did the ground breaking launching ceremony on October 30, 1999 during her first tenure! The Board of Governors granted permission for KEPZ on November 24, 1996 and administrative approval for acquisition of land on November 21, 1996. Possession of 2492.35 acres of acquired land was handed over to KPEZ on August 3, 1999. Why then the deed of land transfer not completed even after 16 years? The sponsor company, Youngone, has a track record of investment into the country. From a humble start in 1980 at Agrabad, Chittagong with only 250 employees, Youngone is now the largest employer in the EPZs of Bangladesh, having around 60,000 workforce. To attract FDI, the thumb-rule to "use existing investors as the brand ambassadors" should be followed by our authorities.
At the end, this scribe would like to share an observation of his teacher, renowned economist, the late Prof Muzaffar Ahmed. During a class lecture at the Institure of Business Administration in 1995, Prof Ahmed told that if the government failed to execute necessary policy measures, the country might fall even behind Vietnam which just started liberalising its economic regime. Alas! After 20 years, we find Vietnam has moved much ahead of us in attracting FDI.
The writer is CEO & Chief Consultant, Best Sourcing
Business Advisory Services. mehdi.mahbub@bestsourcing.biz
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