In the first half of this year, Vietnam granted investment licenses to 452 new foreign invested projects with a total capitalization of more than US$4.76 billion, not to mention 123 existing projects with additional capital of more than US$1.6 billion, according to the Foreign Investment Agency under the Ministry of Planning and Investment (MoPI). The country attracted more than US$6.38 billion in FDI capital, 72.3 percent of the figure for the same period last year.

Vietnam has set a target to attract US$15-17 billion FDI this year. However, it seems rather difficult to fulfill this target, especially as global FDI is following a downturn trend for both external and internal reasons.

Cumbersome investment procedures

In a report on the business environment in Vietnam, Chairman of the European Chamber of Commerce (Eurocham), Preben Hjortlund, said it takes Eurocham members a long time to apply for investment and business licenses and there are many cumbersome procedures to discuss with local authorities.

Some local authorities even ask businesses to submit numerous documents that were not listed in the legal requirements, Prehend said.

It usually takes businesses at least three months to complete all necessary procedures before getting their operating licenses.

In addition, the time required for license application differs among cities as it takes longer to apply for licenses in Hanoi and Ho Chi Minh City than in other provinces.

For instance, foreign investors that want to set up businesses or joint ventures in Vietnam need to apply for investment registration certificates, including licenses for investment projects and business registrations. Meanwhile domestic businesses only need business registration licenses, except for large-scale projects.

Preben said another example of the difference in how domestic and foreign investors are treated is that foreign business are required to undergo an economic needs test (ENT) but domestic ones are not.

More reforms needed

Mark Gillin, Vice President of the American Chamber of Commerce (Amcham) in Vietnam, said international organizations have made many proposals to improve Vietnam’s investment climate and its competitiveness, but they have received no active response. He warned about the risk of losing the chance to develop into a middle income country if Vietnam fails to push through reforms.

He said the Government is on the right track to give priority to restructuring the financial sector and State-owned enterprises, and increasing investment in the public sector, but how to do it is another key matter.

Preben emphasized the urgent need for Vietnam to fully implement its macroeconomic policies for the benefit of long term sustainable development.

Gillin added that to avoid falling into the "middle income trap”, Vietnam should go ahead more bravely with its reforms as seen in the renewal towards the goal of achieving a higher income status.