The Potential and challenges of Investment in Viet Nam

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The Potential and challenges of Investment in Viet Nam

Vietnam now has begun to attract the attention of foreign investors. So, the foreign investors should seriously consider Vietnam as a destination for their businesses and investment.

Recently, Vietnam has been considered as a lucrative destination for foreigners to invest and develop their business.

Therefore, it is required that a foreign investor should be aware of challenges and potential of Vietnamese market.

With its outstanding expertise and practical experience in counselling overseas investors on investment and business operation, Apolat Legal Law Firm would like to share some key points of attention about investing environment in Vietnam for foreigners who is considering to run their business here.

Potential of Investing in Vietnam

Firstly, Viet Nam has a stable and dynamic economy

Since 1986 and the Doi Moi (Renovation) policy, Vietnamese economy has basically changed from a centralised/planned system into a market-based system which has opened up the economy to the greater effects of international integration and globalization. Since then, Vietnamese economy has been continued to grow exponentially. One of the key economic changes is the equalization between State and private rights in ownership, which is heralded as an essential step in encouraging and developing the investment activities of domestic investors in general and that of the foreign ones in Vietnam in particular

Secondly, the labour force is young and competitive

As mentioned, Vietnam has a young but work-ready population with about 80% of them aged from over 15, who will make up the primary labour force of Vietnam in the near future.  Moreover, Vietnamese labour is remarkably regarded as young, hard-working, highly literate and easy to be trained. This is one of the competitive advantages of Vietnam in comparison with other regional labour markets for foreign investment in Vietnam.

Most of Vietnamese labour have good working skills and are highly adaptable to new working environments. However, to satisfy the requirements of foreign investors in particular business lines and professions, further training is still recommended.

Thirly, the investment policy in Vietnam is open and transparent (in specially is FDI policy in Vietnam)

In Vietnam, the economic policies in general and the policies of investment and doing business in particular  have been dramatically improved in recent years. The transition from centralised planning to use market-based principles is a crucial step in developing the economic policy of Vietnam. This has laid down a foundation for the stable development of the economy.

Most importantly, the Vietnamese Government has attempted to make the economic system more transparent throughout various measures. The uncertain and risky labels of the investment environment in Vietnam, which previously turned away foreign investors, have been removed. Greater transparency has been strengthened not only in macro-economic policies but significantly has been improved in projects and plans.

Fourly, the legal system is stable and improving.

In recent years, following the periods of transition, integration and globalization, Vietnam is on its way to build and to improve the legal system in general and the laws relating to the investment in Vietnam and business in particular. 

Generally speaking, the current legal system of Vietnam has become more comprehensive and appropriate with social demand. The adoption of a series of laws such as the Law on Commerce, Law on Enterprises, Law on Investment, Law on Competition, Law on Intellectual Property, etc. has closed several loopholes and inconsistencies in legal system, which gives confidence to domestic and foreign investors.

In short, these legislative achievements have created many opportunities for foreign investors to conduct business in Vietnam. Together with an open and transparent economic policy system as well as an improving legal system, Vietnam is providing the world several compelling reasons to be the first choice for international investors.

Challenges of investment in Viet Nam

The inflation rate of domestic economy

Inflation is one of the major concerns of international investors when they decide to invest into a certain market. As the world economy has changed in recent years, inflation has become one of the top risks taken in to consideration of an economy, especially for developing countries like Vietnam. Nonetheless, notwithstanding the efforts of the Vietnamese Government, inflation is considered to be under the control.

Whilst inflation in Vietnam in the years 2011- 2012 was relatively high (around 12% to 18.58%), it rapidly dropped to 6% in 2013 and then continued decreasing by around 1% in 2014, which is considered as a good signal for the economy of Vietnam. However, international investors are advised to be cautious and well-prepared in order to face any  volatility in the economy’s inflation rate. The increase of the price of goods, minimum wage, and other market considerations may create challenges for investors.

It should be noted that the Vietnamese Government is aware of the current inflation situation as it promulgated policies to reduce the inflation rate. Such State policies may also unexpectedly affect an investor’s business or operations. Thus, in order for investors to ensure their own economic interests, they should take the initiative in searching and reviewing all policies to control inflation.

Apolat Legal Law Firm hope that our opinions above will be useful for foreign investors to acknowledge about the Vietnamese market and investment policies for foreign investors before having plans to invest into Vietnam.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.