Pros and cons for direct investors in Vietnam

There has been a pickup in recent months in the number of companies coming to Vietnam to seek investment opportunities, but whether or not this can be converted into a river of dollars is another matter.


Below are some of the widely cited pros and cons of investing in Vietnam.


THE PROS


-- Cheap labour. Vietnamese workers are among the cheapest in the region. An annual survey by the Japan External Trade Organisation (JETRO) found that salaries in Vietnam for both manufacturing and non-manufaturing industries were the lowest in southeast Asia, and comparable to those of Pakistan, Sri Lanka and Bangladesh. But labour costs have risen and economists say they will continue to do so.


-- Young population. Vietnam's population, the world's 13th largest, is also among the youngest in the region, with a median age of 28.5. The country is poised for a "demographic boost", or a period when more people are of working age than not, which the United Nations says could propel the economy to a new level.


-- Dynamic economy. Vietnam's gross domestic product has grown at an average of nearly 7 percent a year over the past deacade. Last year, the country registered 5.3 percent growth, and the ruling Communist Party forecasts 7.5 percent to 8 percent annual growth in the coming five years. The government faces a challenge in maintaining stability amid breakneck growth, however, and in 2007-8 hot money inflows pushed inflation into double digits.


-- Proximity to China. After the establishment of a free trade zone between China and the 10 members of the Association of South East Asian Nations (ASEAN) this year, manufacturers may try to leverage Vietnam's proximity to the world's most populous country to serve the Chinese market.


THE CONS -- Poor infrastructure. This is one of the most frequently cited hinderances to investment in Vietnam. Roads are inadequate and narrow, the port system is overstretched and the development of the country's power grid cannot keep up with growing demand, leading to chronic blackouts.


-- Red tape. Foreign companies operating in Vietnam regularly complain about licensing hassles and other red tape in registration and tax-related areas.


-- Corruption. Endemic to Vietnam, as in other countries in the region. Some see it as a cost of doing business, but corporations with Western headquarters tend to be bound by home country laws against engaging in corruption abroad.


-- Weak education system. While Vietnam's workforce is often touted as being relatively well educated, many experts say the higher education system is failing to produce enough high-calibre graduates, and companies have reported hiring problems.


-- Underdeveloped legal system. Lawyers and company representatives say Vietnam has a great set of laws on paper, but enforcement is patchy and the court system is said to offer little recourse in the event of a dispute.


-- Policy environment. While the authorities pay lip service to solving the problems that mar the business environment, it seems to be one step forward, one step back. Things like the "price stabilisation" measure adopted by the finance ministry and the new automatic import licensing procedures may discourage investment. In retail a "economic needs test" policy gives local authorities the right to limit the expansion of companies, and experts say also may discourage foreign investment.

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